Competitive Watch: Family Dollar Ups Food and HBC

Matthews, N.C. -- Family Dollar, the 7,100-store discount chain based here, is preparing to undergo a "subtle but significant shift of the merchandising space in its stores." The low-price retailer will devote half of the square footage of its consumable goods area to food and health and beauty items, according to the Charlotte Business Journal.

The shift will be an increase from the 30 to 35 percent of space that the retailer currently allocates for food and HBC products, said the news outlet.

The move comes a month after the retailer revealed its gross profit margin shrank in its first fiscal quarter despite posting higher sales and net profit.

Family Dollar reported that sales in the first fiscal quarter rose 7.6 percent, to $2.1 billion, and profits rose 8.1 percent, to $80.4 million. The retailer plans to open between 450 and 500 new stores this year.

The Charlotte Observer reported both store traffic and the amount of customers' purchases increased in the company's first fiscal quarter, which ended last November.

Gross profit margin, however, fell from 36 percent a year ago to 35.3 percent this year. The company said the decline resulted in part from increased sales of consumables, which have lower profit margins.

Family Dollar has already expanded the number of grocery items and other consumable goods it carries. Bargain-hunting customers are increasingly turning to the discount chain for basic needs, instead of buying discretionary purchases such as clothes there, executives said.

The retailer reported it plans to add 300 more food items to all stores and introduce a "Family Wellness" brand of private label, over-the-counter goods. In the last five years, consumables have increased from 61 percent to 70 percent of total sales at the stores.