DOLLAR STORES: AN INDUSTRY GROWTH PHENOMENON
EXECUTIVE SUMMARY
APRIL 2006

IRI's Times & Trends highlights new developments and critical events across all major CPG categories and channels, providing powerful benchmarking data to help guide your strategic decisions. This issue examines the phenomenal growth of dollar stores and implications for CPG manufacturers and retailers.

This free summary is also accessible via the GMA Web site  at http://www.gmabrands.com/publications/gmairi.cfm

INTRODUCTION

Timing is everything.
Dollar stores have been around for over 50 years, but the channel has only recently reached the status of major retail outlet.

The recent success of dollar stores is the culmination of a number of factors that have been at work for several years, including a growing value consciousness among mainstream consumers, growth in the number of consumers earning less than $25,000 per year, and major dollar store initiatives to upgrade stores and merchandise and increase access through store expansion.

The time has come for CPG manufacturers to give serious consideration to the dollar store channel as a potential growth venue for their brands, and for retailers to view dollar stores as a potential competitive threat.

KEY FINDINGS

The dollar channel has grown into a major retail outlet. Aggressive store expansion among leading players drove 9.3 percent dollar channel sales growth this past year. While the channel still captures only a fraction of CPG industry sales, it represents a viable growth path for many categories and brands and a competitive threat to traditional retailers.

Dollar stores have achieved the “triple crown” in retail. Dollar stores have increased shopper penetration, increased trip frequency and increased average basket size; consumer shopping trends bode well for continued, strong growth.

Dollar channel product mix is shifting. Non-foods represent over half of dollar store CPG sales; however, product mix is shifting towards food and beverage, which dollar store retailers are increasingly leveraging to drive store traffic. Each of the leading dollar store players is in the process of adding coolers to their stores to develop a presence within frequently purchased refrigerated and frozen foods. Shelf space devoted to non-foods may be reduced as this transition occurs.
   


Channel sales are concentrated among lower income consumers. One-third of dollar store shoppers -- predominantly low income consumers -- comprise 85% of channel sales; with more than 5 percent share of their CPG spending, dollar stores deliver reach within this growing consumer segment.

Private label is not a major force within dollar store CPG currently. Private label is significantly less developed within the dollar channel versus other CPG outlets across most departments (with the exception of healthcare). Dollar store private label share across total CPG is 9.9 percent, versus 15.8 percent across all outlets. Dollar store retailers are increasing the presence of major national brands in their stores to enhance store image and value perceptions.


 

Source: IRI's Times & Trends Reports
Information Resources, Inc. (IRI) is the world’s leading provider of enterprise market information solutions and services to the consumer packaged goods (CPG), retail, and healthcare industries.