DOLLAR MERCHANDISING AND THE ELEMENT OF SURPRISE

Dan Alaimo

There's no surprise about selling items for a dollar in supermarkets. Stores have had dollar-priced items and dollar in-and-out programs at least since inflation made this price point a promotable benchmark.

What is taking hold in almost every chain and wholesaler and in many independents is an effort to bring this merchandise together into one section to answer the hottest channel going right now: dollar stores. However, this terminology needs clarification. Because these stores are getting more into increasingly varied merchandise and pricing, it is now being referred to as the "value" channel. The supermarket sections, on the other hand, tend to price all their merchandise at or around a dollar.

The major players are Dollar General, Goodlettsville, Tenn.; Family Dollar, Matthews, N.C.; and Dollar Tree, Chesapeake, Va. And smaller operators seem to be popping up everywhere.

To understand how potent these retailers have become, contrast recent headlines from financial press releases with the news coming from traditional retailers: "Dollar Tree Stores Inc. Reports Record Sales for Fourth-Quarter 2002," "Dollar General Reports Increased Earnings for 2002" and "Family Dollar Reports Record Second-Quarter and First-Half Sales and Earnings." These retailers are a force to be reckoned with and are cannibalizing sales from many other channels. Supermarkets are no exception.

In researching a recent story, I asked several retailers and other industry experts if this is just a fad born out of the present economic conditions. The answer was an emphatic no. "We haven't seen it all yet," said Larry Ishii, general manager, GM/HBC, Unified Western Grocers, Commerce, Calif.

While the economy is helping drive customers into the dollar channel, they are finding that they like shopping there. As Bill Bishop, president, Willard Bishop Consulting, Barrington, Ill., pointed out, dollar merchandise isn't just for the lower-income customer anymore. Single-price operations, like Dollar Tree's, have "pretty broad appeal."

Customers enjoy the "treasure hunt" aspect of value-price shopping -- they want to be surprised. Even when the economy turns, they will not easily be won back unless a retailer has its own value proposition. That's why so many supermarkets are putting in dollar programs.

If retailers can satisfy their customers' desire for a bargain while they are already in the store shopping for food, they can keep them out of the dollar channel, where food is a burgeoning part of the offering. Meanwhile, it is a high-impulse purchase that brings a good margin. Supply sources that specialize in this area also are proliferating, making it easier to get into the business.

But dollar merchandising isn't as simple as it might appear on the surface. A good barometer is Wal-Mart Stores, Bentonville, Ark., which has been testing a dollar program since last summer and is only now getting ready to expand it, according to supplier sources. Not every store's customer base will support such an initiative, and product selection also will vary by location. Unlike other categories in the supermarket, dollar sections must be constantly changed out or rotated so that customers see a fresh selection each time they come in; otherwise, they are likely to lose interest and pass the section by.

The element of surprise is critical in this corner of the business.