July 6, 2007
GHQ: Shopper Markup
By Suzanne Vita Palazzo
Through a special arrangement, what follows is an excerpt
of a current article from Grocery Headquarters magazine, presented
here for discussion.
Dollar stores are attracting a larger number of single-person households, empty nesters, and middle- to upper-income households in general – and consequently becoming a bigger headache for grocers.
A big reason for their increased appeal is many are carrying a larger selection of name brand products and grocery items.
“What’s happened is that dollar stores have started to recognize the possibilities, and many are putting in coolers and selling milk, bread and soft drinks,” said Ray Jones, managing director at Dechert-Hampe & Co. “That’s not a total sea change, but it’s a pretty significant one, because for awhile they weren’t really competing with the grocery stores. They were selling off-brand, less expensive merchandise and distressed merchandise.”
But their growing popularity also stems from consumers’ increasing desire to make quick, tailored shopping trips. With ample parking, dollar stores are known for being easy to get in and get out, adding convenience to the value equation already associated with them.
“Quick trips are essentially a battleground for all of the major retailers today,” said Mr. Jones.
To adapt, some believe grocers have to offer more convenience.
“The supermarkets should be able to see that opportunity for smaller, more convenient, friendlier formats,” said Candace Corlett, principal of WSL Strategic Retail. “When you think about the huge supermarkets in the retirement communities – and the scene is now a lot younger than it used to be – but certainly in areas of Florida, everyone thinks in terms of big supermarkets, and there’s a growing population that thinks in terms of less is more.”
But others believe the value equation has to be better addressed.
The greeting card category is one area in particular where grocers have tried to stem the loss of sales to dollar stores, often by offering 99-cent cards. In supermarkets, however, merchandising the category at discounted prices is not so simple, because many consumers who are shopping for cards at a grocery outlet are specifically looking for high value.
“One of the strategies for success is to satisfy both ends of the spectrum and to understand when she’s willing to spend 99 cents and when she’s willing to spend $1.99,” said Lynn Dolan, vice president of Gartner Greetings.
According to Gartner’s president Mark Deuschle, the situation facing greeting cards can be applied to many of the categories faring well in dollar stores.
“Supermarkets need to understand that there’s a value need in the category, period, because dollar stores have set a new expectation,” he said. “So you better be in value, at least at some level, even if it’s only at the introductory price points. And in certain markets you better be heavy into value, because the customer is requiring it. It’s not really an option.”
He adds that successful grocers know their market and their customer base well enough to deliver an appropriate, customized shopping experience.
“I wouldn’t necessarily fight fire with fire. If you can get the value equation close, the consumer won’t make the added trip to a dollar store,” adds Mr. Deuschle.
Discussion Question: What do you think are some ways grocers can compete better against dollar stores? Which categories should they be concentrating on?
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Should grocers embrace every retail fad that comes down the pike in order to be successful? Clearly not. The referenced article from Grocery Headquarters magazine indicates that the dollar store business model is moving closer to that of conventional supermarkets rather than causing supers to move closer to dollar stores. There’s a message in this: The clearly-delineated retail category originally created by dollar stores is morphing into a blend between downscale conventional supermarkets and large C-stores. And, as dollar stores move more into these areas, they begin competing head-on with supermarkets and C-stores.
Dollar stores once were able to pick their battles. Now the battles will choose them. Who wins when established supermarket and C-store chains ask suppliers to favor them over a scattering of dollar store locations? Who gets the best, volume-driven cost that will enable them to offer the best price? Who gets the most advertising support? Who gets new-product introductions and their accompanying marketing support? Who has the best locations?
If I owned a dollar store, I’d blend it with small area markets that provide ethnic-oriented foods. I’d invite a local meat market to become my meat department, and do the same with a local fish monger and a local produce retailer. There are more small, local, ethnic-based meat, fish, and produce retailers than one can count, and they enjoy significant, off-the-grid sales because their customers trust them. They could definitely benefit from the extra traffic generated by my dollar store, and their customers would benefit from added, ethnically-oriented inventory.
If you can’t beat ’em, join ’em. I like Kroger’s portfolio approach–Food4Less, Kroger and FreshFare banners. Filene’s Basement captured a market that Filene’s didn’t. DKNY captured a market that Donna Karan didn’t.
New Dollar Store express formats could work beautifully, and might benefit from using the halo of the parent brand. Tesco sells private label for every income niche, up and down the scale. Why not Publix or Safeway?
I love dollar stores for certain items. However, right now the 800 lb. gorilla in the room for almost all stores is import safety. Recent well established concerns about tainted or mislabeled goods, drugs, toys and toothpaste as well as fake brand name import products are making everyone nervous–perhaps merchants even more so than consumers. Many experts believe we have seen but the tip of the iceberg.
While it may well be more perception than reality, dollar stores because of their product lines and sourcing, will be even more susceptible to scrutiny than are mainstream grocery stores. If they are smart, the grocery chains will take advantage of this weakness in dollar stores’ inventory to hold on to market share. Will we see experiments with special “made in America” sections in some grocery stores to replicate those for “kosher,” “gluten free” and “organic” soon? I think so. For most people the goal of purchasing safe”er” goods for use by one’s family and pets trumps price almost every time. Stores in areas with many retirees are especially ripe for this marketing approach.
Dollar stores are successful at what they do because of the simplicity of their business model. They sell off branded products with no frills for $1. What you see is what you get and if you don’t grab it now, it may not be there next week.
Customer service is almost non-existent in dollar stores. Grocery stores can differentiate themselves by offering high quality brand name products. They can (and should) also provide sterling customer service to back up the merchandise.
I think there is a confidence issue with dollar store products where customers purchase items not having any expectations about durability and quality. When purchasing brand name products, there is a confidence that consumers have knowing that if there is a problems, the product is probably guaranteed in some way shape or form. What groceries need to do now is complete the confidence cycle by offering outstanding customer service to back up the merchandise assortment. Consumers will spend their money on brand names as long as they feel confident in what they are buying.
Rather than try to compete against Dollar Stores, grocers need to enhance the features that are making them successful in the first place: Freshness and Selection. If losses to Dollar Stores are truly a concern, grocers can also place a focus against value sizes and value brands within their assortments. I see way too many retailers thinking that PVL offerings will carry the entire burden of satisfying the value-conscious consumer.
One of the reasons dollar stores are attracting singles and empty nesters is that in addition to offering value and name brands, many dollar stores are offering smaller sizes at discount prices. Retailers like Costco and Sam’s offer great values for large families, and traditional supermarket retailers offer a variety of sizes that lend themselves to the average family. However, dollar stores generally offer products in smaller sizes, thus providing value at a size that is favorable for singles and empty nesters. Traditional supermarkets should investigate this area as a way to compete with the dollar stores.
Since shoppers know the prices of frequently repurchased items, it wouldn’t be hard for a supermarket to periodically quietly survey its prices versus local dollar stores. As long as the supermarket prices are no higher than the competition, the risk of market share loss is minimal. Yes, it’s sometimes easier to get in and out of a dollar store, but every well-run supermarket is already trying to minimize its lines.
The Dollar Store format is focused on convenience 1st, then item selection in a limited assortment with solid E.D. pricing. This combination has strong appeal, because you know what they carry and what you’ll pay and can get in and out of the stores quickly.
Other channels need to recognize the convenience factor for shoppers as important, and do all they can to support this element in the shopping decision. The strength of other channels lies with stronger variety/assortment and the increasing importance of shopper “consultation” and service; something the dollar format can not offer. Shoppers want convenience, but they also want service and department experts who can help them with their purchase decisions and advise them. Make sure your prices are comparative to the dollar stores on key items, make the trip as pleasant and convenient as possible, and have well trained in-store experts to help your shoppers and you will keep your shoppers loyal and not lose them to the dollar channel….
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Should grocers embrace every retail fad that comes down the pike in order to be successful? Clearly not. The referenced article from Grocery Headquarters magazine indicates that the dollar store business model is moving closer to that of conventional supermarkets rather than causing supers to move closer to dollar stores. There’s a message in this: The clearly-delineated retail category originally created by dollar stores is morphing into a blend between downscale conventional supermarkets and large C-stores. And, as dollar stores move more into these areas, they begin competing head-on with supermarkets and C-stores.
Dollar stores once were able to pick their battles. Now the battles will choose them. Who wins when established supermarket and C-store chains ask suppliers to favor them over a scattering of dollar store locations? Who gets the best, volume-driven cost that will enable them to offer the best price? Who gets the most advertising support? Who gets new-product introductions and their accompanying marketing support? Who has the best locations?
If I owned a dollar store, I’d blend it with small area markets that provide ethnic-oriented foods. I’d invite a local meat market to become my meat department, and do the same with a local fish monger and a local produce retailer. There are more small, local, ethnic-based meat, fish, and produce retailers than one can count, and they enjoy significant, off-the-grid sales because their customers trust them. They could definitely benefit from the extra traffic generated by my dollar store, and their customers would benefit from added, ethnically-oriented inventory.
If you can’t beat ’em, join ’em. I like Kroger’s portfolio approach–Food4Less, Kroger and FreshFare banners. Filene’s Basement captured a market that Filene’s didn’t. DKNY captured a market that Donna Karan didn’t.
New Dollar Store express formats could work beautifully, and might benefit from using the halo of the parent brand. Tesco sells private label for every income niche, up and down the scale. Why not Publix or Safeway?
I love dollar stores for certain items. However, right now the 800 lb. gorilla in the room for almost all stores is import safety. Recent well established concerns about tainted or mislabeled goods, drugs, toys and toothpaste as well as fake brand name import products are making everyone nervous–perhaps merchants even more so than consumers. Many experts believe we have seen but the tip of the iceberg.
While it may well be more perception than reality, dollar stores because of their product lines and sourcing, will be even more susceptible to scrutiny than are mainstream grocery stores. If they are smart, the grocery chains will take advantage of this weakness in dollar stores’ inventory to hold on to market share. Will we see experiments with special “made in America” sections in some grocery stores to replicate those for “kosher,” “gluten free” and “organic” soon? I think so. For most people the goal of purchasing safe”er” goods for use by one’s family and pets trumps price almost every time. Stores in areas with many retirees are especially ripe for this marketing approach.
Dollar stores are successful at what they do because of the simplicity of their business model. They sell off branded products with no frills for $1. What you see is what you get and if you don’t grab it now, it may not be there next week.
Customer service is almost non-existent in dollar stores. Grocery stores can differentiate themselves by offering high quality brand name products. They can (and should) also provide sterling customer service to back up the merchandise.
I think there is a confidence issue with dollar store products where customers purchase items not having any expectations about durability and quality. When purchasing brand name products, there is a confidence that consumers have knowing that if there is a problems, the product is probably guaranteed in some way shape or form. What groceries need to do now is complete the confidence cycle by offering outstanding customer service to back up the merchandise assortment. Consumers will spend their money on brand names as long as they feel confident in what they are buying.
Rather than try to compete against Dollar Stores, grocers need to enhance the features that are making them successful in the first place: Freshness and Selection. If losses to Dollar Stores are truly a concern, grocers can also place a focus against value sizes and value brands within their assortments. I see way too many retailers thinking that PVL offerings will carry the entire burden of satisfying the value-conscious consumer.
One of the reasons dollar stores are attracting singles and empty nesters is that in addition to offering value and name brands, many dollar stores are offering smaller sizes at discount prices. Retailers like Costco and Sam’s offer great values for large families, and traditional supermarket retailers offer a variety of sizes that lend themselves to the average family. However, dollar stores generally offer products in smaller sizes, thus providing value at a size that is favorable for singles and empty nesters. Traditional supermarkets should investigate this area as a way to compete with the dollar stores.
Since shoppers know the prices of frequently repurchased items, it wouldn’t be hard for a supermarket to periodically quietly survey its prices versus local dollar stores. As long as the supermarket prices are no higher than the competition, the risk of market share loss is minimal. Yes, it’s sometimes easier to get in and out of a dollar store, but every well-run supermarket is already trying to minimize its lines.
The Dollar Store format is focused on convenience 1st, then item selection in a limited assortment with solid E.D. pricing. This combination has strong appeal, because you know what they carry and what you’ll pay and can get in and out of the stores quickly.
Other channels need to recognize the convenience factor for shoppers as important, and do all they can to support this element in the shopping decision. The strength of other channels lies with stronger variety/assortment and the increasing importance of shopper “consultation” and service; something the dollar format can not offer. Shoppers want convenience, but they also want service and department experts who can help them with their purchase decisions and advise them. Make sure your prices are comparative to the dollar stores on key items, make the trip as pleasant and convenient as possible, and have well trained in-store experts to help your shoppers and you will keep your shoppers loyal and not lose them to the dollar channel….