Dollar Tree is branching out from $1.25 in a big, big way

Bumping prices up to $1.25 was just the beginning for Dollar Tree.

The discounter is embarking on a major push to expand its price points, moving to $3, $4 and even $5 items as it sees tremendous opportunity in higher prices—especially in food and beverage.

Chesapeake, Virginia-based Dollar Tree revealed its plans last week at its annual investor conference, where it reported that its successful shift from $1 to $1.25 (a move the company terms BTD, or Breaking the Dollar) across its assortment more than a year ago has paved the way for further price boosts.

“The hard part has been done,” Dollar Tree CEO Rick Dreiling told investors Wednesday, according to a transcript from financial services site Sentieo. “That leap to $1.25 was painful but that is done now, and it’s time for us to capitalize on it.”

It doesn’t take an economist to understand that a retailer stands to make more money if it charges more for its products. But Dollar Tree executives said the move to multiple price points goes beyond that and allows it to sell a wider assortment of goods, including national brands, proteins and bigger pack sizes. Plus, the retailer said its research shows that Dollar Tree shoppers are buying these items elsewhere, so why not attempt to capture some of those sales?

The move to multiple price points has been in the works since 2019, when Dollar Tree tested an initial assortment of its “Dollar Tree Plus” offerings. That test expanded to 2,500 locations by the end of last year and is slated to be available at 4,300 of Dollar Tree’s more than 8,000 stores by the end of 2023.

While the initial product mix leaned heavily toward seasonal, discretionary items, Dollar Tree now sees the potential in grabbing more grocery market share with the new pricing assortment.

The retailer tested sales of name-brand bread, delivered directly to the store, that retails at $3. It plans to expand the rollout to an additional 400 Dollar Tree locations by the end of the year after reporting “high double digit comp sales” on the item. As bread sales expand, it will feature different brands and vendors by region, as well as multiple price points, Dollar Tree said.

In May, Dollar Tree started selling name-brand ice cream for $5 a carton at 1,400 stores, with plans to have the ice cream in 2,800 locations by the end of the fiscal year.

Richard McNeely, Dollar Tree’s chief merchandising officer, said at the conference that ice cream sales yielded “very positive initial results,” adding that, “It is now on pace to be the most-productive frozen door that we have.”

Ice is also becoming a big seller for Dollar Tree, at $2 for a 7-pound bag.

“We were on the verge of losing the ice program at $1.25,” McNeely said, noting that Dollar Tree ice had been sold in 5-pound bags. “It was custom made. The vendor didn’t want to make the item. They were raising the price, and we had nowhere to go. So, by the way, ice is in the top 50 every week. It’s a key item for us, the customer is loving it and now it’s working at $2.”

Even as it moves to multiple prices, Dollar Tree said its “opening price point” will remain its core assortment and that it is eyeing 300 to 400 items that can be rolled back to $1.

The retailer said it is now enlisting data and analytics consultants to help it determine the best price assortment—something that hadn’t been necessary when everything in the store was $1 or $1.25.

“Most exciting is food, a $500 billion market, and we’re less than 1%,” McNeely noted. “And $52 billion is available to us at $2 and below. And from $2.01 to $5, there’s another huge market that is untapped for us. So, that’s where we’re going first. And this is our future.”