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LEARNING THE VALUE OF A DOLLAR

Take a look inside any Dollar General store, and you'll see shelves packed with Center Store products: condiments, canned goods, salty snacks, confections -- even private-label soda.Now, the Goodlettsville, Tenn., retailer is focusing on consumables even more with the expansion of an in-store cooler test program. The coolers are currently in 1,300 of Dollar General's more than 6,000 stores, and are

Take a look inside any Dollar General store, and you'll see shelves packed with Center Store products: condiments, canned goods, salty snacks, confections -- even private-label soda.

Now, the Goodlettsville, Tenn., retailer is focusing on consumables even more with the expansion of an in-store cooler test program. The coolers are currently in 1,300 of Dollar General's more than 6,000 stores, and are slated for an additional 1,000 by year-end. Featuring between five and eight doors, the coolers offer plenty of perishables, like milk, eggs, juice and cheese. But, they also stock a wide variety of frozen foods, including meats, dinners and ice cream. They are being tested in both the front and back of the store.

Preliminary results show the coolers are having a positive impact on sales. The average transaction containing an item from the cooler is about $13, compared to $8.50 for a non-cooler purchase, according to Emma Jo Kauffman, senior director, investor relations, Dollar General. Cooler items account for 2% to 3% of sales in stores that have them.

Kauffman said they help position Dollar General as a true convenience destination.

"We believe the convenience of our stores is what makes them attractive to consumers," said Kauffman.

Dollar General is one of the Top 3 dollar chains, which also include Family Dollar and Dollar Tree. Of all three chains, Dollar General has the most stores, and its shoppers also buy an average of one more item a trip, according to Information Resources Inc., Chicago.

The retailer's cooler program is one of the reasons the $12.5 billion value channel has seen double-digit sales growth for the past five years, with projections to grow similarly for the next several years, according to IRI.

Consumers now shop dollar stores routinely, not just occasionally. On average, they spend $13 a trip. More than half of all American households are dollar store shoppers, and about one in five spends roughly the same amount on consumables in dollar stores as they do in club or drug stores, according to an IRI study.

Dollar stores added 3 million new households as shoppers in the past year. More than half of the heaviest shoppers in the food, drug, mass and supercenter channels also shopped the dollar store.

Part of the reason is that dollar store operators are aggressively working to broaden offerings, adding more everyday items and better brands. And Dollar General's cooler strategy shows the channel is striving for more convenience, said Kali Klena, vice president, retail analytics, IRI.

"It's a clear statement that they want to be a true neighborhood store in terms of offering convenience and value," Klena told SN.

And then there's the low pricing, which caters to the growing number of budget-conscious consumers in these times of economic uncertainty.

While the channel has benefited from the slow economy, its success isn't just a function of tough economic times, said Klena, noting that the channel's growth picked up quickly even before the downturn.

"We're definitely watching this channel closely," she said. "Everyone's interested in knowing where dollar stores are going."

The success of dollar stores has many implications for supermarkets, particularly in the Center Store. Nearly all of the leading categories in dollar stores are Center Store related. The Top 10 categories are chocolate candy, non-chocolate candy, household cleaners, laundry detergent, salty snacks, batteries, food and trash bags, cookies, toilet tissue and soap, according to IRI.

"Dollar stores want to have the right product, right price and right brands," Klena noted.

Several of the top-growing categories are also Center Store products.

Dollar store shoppers spend about $4.54 on canned meat, up 55% from a year ago; $2.84 on salad dressings, up 54%; and $7.24 on frozen meat, up 48%, according to IRI. "Dollar store shoppers aren't just picking up cute ceramics or a pair of socks. They're buying categories that are important to a lot of other channels," Klena said.

On the non-edible side of the grocery business, paper products, laundry, pet and household care represent core purchases in dollar stores. At the same time, diaper and baby needs purchases are on the rise. This could hit supermarket competitors hard, as young families with children are a key demographic for supermarkets.

Dollar stores are also building their private-label business. National brands account for the bulk of the fast-selling items, but private label is showing strength as well, said Klena. "Having brands that core shoppers trust is important to the channel. But having private label at good prices is another communications vehicle," Klena said.

Private label plays a small but growing role in Dollar General's merchandise selection. About 5% of its assortment is private label, marketed under the Clover Valley label. Selections range from crackers to canned goods to soda.

Clover Valley items are integrated with national brands. Much of the pri

vate-label food assortment is priced at 2, 3 and even 4 for $1. As an example, two-liter carbonated soft drinks sell at 2 for $1; canned vegetables, 3 for $1.

Dollar General just expanded the line with the addition of Clover Valley chocolate confections. The chocolates come in several flavors, and compare to name-brand candy bars such as Hershey. Each is priced at 4 for $1.

"Our private label is cost efficient for customers who are on a budget or fixed income," said Kauffman.

Dollar General offers 17 price points, ranging from $1 to $35. About 4,200 items sell for $1 or less. All prices are even, so if an item sells for $1.19 at a supermarket, it will be offered for $1 at Dollar General, Kauffman said.

"Our food prices are very competitive with grocery stores and Wal-Mart," she said.

Dollar General's merchandising focus is consumable basics, or items that people need to replace on a regular basis, like food and home-cleaning items. Of 4,000 core stockkeeping units, about 3,000 are consumable basics.

Along with consumable basics, other Center Store items, including specialty foods, are getting the attention of dollar stores. Last year, for instance, 99 Cents Only Stores, City of Commerce, Calif., began separating gourmet foods from other foods in a new section called Gourmet Fancy Food.

The section got its start in one store in Sacramento, and is currently in one-third of the retailer's nearly 150 stores.

"We're in the process of rolling it out chainwide," Eric Schiffer, president of 99 Cents Only Stores, told SN.

The retailer's merchandise encompasses a wide array of name-brand closeout and private-label consumable products, including food and beverages, health and beauty aids and household supplies. Specialty and gourmet grocery items have always been available, but did not have a separate section. The section now has its own signage and distinctive wood shelving. Gourmet selections have included such items as olive oil, artichoke hearts and imported chocolate.

Such strategies show how dollar chains can start to encroach on supermarket territory. For this reason, store-within-a-store dollar formats at supermarkets are on the rise.

A&P is testing a "dollar-store" concept within one of its newest Food Basics stores in New Jersey, a converted A&P location in a largely Hispanic area near New York City. The "Everything for 98 Cents" section occupies about 400 square feet in the middle of the store.

As reported, other chains are also involved, including Wal-Mart Stores, Pratt Foods, Associated Grocers of Seattle, Stop & Shop Supermarket Co., Fleming, Bashas' Markets and Brown & Cole.

Supervalu entered the game earlier this year when it agreed to acquire Deals -- Nothing Over a Dollar, a St. Louis-based retailer with 45 units. Deals offers dollar-priced consumables, health, beauty, lawn and other items.

Dave Maciuk, national sales manager, Promotions Unlimited, a Racine, Wis., distributor of promotional programs, said more and more supermarkets are eyeing dollar departments.

"The margins of supermarkets are so low that they've got to find a way to increase profit," he said. "This is a way to do it."

Dollar sections are especially important for seasonal promotions, he added.

"Customers are getting their hams and turkeys at supermarkets, then walking across the street to Walgreens for the rest of their seasonal items," he said. "To keep customers in their stores, grocers are looking to dollar promotions."

The supermarket channel can't ignore the fact that dollar promotions are being tested and implemented across many different industries, he added.

"Even McDonald's has a buck menu. When you see McDonald's doing it, you know it's out there," he said.