Dollar stores pose increasing threat: report

Dollar stores are well-positioned to increase their share of total U.S. grocery sales, especially in an inflationary environment, according to a report this week from Coresight Research.

The report, Dollar Stores: Flexing Muscle in US Grocery,” found that since the beginning of October more than one in five consumers consistently report visiting dollar stores to buy groceries, according to Coresight’s weekly US Consumer Tracker. Both Dollar General and Dollar Tree/Family Dollar also rank in the top five retailers where consumers buy grocery products, often beating out Kroger-owned banners on a weekly basis.

Although dollar stores only captured an estimated 3.3% of total grocery sales in 2022, they have been focusing heavily on their grocery offering because of its potential to drive traffic and visit frequency, even though as a category it yields lower margins than discretionary product categories. These efforts have been helping drive double-digit gains in customer visits during the past three years, according to Coresight.

A key advantage for dollar stores, in addition to their low price positioning, is their extensive store presence, especially in rural areas, and their ongoing aggressive expansion pace, driven be expertise in site selection, according to Coresight. Dollar General has added an average of 1,018 net new stores each year from November 2019 to November 2022, the report found, while Dollar Tree has added 211 net new locations and Family Dollar 104 net new stores.

“We believe supermarket chains with significant store overlap with dollar stores could be at risk of serious margin pressure in the coming years,” the report concluded.

In addition to expanding their retail footprints, dollar stores also have been expanding their perishable assortments and cooler doors. One of the keys for the success of dollar stores will be providing enough assortment of staple groceries to make it appealing as a grocery destination, the report said. 

“Grocery retailers will have to pay close attention to whether the dollar chains’ push into grocery constitutes a material threat,” the report concluded. “If the two retailers continue to improve the quality of their fresh food while maintaining the low prices associated with their brands, there is a high chance it will bolster their value proposition with their existing consumer base and also pull in new customers from higher-priced retailers.”

The dollar chains also pose a potential threat to discount grocery retailers including Aldi, Lidl and Save A Lot, the report concluded.