Dollar stores sound the alarm

It is a very hard time right now for the typical Dollar General shopper.

She (as the discounter always refers to its core customer) is still bearing the weight of historic food inflation. That’s compounded by lower tax refunds this year for many and a major change to SNAP benefits that has cut nearly $100 a month in grocery spending for the average recipient.

The Dollar General shopper, CEO Jeff Owen told analysts Thursday, is now having to rely on food pantries to meet many needs, while using her credit cards for other essential items. She’s buying fewer items each trip and, when she does, she is focused on the discounter’s $1 selection. (Dollar General’s stock price nosedived nearly 20% Thursday on the troubling report—the worst day in the retailer’s 14-year history as a public company.)

Owen’s comments echo those made about a week earlier by Dollar Tree executives, who also noted that decreases in SNAP benefits and tax returns are putting “real pressure” on shoppers.

Sales at discount grocers and value-focused retailers have surged over the past year as shoppers sought respite from soaring grocery inflation. (It’s not all doom and gloom in discount, to be sure: Last month Grocery Outlet reported its same-store sales rose 12.1% in the first quarter, driven largely by a surge in traffic.) But some deep discounters appear to be struggling as the shaky financial foundation of some core shoppers crumbles under prolonged strain.

And it’s not just the most cash-strapped shoppers who are biting their nails right now. More than three-quarters (78%) of consumers think inflation will increase in the next few months, according to the monthly Consumer Sentiment Study released Tuesday by research firm Numerator. And more than two-thirds (67%) think the U.S. is already in a recession, a dire economic situation that 68% of shoppers believe will get even worse in the next few months. Seventy-six percent of shoppers surveyed said they are concerned about the rising prices on essential goods—the deepest level of worry of any category studied.

Retailers like Walmart and Target have already expressed concerns that product mix is tipping too heavily toward low-margin grocery and away from discretionary purchases.

Value positioning—and the consumer’s perception of it—will be key in the months ahead.  

As my colleague Diane Adam reported last week, discount grocer Aldi announced it is cutting prices on more than 250 items this summer. The grocer estimates the cuts will save shoppers more than $60 million in the coming months. And discount grocer Save A Lot last month launched a “Shop the Dot” marketing push to highlight price cuts and deals.

I expect we’ll see more grocers following suit soon.

But, as the case of the dollar stores shows, even low prices are little help when consumers have nothing left in their wallets. She’ll simply have to buy less.