With consumer preferences helping to affect where and how people shop for food, beverages, personal goods and household goods, dollar stores are becoming increasingly important for suppliers, a new report from Deloitte Research says.


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Inside This Issue - News

Dollar stores grow in appeal

October 29th, 2012

NEW YORK – With consumer preferences helping to affect where and how people shop for food, beverages, personal goods and household goods, dollar stores are becoming increasingly important for suppliers, a new report from Deloitte Research says.

"CPG [consumer packaged goods] companies looking to stay on top of these shifts should not ignore the dollar channel, in particular multi-price-point dollar stores," the authors write in "Dollar Store Strategies for National Brands: The evolving dollar store channel and implications for CPG companies," a 26-page report that was released earlier this month.

"The increasing consumer affinity toward new and improved dollar stores has caught the attention of both retailers and CPG companies," the report says. "The shift in executives’ views on the importance of different channels over the last three years is testimony to the significance of this trend."

According to Deloitte’s survey of 125 executives at supplier companies and dollar retailers, 38% feel that the revenue growth that dollar stores are seeing is coming at the expense of other channels. Only 14% of those polled feel that the dollar stores’ growth is ­incremental.

One of the main reasons for the growing appeal of dollar stores, Deloitte says, is that shoppers have come to see these stores in a more favorable light.

"The consumer perception of dollar store brands has improved," the report’s authors say. "Dollar retailers have increased their investment in private labels — including hiring talent from traditional CPG companies — to improve product offerings and instituting corresponding quality processes."

Although large national brands account for a growing portion of dollar stores’ sales at multiple-price-point dollar stores, private label brands are steadily gaining share at the expense of secondary and tertiary brands, the report notes.

In fact, 58% of the consumer product executives who were surveyed say they expect that over the next three years dollar stores will increase the amount of shelf space they devote to store brands.
This may be an opportunity for suppliers of national brands, Deloitte says.

"For national brands the limited store size can be an impediment; however, dollar stores tend not to offer premium private label products to directly compete with premium CPG products, which can be an advantage," the report notes.

Still, Deloitte researchers say that not enough suppliers see dollar stores the same way they see grocery stores, discounters and drug chains.

The report found that only 58% of the non-dollar retail executives surveyed, and 40% of the non-dollar retail executives primarily working in grocery and discount stores, viewed dollar stores as a strategic channel.

The report’s authors note that downplaying the significance of dollar stores may be avoiding the truth about the changing dynamics of the country’s retailing ­landscape.

They found that a vast majority of these executives (62%) expect their sales to dollar stores to continue to increase over the next three years. In addition, 85% of the executives polled say they feel that these outlets will offer more SKUs and product choice, while 75% feel that dollar stores will continue to expand their geographic presence.

While Deloitte says that some suppliers have been slow to embrace dollar stores, many are adapting their operations to ensure that these outlets are an integral part of their business going forward.

Some consumer product companies have figured out the unique characteristics of the dollar channel, the report says, and have responded to the challenges of dealing with this growing channel in five distinct areas: brand, product strategy and innovation; merchandising and assortment; pricing and trade promotion strategy; supply chain, distribution and operations; and account team structure, staffing and ­capabilities.

Doing so, the authors say, is important because the number of dollar stores across the country is growing — the top three dollar retailers already operate more than 21,000 stores in the United States — and these outlets will likely be a mainstay of American retailing for decades to come.

"The recent recession and post-recessionary shopping habits have made dollar stores a frequent channel for more consumers of all incomes," Deloitte researchers say. "Dollar-store shopping trips appear to be expanding from merely a fill-in or occasional targeted purchase to a grocery or discounter substitute.

"To some extent," the report says, "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 the discount and grocery channels."

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