DOLLAR STORES SEEN EMBRACING LIMITED-ASSORTMENT GROCERY 2004-04-05 (1)

MARK HAMSTRA

KALAMAZOO, Mich. -- Dollar stores will likely evolve to resemble limited-assortment grocery stores as they add more fast-moving grocery items in an effort to broaden their customer base, increase frequency, and increase their average transaction size, according to a presentation at the Western Michigan University Food Marketing Conference here last week.

David Bishop, director, Willard Bishop Consulting, Barrington, Ill., said dollar stores also are seeking to add more national brands of consumer packaged goods to attract a broader consumer base and improve overall assortment quality.

He predicted that by 2010, dollar stores will outnumber supermarkets in the United States as the top three dollar chains alone add 1,500 to 2,500 new stores per year, targeting the same customer niche as Wal-Mart Stores, Bentonville, Ark.

"The one Achilles' heel that Wal-Mart has is dollar stores," he said. "They realize that dollar stores are siphoning off some of their customer base."

In a recent price survey, Willard Bishop Consulting found that Dollar General, Goodlettsville, Tenn., had a price advantage of 3% to 7% over Wal-Mart.

"Dollar General's strategy is to price at the mass merchants' promotional prices," he said, noting that Dollar General -- which offers multiple price points, generally in $1 increments -- tends to beat Wal-Mart on price on most items other than Wal-Mart's "rollback" promotions.

"They are a miniature version of Costco [Wholesale Corp., Issaquah, Wash.]," he said of Dollar General, referring to the two chains' in-and-out merchandising strategies.

He said the two experimental Dollar General Market stores, which are larger than typical Dollar General stores and offer an expanded selection of groceries, are generating average transaction sizes that are double the average transaction level of Dollar General.

Dollar store customers typically buy two to four items and generate $9 per transaction, vs. $32 per transaction for supermarkets, $50 per transaction for supercenters, and $82 per transaction for club stores.

Bishop also predicted that dollar stores would add more items with $2 and $3 price points as a way to maintain margins as inflation drives up product costs.

Attendance was up an estimated 20% at this year's Food Marketing Conference, according to Dr. Frank Gambino, director of the food marketing program at the school. The increase follows another 20% increase in attendance in 2003. About 580 people had preregistered for this year's event, a new record, he told SN.

Gambino said the WMU food marketing program hoped to net $80,000 for scholarships and for general operations from the conference. Also, for the second year in a row, Kellogg Co., based in nearby Battle Creek, Mich., has agreed to donate $50,000 to the WMU food marketing program, Gambino told attendees yesterday. He also said Coca-Cola Co., Atlanta, has agreed to donate $30,000 per year for each of the next 12 years to be used at the discretion of the program.