COME BACK TO THE FIVE & DIME

BARBARA MURRAY

The so-called dollar store, sort of a successor to the five-and-dime, is the latest alternative format to compete with supermarkets for sales of Center Store goods. Candy, detergents, paper products, snacks and household cleaners and laundry supplies are the chief categories in which dollar stores' share is gaining rapidly. Some also sell cookies and crackers, condiments, even frozen foods and packaged bread, and they have aggressive plans for growth.

The dollar store has now become recognized by ACNielsen, the market research firm based in Schaumburg, Ill., as a place where more than half of Americans shop. It's a viable alternative format, and warrants being called a channel in its own right, ACNielsen decided this year.

Family Dollar, Matthews, N.C., and Dollar General, based in Goodlettsville, Tenn., together had about 3,650 stores in 1993, according to estimates by ACNielsen, which counted almost 6,200 units by 1998 for the two chains. If the third-ranking dollar store company, Dollar Tree, Norfolk, Va., is included, there are in excess of 8,000 stores just in those three companies. There are some smaller regional players, too, like Bill's Dollar Stores, Ridgeland, Miss., with 18 stores, and the 1,300-unit Consolidated Stores, Columbus, Ohio, which is in the closeout business. It operates stores under the names of Odd Lot, Big Lot, Pick'n'Save and MacFrugal stores in several Western states.

"We buy closeouts and have developed relationships with the major brand manufacturers," said Kent Larsson, executive vice president, merchandising and marketing. He told SN the stores sell to three customer types: the lower-income, opening price point consumer; the Mart Saver, brand-conscious, who will also shop Wal-Mart and Kmart, and the pure bargain hunter.

The impact has grown to the point that an ACNielsen Homescan consumer panel analysis found that 52% of U.S. households shopped at such stores last year. While dollar stores are concentrated in rural areas and in the South, they have penetrated all census regions, and New York City has numerous outlets of various dollar stores. Here, they stick to pricing of around a dollar per item, but Family Dollar says it prices most merchandise under $10.

Dollar General has 14 price points that are used for the 4,500 SKUs (3,000 core and 1,500 seasonal) that its stores carry. These price points are all even dollars or multiples of even dollars with the $1 price point being extremely important.

In Manhattan, two Jack's World stores have opened in the past two years, each of them near a major railroad station. More are in the other boroughs, in immigrant neighborhoods but also in affluent Forest Hills, on a street that also has a Gap, Banana Republic, C-Town and The Natural independent supermarkets, women's apparel boutiques and jewelry stores. "America's 99 Cent" store on Austin Street was spotless, and uncrowded, when SN visited. Stacks of aluminum baking pans were just inside the front door, each item 99 cents. They were out of paper cups, which the C-Town was selling for $2.89.

The demographic is considered low-income among the "heavy" dollar-store shoppers, counted as the 33% of customers who account for over 80% of the channel's revenue. More than half (58%) come from households classified as either poor or "getting by," ACNielsen said, with less than $40,000 annual income for a four-person household. "Dollar stores have carved out a successful niche for themselves," said Todd Hale, senior vice president, ACNielsen consumer analytics. "In many cases, they have been able to buy or lease low-cost stores in poorer areas. Their strategy in offering low prices, a wide selection of basic staple items and a simple pricing structure is proving effective in appealing to the lower-income populations they serve."

SN visited the Jack's near Penn Station, fighting crowds that regulars say are routine, not only at lunchtime but all day. This store on West 32nd Street placed Halloween costumes and candy at the immediate front end. The doors were wide open, so that the merchandising practically extended to the sidewalk. The store has two floors, with the main floor selling "all items for 99 cents," while upstairs, some 99-cent items are mixed with higher-priced housewares, cookbooks, and the like.

At the top of the escalator was a shipper full of Hershey Nuggets milk chocolate candy, a 13-ounce bag for $1.99, and on the main floor were bins and bins of more candy, from Jolly Rancher to Bazooka to a no-name Salt Water Taffy, all for 99 cents.

SN noticed these 99-cent deals: a 17-ounce bottle of Prezioso white wine vinegar, from Italy; a loaf of Arnold packaged whole wheat bread, two days from the last sale date, and usually priced at $2.39; a four-pack of Applesnax unsweetened applesauce, from Canada, good till February, 2002, according to the stamp on the package; and a box of Kleenex brand tissues, also made in Canada, with copy written on the box in English and French. The tissues did not have a statement of how many count, as is usually seen.

The people shopping appeared to be in a frenzy, especially around the frozen food case, which was a double 17 feet by six feet. The frozen endcap contained ice pops and small boxes of single, microwavable Hormel hamburgers, cheeseburgers and fish fillets on buns. Around the corner were another 14 feet of frozens, starting with Mrs. Smith's peanut butter cream pie, Oh Boy! stuffed potatoes and pizzas, Best Choice hash brown potatoes, a 32-ounce bag, and other big bags of frozen vegetables, many of them private-label store brands like King Kullen, C-Town, Krasdale and America's Choice. Also in the freezer case were other national brand products, such as Weight Watchers SmartOnes. At Jack's other store, near Grand Central, SN spotted a Kroger brand cereal.

According to industry sources, private label products marked with the name of another chain, like the King Kullen brand, or the America's Choice, which is A&P's, are typically closeouts, a legitimate business, or might have been refused, in the case of frozen foods, because the truck came in warmer than the standard.

"Or they might be discontinuing the packaging." The quality is probably all right, the source said. "If it were bad, the owner would demand it be destroyed."

"Or, it could be code issues. If there is product sitting in the warehouse, and they know they're never going to use it, manufacturers typically sell it through brokers," said this source, who did not want to be identified.