Family Dollar: Land of Opportunity

Chicago — "I'm challenging you to do business with us." That was the closing statement of a fiery keynote presentation from Mike Bloom, president and chief operating officer of Family Dollar, at the Shopper Marketing Expo in October.Bloom and co-presenter Wendy Liebmann, chief executive officer at New York-based WSL Strategic Retail, identified the emerging "value shopper" and championed the legitimacy of and opportunity for the dollar channel in the current shopper landscape. "If you're not doing business with [Family Dollar], you're missing a tremendous opportunity to reach a growing and very diverse consumer," Bloom said.He cited Deloitte research showing that 58% of CPG executives view dollar stores as a strategic channel. "Where are the heads of the other 42%?" he asked. "Are you kidding me? Where is your growth coming from?" Bloom said that 64% of executives surveyed by Deloitte expected sales in the dollar channel to increase over the next three years, but only half of them believed their companies increased investment in sales capabilities related to this channel in the last three years.Bloom detailed part of Family Dollar's recent history starting in the early 2000s when the company's operating margin hovered around a healthy 7% to 8% before it halted expansion and renovation plans to reconstruct its infrastructure. The retailer's annual sales have doubled from $4 billion in 2002 to just over $9 billion in fiscal 2012. Family Dollar currently operates 7,500 stores in 45 states servicing 14 million weekly shoppers. The company is opening 500 stores and renovating/relocating 800 stores per year.He attributed this success to the retailer's focus on staying relevant to its core customer and evolving to win over the new value customer.The Family Dollar core customer is a female head of household earning about $25,000 per year. She tends to be older and ethnic and often lives in a nontraditional household. Living paycheck to paycheck, she meets her everyday shopping needs through government assistance and savvy shopping. And because of economic hard times, this customer is using more coupons, searching for quality national and private brands, researching price points and making trips only for the basic necessities.On the other hand, the "trade-in customer," as Bloom called her, earns between $40,000 and $70,000 annually, skews younger and less ethnic than the core customer. That consumer is the key growth opportunity for Family Dollar. Already seeing double-digit growth in annual spend per customer across nearly all income levels, the retailer only plans to continue appealing to and keeping the trade-in customer by:Relevance: The company leveraged different resources (ethnographies, panel data, sales reports) to understand which categories were most important to shoppers and to change the store's merchandising mix accordingly.The right categories to drive incremental trips: "I've been in this for 31 years and I haven't seen the basket increase yet. It's been $10 and change … but I've seen more trips deliver the same size basket," said Bloom. With this in mind, the retailer focused on increasing its share of food trips (previously only earning six of 114 trips annually) and health/beauty trips (four of 37). Family Dollar optimized its mix by listening to the customer, expanding its food and health/beauty assortments by more than 1,000 SKUs each. As a result, fiscal 2012 food sales are up 16%, market share is up 56%, trips have grown by 17% and purchases per trip are up by 38%. Numbers for the health/beauty category mirror the same growth.National and private brands to drive her basket: Bloom noted that private brands must be used to complement national brands to deliver what the customer wants. Family Dollar has introduced 400 new SKUs and plans on adding 500 more items in fiscal 2013, with a goal of 2,000 private labels by 2015.Using the customer as the filter: Bloom claimed the customer previously was not always the filter for decisions at Family Dollar – e.g., the retailer did not carry such national brands as Pepsi or Pampers, and circulars were limited to household chemicals."Every day value price" and improved in-store experience: A spin-off of the household "every day low price" marketing strategy, the retailer's goal for fiscal 2013 is to vastly improve in-store value messaging. With a 10% sales lift at the 3,500 remodeled stores, the next step is to place big and bold signage throughout the store that clearly communicates value. The retailer aims to refresh the entire chain by 2015.

Family Dollar: Land of Opportunity

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