Study: Dollar store ‘mainstreaming’ raises the stakes in grocery retail

Dollar stores are hungry for a bigger slice of the grocery retail sales pie and are ramping up expansion to get it, according to retail experience specialist ChaseDesign.

The 2023 ChaseDesign Dollar Store Channel Survey, released Thursday, found that shoppers seek the “mainstreaming” of dollar stores—meaning they want these deep discount chains to more closely resemble their major retailer rivals. Grocery will play a pivotal role, since it’s by far the most-shopped category at dollar stores.

Of 1,000 consumers polled, 29.3% named grocery shopping as accounting for most of their trips to the leading dollar chains, including Dollar General, Dollar Tree and Family Dollar. The next most-shopped categories at these retailers were personal care (17.2%) and home and decor (16.6%). Respondents to the survey are the primary or secondary shoppers in their households and ages 25 to 54.

From 2023 ChaseDesign Dollar Store Channel Survey.

Citing findings from the American Public Health Association, ChaseDesign noted that dollar stores are the fastest-growing food retailers by household spending share, with food purchases up 89.7% from 2008 to 2020. That’s especially the case in rural markets, where food spending at dollar stores climbed 102.9%, in part due to less access to grocery retailers in some communities. Overall, one in five consumers buy groceries from dollar stores, based on data from Coresight Research’s weekly U.S. consumer tracker, ChaseDesign said.

To snare more grocery market share, dollar stores are hoisting their store counts and looking to drive more shopper visit. Through March, Dollar General totaled 19,022 stores, compared with 16,077 for rival Dollar Tree, with 8,267 of those locations bearing the Family Dollar banner, ChaseDesign reported.

Over the past four years, Dollar General has added more than 1,000 net new stores annually, during which time Dollar Tree and Family Dollar have averaged over 100 new stores each year.

Dollar General plans more than 1,000 store additions in 2023, compared with over 200 from Dollar Tree and 400-plus from Family Dollar. In terms of consumables, all three chains have focused on adding cooler doors to expand their refrigerated and frozen food and beverage assortments, as well as on offering a selection of fresh produce, led by Dollar General.

From 2023 ChaseDesign Dollar Store Channel Survey.

“Where people buy their groceries today is evolving quickly. Dollar stores are getting an increasing amount of their sales from packaged, fresh and frozen foods, and they’re capturing those revenues from traditional retailers like supermarkets and mass merchants,” Joe Lampertius, president of Syracuse, New York-based ChaseDesign, said in a statement. “This emerging competition needs to be top-of-mind for those retailers as they strategize how, when and where to engage their shoppers.”

About 60% of consumers surveyed by ChaseDesign said they shop Dollar Tree “all the time” or “often,” versus 56% for Dollar General and almost 39% for Family Dollar. Among all three chains, roughly 34% of trips are fill-in shopping, 29% are for immediate needs and nearly 23% are for stock-up purposes. Typically, dollar store transactions total $25 or less.

Even though most visits to dollar stores are quick trips, shoppers expect more than just a “no-frills alternative to larger grocery stores,” ChaseDesign’s study said. Consumers want more frozen foods (cited by 51% of respondents), more beauty and personal care items (35%) and more national brands (47%). The latter already represent half of dollar stores’ shopping basket, with the rest being private labels and/or store brands.

From 2023 ChaseDesign Dollar Store Channel Survey.

“The Dollar Store Channel Survey clearly shows customers in the sector want those retailers to offer a product assortment and a shopping experience similar to what they have come to expect at supermarkets and mass merchants,” Lampertius noted. “National brands can play growing part of the marketing and merchandising at dollar stores, and retailers can rethink the role of national brands, how products and categories are merchandised and presented, and making their digital experience more engaging and valued by shoppers.”

Indeed, the online experience at dollar stores falls short for many shoppers, presenting a hurdle for this retail segment in taking on supermarket and mass chains, according to ChaseDesign.

For example, 20% of consumers polled didn’t know dollar stores offer shopping apps, and 38% have never used a dollar store app, the survey found. That compares with 55% of shoppers who use apps at major retailers. One stumbling block: 50% of dollar store customers never order online. Customers using dollar store apps and/or websites reported that they’re checking sales and specials, looking up product availability and price, using coupons or finding new products.

From 2023 ChaseDesign Dollar Store Channel Survey.

Fulfillment trails big-store retailers as well. Forty-two percent of dollar stores offer pickup (in-store and curbside) and 8% provide home delivery, compared with 45% of mainstream retailers offering pickup and 55% providing delivery service.

Also, 72% of consumers surveyed by ChaseDesign said dollar stores’ can improve their in-store experience, which falls short in terms of organization, layout and tidiness.

“A key challenge retailers in this space need to overcome is the way their stores are organized and how categories are presented, as many customers find the experience challenging to navigate,” Lampertius stated. “In fact, nearly three-quarters of respondents mentioned lack of organization, navigation and clutter as a challenge to their experience at dollar stores.”