NATIONAL REPORT — As the retail sector has struggled to adapt to changes wrought by both the rise of online shopping and the pandemic, convenience stores and grocery stores are experiencing pressure from another source: dollar stores.
While the value market has long offered customers deep discounts, its bread and butter has traditionally been household goods. However, according to a new report from Coresight, Dollar Stores: Flexing Muscle in U.S. Grocery, the channel has started to make inroads into fresh food and grocery items.
The sector remains a relatively niche one, with dollar stores accounting for only about 3.1 percent of total grocery sales. But the report cites a general rise in customer visits, with numbers staying elevated above their 2019 marks, and chains like Dollar General expanding its locations by more than 1,000 stores between November 2019 and November 2022, while developing plans to offer fresh food in more locations.
This doesn't come as much of a surprise to Hemant Kalbag, a managing director in Alvarez & Marsal's Consumer Retail Group.
"Historically, the most attractive part of dollar stores has been deep discounts with added benefit of proximity to consumers and the size of the store, so the speed of the transaction is really quick," Kalbag said. "The macrotrends in the economy over the last three to five years have contributed to a unique value proposition that neither convenience stores nor traditional value stores can meet holistically. That's where dollar stores have played an important role and where they've seen success."
The Coresight analysis found that not only are dollar stores retaining their traditional audience of lower-income families, but they're also capturing a larger share of middle-class households. Kalbag sees this partially as a result of recent inflationary pressures.
"While consolidated inflation numbers have been hovering around 8 to 9 percent, core consumables such as food, rent and utilities have seen a much higher increase," he said. "So, it's not surprising for families to look to value retailers and trade down on brands, which plays to dollar stores' core strength."