DOLLAR STORE DATA YIELD CLUES FOR COMPETITORS

Jon Springer

CHICAGO -- Effective defense against dollar stores requires a supermarket to determine which shoppers and categories are the most vulnerable to the fast-growing, discount format, Mary Pietsch stated at the Food Marketing Institute show here last week.

The answers may be surprising, noted Pietsch of ACNielsen's Homescan here. She detailed the rapid rise of the dollar store channel. Then she suggested supermarkets assess the competition by looking into the figures and trends behind such growth.

Dollar stores have expanded nearly 50% in store count between 2000 and 2004. Today, they number more than 17,000 units, said Pietsch, who pointed out they're encompassing new territories and demographics as they go. As a matter of fact, three of the top 10 U.S. retailers in overall store count are dollar stores. Household penetration, or the percent of homes that shop a dollar store, has grown from 59% to 67% between 2000 and 2004. The frequency of trips to the dollar store has also increased.

A Homescan survey revealed that dollar stores are benefiting from being conveniently located, with 28% of consumers reporting that a dollar store is less than one mile from their homes. While the concentration of dollar stores is strongest in the Southeast, there remains plenty of geography for them to conquer, Pietsch said, predicting growth on both coasts, as well as the Great Lakes states.

To compete, supermarkets must pinpoint which of their shoppers frequent dollar stores already, and who might be vulnerable, Pietsch said.

While the dollar channel is most frequented by lower-educated and lower-income shoppers -- women without a high school education account for the channel's highest dollar volume -- the stores could appeal to all demographics, Pietsch noted. "Poor people need low prices, but wealthy people love low prices," she explained. In 2004, 51% of people with more than $70,000 in annual income shopped at a dollar store, up 58% since 2000, she said. This is the largest growing demographic for dollar stores.

Supermarkets can assess their risk by figuring out how their shoppers fit into these patterns, and how important the groups that shop that channel are to their business. This will help reveal which strategy a supermarket should take in creating a dollar program, Pietsch said.

Permanent solutions, such as an aisle dedicated to $1 merchandise, are generally favored by everyday-low-price merchants whose customers respond to large stores with a variety of products. High-low retailers have preferred temporary solutions like "10 for $10" programs and Dollar Days promotions, since their customers tend to shop from a list and stock up on bargains. Spreading the dollar merchandise throughout the store can also drive traffic to different areas of the store and spark larger shopping baskets.

Determining which products to feature in dollar sections calls for a similar assessment of the channel's best-selling and fastest-growing categories, Pietsch said. Candy, paper products, detergents and school supplies head the former list. Yet, an examination of the fastest-growing items reveals more foods, including desserts, frozen juices, ice cream, milk and fresh produce -- all of which increased sales in the triple-digits over the prior year, Pietsch said. In all, 11 of the top 25 selling stockkeeping units at dollar stores were edibles, she said.

Examining shopper attitudes can provide clues to strategy that goes beyond the product mix, Pietsch said. For example, a survey of heavy dollar store shoppers cited self-checkout and in-store samples to be what they most desire in a grocery store.

Pietsch urged retailers to discuss these issues with their product suppliers. "Retailers should be meeting with their suppliers and asking questions, including, 'Where else are my key consumers shopping?' and 'What types of volumes are the other chains attracting, and how well does that match up with my own core customer?"' she said.

"The retailer marketplace is only going to continue to become more and more crowded, and more and more competitive," she added. "With this competition, it is imperative for every retailer to understand the consumer, and understand the threats from competing retailers and use that information to plan their marketing strategies accordingly."