DOLLAR WISE

Dan Alaimo

Dollar sections in supermarkets started out as a defensive strategy to keep customers from going to the rapidly proliferating dollar stores, but they have become successful offerings for many stores that executives told SN are here to stay.

Although there was a stopgap approach to the dollar sections at first, retailers and wholesalers are refining their merchandising and promotion as they see strong growth and customer acceptance, regardless of demographics.

While dollar sections are an imperative in price-competitive environments where dollar stores can be literally on every corner, more mainstream retailers are finding that their customers enjoy the treasure hunt experience, said executives interviewed during a recent GMDC General Merchandise Marketing Conference. The key is the element of surprise.

"We are quickly consolidating and getting our assortment to where we want it," said Peter Hettinger, vice president, nonfood, Stop & Shop Supermarket Co., Quincy, Mass. "We think it's very important to keep the mix fresh in those departments and we look to expand it."

There are over 15,000 dollar stores, according to ACNielsen, Schaumburg, Ill., and the top five chains in that channel increased their store count by 44% from December 2000 to December 2003, or 4,445 storefronts.

Dollar sections "are a good way to retain some of that business where people are driving to the dollar stores," said Gordon Thompson, district manager, Rosauers Supermarkets, Spokane, Wash. Rosauers has put in dollar departments of 24 to 40 feet in select stores.

"I think it's here to stay, but the key to having a dollar section is keeping it fresh," he said.

"It's best to keep the variety changing so the consumer never knows what they are going to find," said Charles Yahn, vice president, merchandising, Associated Wholesalers Inc., York, Pa.

In Puerto Rico, as in many places in the U.S., there are intersections where there is literally a dollar store on every corner, noted Bill Mansfield, vice president, GM/HBC, Pueblo International, San Juan. As a result, Pueblo has a dollar section in each of its stores. However, Mansfield cautioned, there is danger of sending mixed signals to customers.

"We can confuse the customer by trying to be too many things." If a customer does not shop there for price, but instead is looking for great variety and good quality, "that's the reason they shop with us. If they wanted low price, they'd go somewhere else." Except for certain categories like toys and some seasonal items, the dollar offering has not worked as well as the retailer would prefer, he said.

With the proliferation of dollar stores in his east Texas market, a nonfood executive with a chain there said, "We've made the commitment recently to expand dollar sections in a number of stores to see if we can stop some of the bleeding." He noted that some of his stores are flanked by dollar stores on both sides.

"There's a reason that dollar stores are building a store on every corner," and that comes down to economics. With gasoline so expensive, consumers "just don't have the money. So dollar stores are going to continue to be a factor and something we'll have to contend with every day," he said.

For the retail customers of Valu Merchandisers Co., Kansas City, Kan., "it's very vital, it's strong, and it's growing," said Jay Goble, vice president, merchandising. "We're getting more requests everyday from retailers we serve to add more items and more products to the section."

Goble acknowledged that dollar merchandise denigrates a sale and lowers transactions, but it has become a competitive necessity. "It's my job to give our retailers the weapons they need to win, and if they're in an environment with dollar stores and others selling those types of goods, our retailers have to compete at that level," he said.

With the dollar stores adding more food items, supermarkets need a counter strategy. "So we've got dollar grocery and anything else they might put in their stores," Goble said.

Unified Western Grocers, Commerce, Calif., refers to such merchandise as "value" product, said Larry Ishii, general manager, GM/HBC. "It's growing. It's going to continue to grow. It's not going to go away," he said.

At Bashas', Chandler, Ariz., the approach to dollar sections varies in each of the retailer's four formats, noted Bryon Roberts, vice president, GM. All of its Dine Markets, which cater to Native American customers, have dollar stores, and 90% of its Hispanic-format Food City stores have the departments. But only 15 of the chain's regular Bashas' stores have dollar sections, with most in rural locations, and none of the high-end A.J.'s Fine Foods have them.

The long-term viability dollar concept also will vary in the different formats, he said. For example, it will probably continue for a long time in the Food City format, whereas in Bashas', "we'll probably pick and choose depending on if it's growing or fading." It might not be a question of whether it's a fad that is over, but rather it might get to the point "where it's no longer the draw we want it to be, and we will want to use other goods instead of a dollar program," Roberts said.

For the wholesale customers of Supervalu, Eden Prairie, Minn., that go after the value customer, "you need to be in the dollar product," said Lanny Hoffmeyer, corporate director, wholesale general merchandise. "If they're going to position for a lower demographic to compete with the mass guys, then the dollar merchandise is a very important part of what we need to offer them, and a very important part of what they do," he said.

While the dollar offering has "exploded over the last two years," Al Jones, senior vice president, procurement and marketing, Imperial Distributors, Auburn, Maine, can see a day when the concept will run its course. He pointed to the black-and-white generics of many years ago -- "that lasted for a while; I think dollar might run that same kind of cycle, although it may last a little big longer."