Family Dollar Launches Price Ads Vs. Supermarkets

ELLIOT ZWIEBACH

CHARLOTTE — Family Dollar Stores here intends to target supermarket pricing in upcoming advertising in a campaign that will point out it carries the same items at lower price points, the company said during its second annual investors conference.

“With our national brands we have the same first-quality goods you are going to get in your leading grocery stores and drug stores, and [our goal is] to help get that message across, particularly in the food area,” R. James Kelly, president and chief operating officer, told analysts.

“So we are introducing a campaign that tells our customers pretty directly that we have exactly the same items and quality as the grocery store — we just price them lower.”

According to local reports, the ads will show pictures of national-brand products with the slogan, “Exactly the same as the grocery store. We just price them lower.”

Family Dollar operates close to 6,700 stores, with a volume of about $7 billion, company officials said. One industry analyst estimated consumables sales exceeding 65%, up from 57% in 2005.

Howard Levine, chairman and chief executive officer, said the company strives to take care of customers, “and over the last several years, particularly in this economy, we've seen a huge increase in the consumables business.

“That doesn't mean we're not working just as hard in some other categories, whether in the home or apparel area or some seasonal areas, but while I'd like to do as much business as we can in consumables, I'd like to see a nice uptick in some discretionary categories, and we'll have to manage that mix, pulling different levers and looking at different opportunities.”

Kelly said consumables account for the highest percentage of items in shoppers' baskets, with food accounting for more than half the total.

Family Dollar is working on several ways to increase its food business, Kelly said.

“We've certainly competed in food for a long time and have a lot of credibility in things like candy, beverages and snacks,” he pointed out. “But we're a little newer in some grocery products [purchased] in midweek fill-in trips, and we have efforts under way to reposition our business more significantly to broaden our appeal.”

Kelly said the chain plans to reset its stores by the spring “to change how we lay them out to make the adjacencies clearer.”

It also plans to repackage its Family Pantry line of private-label products.

“In the area of laundry detergent, household cleaners and paper products, we have fundamentally built credibility with the national brands, and the broad spectrum of shoppers is comfortable coming to a Family Dollar knowing they're going to get the same first-quality product they would if they went to a high-priced retail format,” he explained. “So we're going to use these household businesses as our foundation to draw in a broad set of shoppers.”

Kelly said private-label penetration is running at about 10%, compared with 15% to 20% in grocery, drug and mass channels, “so we believe we've got an opportunity here to at least double our penetration.”

He said Family Dollar will begin introducing food items in its Family Pantry line that have been reformulated and repackaged “with a new look and feel that more directly ties them to our logo because we find that if customers see that linkage with Family Dollar, they believe that's like our Good Housekeeping Seal of Approval — and they believe [it indicates] we stand behind the product, and therefore it gives them greater comfort.”

Kelly said the chain also plans to begin tailoring its assortments for different neighborhoods.

“Three years ago we started looking at the capabilities we had to capitalize on different customer shopping behaviors and found that, though we had industry-leading transactional systems so we can buy and distribute very efficiently, our model had been optimized for one-size-fits-all, and we really lacked the capabilities to do different things in different stores or different neighborhoods.”

The chain has tested micro-clustering products in 4-foot sections in several categories.

Family Dollar is also testing macro-clustering, Kelly added, by shifting space allocations. For example, a year ago it started working on a “high volume/small box” format, which it tested in “the extreme urban world” of New York City, Kelly said.