Crisis Driving Shoppers Back to Dollar Channel

Rival discounters Dollar General and Dollar Tree said this week that the COVID crisis is reintroducing their brands to shoppers pleasantly surprised by what they found.

The companies separately reported financial results for their respective fiscal first quarters, bringing into focus the advantages of value in revamped small formats for consumers facing compromised choices and increasing economic stress.

Dollar General, the Goodlettsville, Tenn.-based operator of 16,000 U.S. small discount stores with a strong focus on food, saw comps soar by 21.7% in the period ending May 1—with the trend strengthening in the weeks since—along with higher profits. Dollar Tree, the Chesapeake, Va.-based rival, saw more modest results at its Dollar Tree stores, where comps declined on the evaporation of party good, discretionary and seasonal purchases that came along with stay-at-home orders, although its Family Dollar brand—like Dollar General, a more consumables-based banner—saw comps up by an impressive 15.5%. Dollar Tree’s fiscal quarter ended May 2.

Officials from both companies, discussing results in separate conference calls, each pointed to equity as trusted providers of value-oriented goods—particularly in times of economic distress and uncertainty—as strengths in the current environment, with core shoppers relying on them more heavily, as well as an influx of new shoppers.

“We do very good in good times, and we do fabulous in bad times,” Dollar General CEO Todd Vasos remarked, according to a Sentieo transcript.

Vasos said he was “very bullish” on the company’s ability to retain new shoppers. “When the going gets tough, we know that our customers need us more, and we’re there for them. But we also know from past recessionary times … that we have a customer that also starts to trade into Dollar General. We saw that in a very big way in Q1.”

These customers are discovering the benefits of ongoing initiatives at Dollar General, such as the recent introduction of buy online, pick up in-store (BOPUS) and the DG Fresh program giving Dollar General the ability to self-distribute refrigerated and frozen foods to stores. The latter program has allowed the company to distribute to 9,000 of its stores through six facilities. Though primarily providing cost benefits to the retailer, it is also supporting expansion of fresh assortment.

The company has plans to expand DG Fresh distribution to as many as 1,200 stores from nine facilities this year.

The BOPUS initiative only recently kicked off at Dollar General. Vasos said, however, it was an area likely to grow faster than the company initially envisioned. “I would tell you that buy online, pick up in the store has accelerated and our spending against it as well as the rollout into our stores will be vastly different than what we had thought,” he said. “And our hope would be we would roll out the majority of the chain by the end of this year as we roll forward.”

Dollar General’s overall sales in the period increased by 27.6% to $8.4 billion. Operating profits climbed 69.2% to $866.8 million. Comps were supported primarily by higher average tickets, but traffic in-stores also improved. Gross margins increased 49 basis points to 30.7% of sales on fewer markdowns and sales leverage.

Dollar Tree said consolidated sales in the quarter improved by 8.6% to $6.3 billion with 7% overall comps, reflecting a 15.5% increase in Family Dollar units and a 0.9% comp decline at Dollar Tree stores. Overall margins and net income dipped during the period as Dollar Tree saw impacts of stay-at-home orders.

Officials pointed to momentum at Family Dollar, particularly from the revamped H2 stores featuring a larger selection of food and $1 items imported from its Dollar Tree sister brand. However, disruption from the COVID crisis is likely to slow the pace of H2 conversions, CEO Gary Philbin said.

“Our investment in the Family Dollar store base with our H2 renovations has been a key driver since we accelerated our renovations a year ago,” Philbin said. “Now with customers and communities needing us more than ever, we are being introduced into a format that has a better shopping experience when they need it most.”