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You may have noticed dollar stores popping up here and there in strip malls across rural America. But you may not know the tremendous growth they've encountered over the past few years. As trips to the grocery store continue to decline, consumers are taking advantage of their channel options. Dollar stores are the only channel capturing those lost trips and posting gains in shopping frequency. Over half of U.S. households (52%) shopped at a dollar store in 1999. Some of the more popular dollar stores are Family Dollar, Dollar General, Dollar Tree, Fred's, Waldo's, and Dollar Castle.
In fact, dollar stores are even capturing trips in Wal-Mart territory. In C and D counties, trips to the dollar store are increasing, while trips to other channel retailers are either stagnant or declining. As a result, dollar store stocks are on the rise, and their sales are going through the roof. What's driving the trend?
Price frequently drives a consumer's purchase decision, and overall, today's consumer is more cost-conscious. Convenience is also a huge factor for today's consumer. Dollar stores are a one-stop shop for consumers, and for a single shopping trip, they can get more for their money.
Exactly who shops at a dollar store? Typically, the dollar shopper is the female head of a 3-4 person household, 35-54 years old, in the low to middle income bracket (average income of $25,000). The female shopper is more important to dollar stores than any other channel. Heavy dollar store shoppers, who spend more during the shopping occasion and also shop more often, visit dollar stores about once every two weeks. Dollar stores also attract retired shoppers on fixed incomes. Average basket totals are slightly more than $10, and weekend shopping trips tend to yield higher sales. Geographically, dollar stores exist across the U.S., but are heavily concentrated in the South, and found in small towns and rural areas where lower to middle income families dwell.
What makes dollar stores so appealing? Dollar stores are popular with consumers because they offer everyday low prices everyday. For those who are watching their budgets and looking for bargains, items almost always cost less than in a department store or supermarket. Simplicity is paramount when it comes to pricing at dollar stores. In most dollar stores, price points are always even numbers, $1, $5, even $10. For example, Dollar General carries over 4,000 SKUs, but only has 14 price points. The guarantee of everyday low prices and a simple pricing structure make for easy and enjoyable trips to the store.
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.
With everyday low prices, retailers must be extremely efficient in order to maintain a profit margin on products. Inventories are kept in distribution centers, which are typically within a close radius to the stores, in order to keep transportation costs down--a big concern for dollar store retailers. Advertising is minimal, if not non-existent, because of its big price tag, and also because most dollar store retailers feel promotion is unnecessary since they already offer the lowest price.
Dollar stores will continue to grow. In the past year, shares of the top five dollar stores have increased an average of 17%. Revenues are growing and the number of stores is skyrocketing as well. One of the oldest dollar store retailers, Family Dollar, has over 3,300 stores nationwide with plans to add approximately 400 more this year. They also expect sales to reach $3 billion this year. Dollar General, another popular chain, is also increasing the number of its stores, with over 4,500 stores in the U.S.
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