Seeing success, Dollar Tree doubles down on food

Shoppers used to head to Dollar Tree for ultra-cheap party supplies and holiday décor.

Now, however, with food costs continuing to climb, consumers are stopping at Chesapeake, Virginia-based Dollar Tree and its banner, Family Dollar, for less-festive reasons: They’re looking for bargain-priced food and beverages.

For the second straight quarter, consumables’ same-store sales outpaced discretionary sales at Dollar Tree, the retailer reported last week, with a 9.3% comparable in food and beverage, snacks and cookies, and candy. Dollar Tree’s overall same-store sales increased 8.6%.

At Family Dollar, same-store sales of food and beverages grew 4.7%, outpacing the chain’s overall same-store sales growth of 4.1%.

The retailer said it again expects consumables to fare better than discretionary items during the fourth quarter, which puts pressure on its margins. But Dollar Tree said it is making a number of investments in its food merchandising to capture the growing consumer interest.

“We’re seeing first-of-the-month business is getting stronger,” Dollar Tree CEO and President Michael Witynski told analysts last week. “We’re seeing our SNAP and food stamp business is growing, and we continue to see credit as outpacing debit. We do see that shift in the customer coming into our segment, and then when they’re in our store, they are shifting into the consumables and needs-based to make their budget happen.”

Like many retailers during this time, Family Dollar said it is seeing intense interest in its private-label items. For 39 weeks in a row, sales of private brands have outpaced those of national labels, Witynski said. It’s the first time that has happened in five to seven years.

The company is working on “growing and improving” private-brand performance by broadening the product selection, he said. Dollar Tree said it will focus on over-the-counter drug and health items, followed by paper products and food as it looks to expand its owned brands.

Increasing frozen and refrigerated offerings is another major area of Dollar Tree’s focus, the company said.

“Every time we remodel a store, we want to bring in more coolers, both cool beverage and frozen beverage, because that’s where the customer is moving to,” Witynski said. “It’s a convenience item, and it’s meeting their needs. So, there is room for continued expansion there.”

The retailer recently added multiple price points, $3 and $5, to its frozen-foods category, with much success.

“Our frozen business for the last 18 months was in a decline because of the same pressures we were seeing on the consumables,” he said. “And now we’ve completely reversed that … On the frozen food part, at the $1.25 with the cost pressures, it’s even hard for us to get a great value assortment at $1.25.”

The price points are listed on the freezer doors, Dollar Tree said.

Expect to see those freezers stocked with more items in the near future, company executives said.

“We are aggressively expanding our offerings of protein, pizza, breakfast items and family sizes at price points their meet their budgets,” Witynski said.