Dollar Tree opens test kitchen, plans launch of ‘hundreds’ of private-label items amid grocery push

Dollar Tree on Wednesday revealed it opened a test kitchen and is planning to launch hundreds of private-label products amid a major push into grocery sales.

The Chesapeake, Virginia-based operator of Dollar Tree and Family Dollar also said it has been “aggressively expanding” its $3, $4 and $5 frozen and refrigerated products, growing from zero to 3,500 stores last year.

“This consists of three cooler doors, one at each price point, with an attractive selection of proteins, pizza, ice cream and more, which the customer is responding positively to,” CEO Rick Dreiling told analysts early Wednesday in a call to discuss Q4 and full-year earnings.

Dollar Tree also said it started selling bread and ice in its stores last quarter.

“They’re doing very, very well, Dreiling said. “And we’ve done it without offsetting the mix in the store.”

For the quarter ended Jan. 28, Dollar Tree reported systemwide same-store sales growth of 7.4%, based on an increase of 8.7% at Dollar Tree and a 5.8% boost at Family Dollar. For the full year, enterprise same-store sales climbed 5.9% (with Dollar Tree up 9% and Family Dollar up 2.4%).

For the quarter, operating income increased 6.8%, to $618.1 million. Operating income soared 23.5% for the year, to $2.24 billion.

However, those same-store sales increases were largely driven by higher prices. Dollar Tree posted a 1.1% decline in traffic and Family Dollar saw traffic fall 0.5%.

Dollar Tree, which has been steadily growing its grocery presence in recent years, did not break down same-store sales of consumables as it has done previously. But it said there is no question food sales are a smart move for the retailer.

“There’s an appetite for it in the stores,” Dreiling said. “Consumables drive transactions.”

And they also boost average ticket. When a shopper buys something from the multiple-price point refrigerated and frozen section at Dollar Tree, their basket size is more than double that of someone with no multi-priced items, he noted.

Dollar Tree said it is replacing its control brands with private brands and plans to introduce “hundreds of national brand-equivalent products in the back half of this year.” Those items will include new and redefined labels, many of which are being developed in Dollar Tree’s new test kitchen.

A Dollar Tree spokesperson told WGB that the retailer would release more details about its test kitchen and private-label initiatives in conjunction with its investor day in June.

Like competitor Dollar General, Dollar Tree is also expanding its cooler doors to offer a greater selection of fresh and frozen foods, with plans to add 16,000 doors systemwide this year.

“Our goal is to have 30 doors per store,” Dreilling said. “Our shoppers rely on Family Dollar in their communities to provide these consumable products to feed their families.”

Adding low-margin grocery items to a mix of discretionary products is a bit of a high-wire act, Dollar Tree admitted, noting that it is careful not to add too many grocery products to upset its mix.

“It’s going to be a very selective approach,” Dreilling said. “It’s a methodical process. But I think what’s important here is that it’s nothing but opportunity if we can manage our way through it.”