Dollar Store Strategies for National Brands

Executive SummaryThe retail landscape for food, beverage, personal goods, and household goods is evolving rapidly as the range of retail formats expands and consumer preferences change. In the United States, consumers have a vast array of retail choices to purchase their preferred brands and products. For example, some brands are so ubiquitous that the identical product stock-keeping unit (SKU) is available at grocery stores, mass merchandisers, club stores, drug stores, and convenience stores, all within walking distance of each other. Each consumer has a distinct set of stores they shop at, a cadence with which they visit, and a unique selection of products they tend to purchase. Some consumers actively shop across channels comparing prices and offerings. Other consumers primarily shop at a small set of stores, or a single store. Furthermore, each retailer, and often store location, has a specific set of consumer segments they target.The recent recession and post-recessionary shopping habits have made dollar stores a frequent channel for more consumers — of all incomes. Dollar stores appeal to primarily low- and fixed-income consumers; however, a growing segment of shoppers are high-income consumers as the stigma of dollar stores seems to be waning. Across consumer segments, dollar-store shopping trips appear to be expanding from merely a fill-in or occasional targeted purchase to a grocery or mass merchandise substitute. To some extent, the growth of dollar stores—in particular multi-price-point dollar stores, where the price of most products exceeds one dollar — is at the expense of mass merchandisers and grocery channels. This growth is faster than traditional channels particularly in the sales of personal goods, household goods, food, and beverages, as dollar stores offer more variety in food and beverage (including national brands) and the consumer perception of store brand quality improves.Even after two decades of growth, the leading dollar retailers have aggressive growth strategies to realize greater revenue from new stores in both existing and new geographies — the top three dollar retailers operate over 21,000 stores in the United States (see chart at right) — and also from same-store sales. Not surprisingly, cross-channel conflict between grocery, mass merchandisers, and dollar stores appears to be on the rise. Mass merchandisers and grocery stores are responding to the dollar store threat with dollar-store- within-store concepts, expanded low-price assortments, and new smaller formats in both urban and rural areas.The perspective presented here on consumer product strategies for dollar stores is based on research that includes in-depth interviews with consumer product and dollar retail executives, mystery shopping trips across the dollar banners and formats, a large-scale consumer survey, and an executive survey across retailers and CPG manufacturers. The dollar channel, in particular multi- price-point dollar stores, is an important and profitable channel for those CPG companies that have tailored their business toward this discount channel. In other words, some CPG companies have cracked the code of the unique characteristics of the dollar channel in five distinct areas:Successful consumer product companies begin with a channel- and often retailer-specific approach to brand, product strategy, and innovation.They pursue unique merchandising and assortment strategies for the channel, and at the store level.Their pricing and trade promotion strategy acknowledges potential channel conflict by providing unique product-price value propositions across channels.They partner with the dollar retailers to tailor their supply chain, distribution, and operations to the unique channel logistics and warehousing environment.Finally, those consumer product companies serious about succeeding in the dollar channel create channel focus and resourcing through strong account and support teams with marketing, insights, product packaging, pricing, and supply chain expertise.Download the full report from the Attached Files section at right.

Dollar Store Strategies for National Brands

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