NONFOODS: HBC/GM: Dueling for dollars

Store growth within the dollar store channel is unsurpassed by any other retail channel, as players within the space are venturing beyond their rural and small-town American roots into both urban and suburban areas throughout much of America.

The channel, comprising such operators as Family Dollar, Dollar General, Dollar Tree, Fred's, and 99 Cents Only, continues to expand its shopper base via new store openings. Top dollar store channel retailers have added more than 5,900 stores since 2001, according to ACNielsen, a leading market research firm and sister company to Progressive Grocer under the VNU umbrella.

Compare that proliferation rate to Wal-Mart's new store count during the same period, which consisted of just 645 stores, and you get a picture of the level of activity within the dollar channel. What's more, the dollar store segment is showing more and more focus on food and beverage to drive shopping frequency and per-trip spending.

These low-priced limited-assortment retailers are quite well entrenched among low-income households; the channel now extends way beyond that core, and has experienced strong increases in penetration across all income groups, to the tune of 67 percent of all U.S. households.

With this kind of growth in store count, coupled with the uncertainty within certain segments of the economy, the dollar store channel is affecting shopping trips in a number of retail channels. Indeed, as dollar stores make their way into new markets, grocery stores, mass merchandisers, drug stores, and convenience/gas operations will all feel the impact.

ACNielsen examined the potential impact of the dollar store on other retail channels in a recent study, "The Dollar Store Shopper," prepared by Jane Jensen, director, shopper insights for ACNielsen Homescan. The study was based on the ACNielsen Homescan Panel, which provides longitudinal buying and shopping behavior, with the ability to integrate attitudinal insights from a sample of U.S. households.

Nonfoods activity

Both the HBC and general merchandise departments within the dollar store segment have similar share: Combined, they represent 18 percent of the total UPC dollar share in that channel, and they've gained two share points since 2001.

The dollar channel has a 45 percent household penetration in the overall HBC category, with the average consumer spending $19 in nonfoods there annually. This penetration is similar to that of supercenters; however, the annual buying power per household is significantly lower in dollar stores, due to shoppers' basket size and trip frequency in that channel.

While 66 percent of dollar channel shoppers have purchased an HBC item within the channel, they prefer to do the bulk of their personal care shopping in mass and supercenter channels. Only 4 percent of their HBC dollars go to the dollar segment.

Both drug and grocery are also used for fulfilling consumers' HBC needs as well -- but primarily on promotion. The drug and grocery channels have the highest percentage of HBC sales on promotion relative to the other channels.

For GM, dollar channel penetration is similar to that of drug and supercenters, and again, annual spending in the dollar channel is significantly lower -- primarily due to basket size for drug.

The 76 percent of dollar channel shoppers who purchase GM items use the channel to meet only 3 percent of their GM needs. The majority of their GM shopping is done in the mass and supercenter channels. As with HBC, promotion plays a key role for a dollar shopper to purchase his or her GM needs in drug or grocery.

Top penetration categories within dollar stores range from stationery and school supplies to kitchen gadgets and batteries. These top categories are divided equally between HBC and GM (five categories each). None of the categories average more than three purchases in the dollar channel per year.

Of the top HBC items purchased within the dollar store channel, nine are oral hygiene items—primarily toothpastes -- and four are first-aid items. Six of these items are private label.

Of the top-selling GM items purchased within the dollar store channel based on overall purchase occasions, 10 are batteries/flashlights, both branded and private label. Six items are school/office supplies.

Although the grocery channel has a distinct advantage over other channels in the area of shopping frequency, trips to this channel have been on the decline. Also, consolidation continues with increased competition from value retailers.

The grocery channel maintains a commanding share position in food categories and has a strong share in HBC and nonfood categories. However, value retailers and drug chains are driving year-to-year sales growth. Grocers facing strong competition from dollar stores will find the following strategies helpful, according to ACNielsen:

--Adding a dollar store section to the nonfoods department, or similar dollar-store items within key sections.

--Emphasizing value and quality among competing products, and providing a wide assortment of these items.

--Incorporating additional services around competing items/categories, without extra costs.
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