WHY THE HIGH-GROWTH VALUE-RETAILERS MAY SOON FALTER 2004-08-09 (1)

David Merrefield

Value retailing is a topic over which much ink has been spilled and about which much anxiety has been wrung from the supermarket industry.

That's the fast-growth sector that includes dollar stores, one-price stores, closeout and the like. It's a sector that seemingly has achieved a critical mass and that's now on a roll. Indeed, such stores are being opened at a more rapid pace than those of any other retailing style.

To cite just one growth example, Family Dollar, Matthews, N.C., said last week it would meet its plan to open about 500 stores during its fiscal year to end late this month with a burst of 109 stores to open in four weeks' time. See Page 4. More generally, as you'll see on Page 12, the entire sector is on track to increase sales by 7.5% this year and to continue to grow annually by 6.2% through 2008. Store counts are to increase from about 7,000 units now to 15,000 in the next five years.

Can that growth rate really be achieved? There's no doubt the predictions are based on sound research, including the projection that market saturation in the sector is at least a decade away.

Yet, there's other opinion that the sector could falter, and sooner rather than later. Last week, SN's editors hosted a roundtable meeting of securities analysts at SN's office in New York. Results of that roundtable are to be published in SN Sept. 6, 2004, at which time participants will be identified and their ideas on a host of topics detailed.

But for our current purposes, I'll abstract what was said about value retailing, described as the "new, gritty discounter" to spring from the most recent recession, much as membership clubs sprang from the preceding recession. Participants said value retailing is destined to "fall mightily" in the next two years or so as the economy improves. "They are not good merchants, they are not good at product acquisition, and the stores are unpleasant," one participant remarked. So the waters of value retailing may soon be roiled.

Information Resources Inc.

You have in your hands another special issue of SN, this week an analysis of 50 critical product categories, specifically their ups and downs as measured by their sales in supermarkets, drug and mass, less Wal-Mart Stores. The last is the meaning of the "MX" designation you'll see throughout these pages.

All of the category data in this issue was supplied to SN by Information Resources Inc. To write that "data was supplied," though, fails to delineate the Herculean effort put forth by the staff of SN and that of IRI to get the project from concept to fruition. As for IRI, special credit is due John McIndoe, its director of public relations. John shepherded the project from start to finish. The project started last fall with two meetings John hosted at IRI's headquarters in Chicago with representatives of SN's editorial and publishing departments. He attended another meeting in New York and saw the project to its conclusion by entertaining countless telephone conferences with SN staffers.

Many thanks to John and everyone at IRI. You'll see more about the category project in the column below.