Supermarkets are putting their two cents into the surging dollar-store concept by creating their own dollar price point programs.
Dollar stores are the fastest growing channel with the greatest increase in stores, according to ACNielsen, Schaumburg, Ill., and other channels like supermarkets are beginning to seize the opportunities within the concept. Among the supermarket operators known to be at least experimenting with dollar or value programs are: Associated Grocers of Seattle, Stop & Shop Supermarket Co., Fleming , Bashas Markets and Brown & Cole. Pratt Foods, Shawnee, Okla., recently took the initiative to capture price-conscious consumer loyalty by incorporating a large dollar price point section in one of its stores, said J. B. Pratt Jr., chief executive officer.
"If you look at the impact that Family Dollar and Dollar General has had in the food industry, it's significant," said Pratt. "In the part of the country we're in, a lot of people just have a dollar."
Pratt Foods brought in a wide mix of general merchandise like aluminum pans, toys, vitamin E cream, latex gloves, household utensils and dish detergent in a 60-foot aisle display. Other Pratt Foods stores have committed to end-cap displays with similar products priced at $1, Pratt said.
"We've had some success with that dollar aisle," he said. "It's all selling."
Annual sales for the dollar store channel are projected to grow by 10% to 11% a year through 2003, according to ACNielsen. Other trade sectors, like mass merchants, are looking at this as a growth opportunity.
For example, Wal-Mart Stores, Bentonville, Ark., is testing in-store "dollar store" areas in several stores, including ones in Laredo, Texas, and Baltimore, according to Tom Williams, spokesman.
Wal-Mart, of course, has always carried many items for less than $1, but this program tests a more aggressive marketing strategy by housing all the $1 products in a separate section of the store, he said.
"We're marketing them in a more visible way to catch the customers' attention," Williams told SN, complete with a more prominent display area and additional signage. Wal-Mart is testing the separate dollar sections in about six different stores.
"It's a way to emphasize how much of our merchandise costs $1 or less. We always liked the concept of store-within-a-store," Williams added.
Analysts recently batted away fears that Wal-Mart is planning an entry into the dollar-store business, according to published reports.
The retail behemoth once made a run at the value and close-out channel in the 1990s under the Bud's Warehouse Outlet banner, named after the brother of Wal-Mart's founder, James L. "Bud" Walton. The stores touted "rock-bottom" prices on various brand-name closeouts, overruns and discontinued products, but the concept died out in the late '90s.
This integration of in-store dollar sections is yet another example of retail channel-blurring, said analysts.
"The discount retail market overall is pretty attractive given the search for value in consumer retail, and other channels are accommodating," said Steve Chick, analyst, JP Morgan Chase, New York. "It's a high-growth niche."
The successful dollar concept is fueling the trend of store-within-a-store dollar formats, said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas, a former executive at Fleming, Lewisville, Texas, and at Bashas', Chandler, Ariz., where he spearheaded dollar programs.
"The opportunity is huge," he said. "Your customers are already going to dollar stores, and if you can sell products within your own unit, you can keep customers from going to dollar stores."
Dollar programs go beyond general merchandise, Manning added.
"It's a lot more than GM and HBC. Grocery is a huge part," he said, which includes popular $1 items like cleaning solutions and paper products. "To do the [program] well, you have to have well-rounded categories."
While basket rings in traditional dollar stores average slightly less than $11, according to ACNielsen, dollar sections are ripe incremental sales opportunities for supermarkets, said industry sources.
"It doesn't cannibalize sales," Manning said. "It just adds to the basket."
Moreover, consumers aren't buying just one $1 item, said Denny Fossey, manager, outside sales, Promotions Unlimited, Racine, Wis., a wholesale promotions company. Customers buy 10 or 15 items in one trip, he said, which tacks on additional gross profit for the retailer. Promotions Unlimited creates dollar programs for Associated Grocers of Florida, Miami; K-VA-T Food Stores, Abingdon, Va.; and Fresh Brands, Sheboygan, Wis., operator of Piggly Wiggly.
At 40% gross profit, retailers' requests for dollar programs are increasing, he said.
"Retailers tell us, 'We need dollar programs because dollar stores are coming after us,"' Fossey said.
The company puts together comprehensive in-store dollar concepts covering 32 categories, including kitchen gadgets and seasonal items like Christmas gift-wrap and decorations. Each program is personalized to fit the stores' needs, ranging from 16-foot displays to 80-foot displays, said Fossey. In addition, Promotions Unlimited builds circular inserts for retailers to create greater consumer awareness about the dollar programs.
As long as the supermarkets are participating insome sort of in-store dollar concept, they are chipping away at the competition no matter how modest or expansive the program, sources said.