Back to the Five-and-Dime

Dollar stores are no longer exclusively the place for cheap dishtowels, Christmas ribbons and rubber animals. There was a time when the presence of brand-name packaged goods in a dollar store implied "excess inventory" or even "past expiration." But sea changes in consumer attitudes and shifts in retailing strategy have turned the "value channel" into a popular destination for most U.S. consumers and, therefore, a viable -- and perhaps vital -- marketplace for branded items.The channel's U.S. household penetration reached 62% in 2002, according to ACNielsen data. That means more consumers are shopping dollar stores than are shopping warehouse clubs (52%) or convenience stores (46%). Supercenters, by comparison, have 63% penetration.The fact that penetration is growing also means that dollar stores are no longer frequented only by low-income shoppers. Household penetration among households with annual incomes above $70,000 reached 45% in 2002, according to ACNielsen."Dollar stores are fast becoming a regular shopping destination for the nation's consumers, and competing with supermarkets and mass merchandisers as product destinations in some categories," says Jeff Friedlaender, vice president of Meyers Research Center, New York.In a store-intercept survey of more than 1,000 consumers released last December, Meyers found that "dollar store shoppers are making a regular habit of including dollar stores as part of their planned shopping: 39% of the shoppers we surveyed are going once a week or more," Friedlaender says.In the last decade, as mass merchants and supermarkets have moved to the supercenter format, they've left a literal niche for dollar stores to fill, both in urban locations where real estate is too scarce or costly, and in rural towns too small to warrant their own large-format store. And, oh, have the largest dollar store chains found niches. Channel leader Dollar General ($6.1 billion in sales) plans to open 675 stores in 2004, which will give it close to 7,500 total outlets. Number two, Family Dollar ($4.8 billion), will open about 500 stores, giving it more than 5,500 locations. Number three, Dollar Tree ($2.3 billion), has been growing both organically and through acquisition, and it moved past the 2,500-store mark late last year."Brands are seriously factoring in the dollar stores in their strategies today, just as they did in the 1990s with the emergence of price club formats," Friedlaender says. And well they should: "More than 50% of the consumers we surveyed are buying name-brand products at the dollar store," he notes.Although the use of in-store merchandising materials is still not as common in dollar stores as it is in other packaged-goods channels, the presence of P-O-P displays is growing, especially since the top chains are increasing store sizes and revamping merchandising policies to accommodate more "consumables" overall and more branded products in particular."We know that certain items will sell much quicker off a P-O-P display than off a shelf," says Dick Saklad, vice president of business development at 99 Cents Only, a 174-store West Coast chain. "Since we sell everything for 99 cents, customers don't have to think about pricing. If they see a P-O-P display and the product appeals to them, they'll just pull it off the display."Saklad's assessment is supported by the Meyers study, which found that 42% of dollar-channel purchase decisions are made within the store, and that 27% of channel shoppers claim to be influenced by special displays.The channel holds a number of challenges for product marketers. Although most chains are "dollar store" in name only, carrying products with price tags as high as $35 (but largely staying below $10), the concept requires either creative pricing schemes or unique packaging configurations. And the top three chains still handle most of their own merchandising, because they don't want display expenses to be factored into the costs of the goods they're buying.But with consumers increasingly embracing this reincarnation of the classic five-and-dime concept, it shouldn't be long before these obstacles are ironed out.

Back to the Five-and-Dime

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