sweeps all before it

Dollar stores redefine the retail competition matrix

As Wal-Mart seemingly sweeps all before it, driving supermarkets, department stores, drug stores, toy stores, and others out of business, it is itself under pressure from an increasingly significant new segment. This is yet another illustration of the competition matrix at work. Wal-Mart, the master of the matrix is being challenged in its core discount retail business by a set of upstarts – the dollar store chains.

Indeed, the super discounters are no longer Wal-Mart, Target, and Costco, but fast growing chains like Dollar General, Family Dollar, and Dollar Tree. These stores, which formerly sold only overstocks, closeouts, failed brands, and slightly damaged goods, have now started offering many of the same brand name products as regular retailers: Procter & Gamble, Dial, Clorox, Revlon, Hershey, and so on.

According to an A.C. Neilsen study reported in Consumer Insight magazine (“Dollar Stores”, Fall, 2000)

Dollar store retailers also pride themselves on always stocking a wide selection of “consumable basics,” or staple items that people use everyday. Consumers shop at dollar stores for everything from over the counter drugs, toys, snacks and candy, to cleaning supplies, toiletries, and cosmetics. Product assortments consist of brand names as well as generic. The wide selection and low prices keep the consumer coming back again and again.

While some dollar stores sell all items at one dollar, others can extend up to five or ten dollars for some items. Key manufacturers are now developing special sizes of their flagship products that can be sold for a dollar at the stores.

One of the key appeals, other than the prices, is the small scale of most dollar stores. While Wal-Marts, Safeways and CVS's have become mammoth operations, intimidating to the casual shopper, dollar stores are generally housed in strip malls, have easily available parking, and carry a more limited range of products. That means a shopping trip does not have to become an expedition. In addition, the limited range of prices ($1, $2, $5) simplify the shopping experience. The industry has also thrived thanks to surprise one-dollar promotions for limited stocks of TVs, gold clubs, and other more expensive trends.

A Christian Science Monitor article  (“The mad dash to the dollar shop”, 8/04/2003) reports that 43% of all Americans shop at dollar stores once a month. Furthermore, the article notes:

To satisfy this hunger for bargains, the two biggest dollar store chains in the United States — Dollar General and Family Dollar — are breaking ground on new stores this year at a clip of more than one each day. These two companies operate more than 10,000 stores nationwide, nearly twice as many as six years ago, according Retail Forward, a market research firm in Columbus, Ohio.

In fact, the dollar stores are outpacing Wal-Mart and Target in appealing to new customers. So much so that Wal-Mart and other retailers are starting to put “dollar sections” in their stores.

According to the Monitor story, the dollar stores are starting to expand into the realm of grocery and convenience stores.

Dollar stores are also stocking more dairy and produce items, hoping to lure customers to visit two or three times each week. Every day, Little Bucks [a small chain] sells half gallons of milk, hot dogs, and fresh bouquets of flowers for 99 cents.

The modern answer to the five-and-ten cents stores, the dollar store is moving in a variety of retail rivals. It ia likely that one or more of these chains will be bought out by bigger rivals while they can afford them.  [Oligopoly Watch]

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