Dollar General's California Dream Becoming Reality

Tennessee-based discount retailer Dollar General has been moving hard and fast in Northern California, particularly in the Central Valley, since we first revealed the discount retailer's big plans for the market region in this December 5, 2011 story: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings.

In the mere four months since we published the report, Dollar General has hit the ground running, focusing on its Dollar General Market grocery stores and traditional dollar format stores in the region.

Below is what the mega-discount retailer, which operates 10,000 stores in 39 U.S. states, is up to:

>First store opened: Dollar General opened its first Dollar General Market grocery store in the region March 31, at 1729 West Highway 140, in Merced, California.

The grocery market was store number 10,000 for Dollar General, and it went all out for the grand opening, offering activities for shoppers including: a free make-up consultation from representatives of  L’Oreal and Maybelline; photographs for the kids with characters Sponge Bob, Bimbo Bear and the Energizer Bunny; and food sampling, offering numerous products sold at Dollar General. Additionally, the first 500 customers to arrive at the store for the 9 a.m. grand opening received a free ham and a reusable tote bag filled with product samples and coupons

>Store manager search: The retailer is currently advertising for store managers for its three Dollar General Markets in Stockton, California and the unit in the East Bay Area city of Brentwood. These are four of the five stores Dollar General is leasing from Stockton-based supermarket chain Centro Mart, as we detailed in our December 5, 2011 story. The fifth former Centro Mart unit, in Stockton, will be a Dollar General dollar format store. The four Dollar General Market grocery stores and the dollar store are set to open in the coming weeks.

>Regional director wanted: Dollar General is advertising for a regional director for its dollar stores and Dollar General Market stores for California and Nevada.

According to our sources, the retailer plans to open 150-200 units combined of both formats in California and Nevada over the next two-to-three years.

So far Dollar General has seven stores open in Nevada and six units in California. Dollar General CEO Rick Dreiling said in a March 22, 2012 conference call with financial analysts that the retailer plans to have 50 (grocery stores and dollar stores combined) units open and operating in California by the end of the year.

>More stores: In our December 5, 2011 story we reported Dollar General had plans to open numerous other Dollar General Market (which offer groceries along with perishables, fresh meat and produce) and dollar store units, which carry perishable and dry grocery consumables along with general merchandise items but not meat or produce, throughout Northern California, with a major focus on the Central Valley.

Above: The location of the Dollar General Market in the Gregory Gardens shopping center, Modesto, California.

Thus far we've discovered the following planned Dollar General Market grocery store units in the region: two units in the Fresno area, at Fruit and McKinley in Fresno and Bullard and Minnewawa in nearby Clovis (both are former Save Mart supermarkets which the Modesto-based chain had previously closed); a Dollar General Market in Modesto, in the Gregory Gardens shopping center at 2003 Tully Road, between Bowen and Briggsmore (the retailer has also signed a lease for a dollar format store at 510-560 North Main Street in Modesto); and a Dollar General Market in Winton, which is next door to Merced, where the first store in the region opened March 31.

Dollar General is currently advertising on a variety of online job sites for managers for the Modesto and Winton grocery markets, which are set to open in the coming weeks.

Distribution center

As we reported in our December 5, 2011 story, Dollar General has established a distribution center near Bakersfield, California to service its grocery and dollar format stores in California, Nevada, Arizona and New Mexico. The facility opened this month.

Major growth plans

Dollar General plans to open approximately 625 new stores this year, the majority of which will be its flagship dollar format stores, which average about 7,000 square feet, CEO Dreiling said in the March 22 conference call. Additionally, according to the CEO, the retailer plans to remodel and relocate about 550 stores in 2012.

The retailer opened 625 new stores in 2011, along with remodeling or relocating 575 units, for a net increase in square footage of 7%, Dreiling said.

Dreiling said in the March 22 conference call that Dollar General has about 40 new Dollar General Market grocery stores set to open this year, the majority of which will be in California, Nevada and Arizona.

Last year the retailer opened seven new Dollar General Market stores, seven of which were in Nevada (its first new market since 2006), and remodeled 25 existing grocery markets.

There are currently 70 Dollar General Market grocery stores in the U.S.

The grocery stores, which average 10,000-15,000 and offer a selection of grocery items, perishables, frozen foods, produce, meats and general merchandise, are a key element of Dollar General's strategy for California.

Part of that strategy is to focus on food deserts, regions and cities that are currently underserved by grocery markets offering fresh food and groceries at reasonable prices.

The Dollar General Market format is focused on everyday low prices. A number of industry surveys, for example, put the store's prices on par with Walmart for fresh food, groceries and general merchandise items. Dollar General also runs weekly ads for the grocery markets and sometimes offers store coupons, such as $5 off purchases of $25 or more.

Inside a new generation Dollar General Market. [Photo credit: Dollar General, 09/27/11.]

Good fiscal 2011

Dollar General had a good 2011 fiscal year on all metrics. Its full-year sales increased 13.6% to a record $14.8 billion. There was an extra week in the fiscal year. Excluding that 53rd week, full-year sales increased to 11.4%.

Sales-per-square-foot for fiscal 2011 increased to $209, compared to $201 a year ago. Average sales-per-store came in a bit over $1.5 million.

The 2011 fiscal year also marked the 22nd consecutive year of same-store-sales growth for Dollar General. Same-store-sales were up 6% for the year, with all regions reporting positive comps, according to CEO Dreiling. Dollar general is forecasting a same-store-sales increase of between 3%-5% for the current fiscal year.

Dollar General's adjusted operating profit grew 17% in 2011 over the previous year to a record $1.5 billion and a record 10.2% of sales.

The retailer posted a 31.7% gross margin rate for 2011, which was 31 basis points below the previous year but was 246 basis points higher than in 2008, the first full year of the "great recession."

On the bottom line, Dollar General's adjusted net income increased 26% over 2010, which is an impressive performance.

Dollar General also launched and e-commerce website in 2011, which will not only bring it added revenue but should prove to be a good source of data over time. For example, the retailer is currently in 39 states. Purchasing data from the site over time could prove valuable as Dollar General looks at which of those remaining states it wants to open stores in first.

A closer look inside the Dollar General Market. [Photo credit: Dollar General, 09/27/11.]

Dollar General's impact

It's difficult to forecast whether or not Dollar General will be a major player in the food and grocery retailing business in California in general and in the Northern California/Central Valley region specifically for a couple reasons.

First off, selling food and groceries isn't something the retailer has a solid track record of doing. In fact, a couple years ago Dollar General considered shuttering its Dollar General Market format and stores completely. However, it instead developed a new Dollar General Market prototype in Dallas, Texas, which is the model for the remodeled and new stores, and is going forward with the chain, including emphasising the grocery markets as part of its two-format strategy in California and Nevada, as previously noted.

Second, California has no shortage of seasoned grocery chains and independents, with more coming, like Walmart with its Neighborhood Market supermarkets (see the story link at bottom), for example. But Dollar General's focus on undeserved regions and cities in the Golden State, such as the locations in the Central Valley detailed earlier, could be a very smart move for the retailer with its Dollar General Market stores, which have a low everyday price focus.

For example, Tesco's Fresh & Easy Neighborhood Market, which continues to lose millions of dollars a week with its 10,000 square-foot grocery markets, isn't opening any new stores in California's Central Valley despite having numerous sites in cities like Bakersfield, Fresno, Modesto, Los Banos and Stockton, most of which its been sitting on for three to four years.

Fresh & Easy did finally open its first five stores in Sacramento (see story links at bottom), where Dollar General also plans to open a number of its grocery markets and dollar stores (the first unit we've discovered will be in the Grand Oaks shopping center at 7963 Auburn Boulevard in the Sacramento suburb of Citrus Heights), in March. Tesco now has 196 Fresh & Easy stores. There are 142 units in California, 24 stores in Arizona and 20 units in Arizona.

Dollar General's two-format - the grocery stores and dollar stores - strategy in California should be a powerful one though, allowing it to establish its brand in the Golden State (and in Nevada) much faster than if it was only going with a single-format approach. For example, the dollar format stores also offer a considerable selection of groceries and general merchandise items, along with some perishables and frozen foods (two categories Dollar General is expanding in the stores), which should allow the retailer to establish itself in the highly competitive Golden State faster than if it were doing a single-play strategy only.

We'll keep you updated like only Fresh & Easy Buzz can on Dollar General's march through California, which is just getting started.

Related Stories

December 5, 2011: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

April 3, 2012: Getting Real in the Golden State: First Group of 13 Walmart Neighborhood Market Stores Opening in California This Fall

March 9, 2012: Scoop Confirmed: Sprouts Announces Acquisition of Sunflower Farmers Market

February 9, 2012: Confirmed: First 2 Fresh & Easy Stores Open in Sacramento March 7; 3 in Metro-Area March 14

January 18, 2012: Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

August 29, 2011: Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch

August 3, 2011: Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store

August 31, 2011: Tesco Says Sayonara to Japan, Good Morning to Sacramento

Southern California-Based '99 Cents Only Stores' Has A Valentine's Day Ad 'Frugal Romeos' Can't Refuse

Commerce, California-based retailer 99 Cents Only Stores, which offers a strong assortment of perishable foods and grocery items in its 281 stores in California, Nevada, Arizona and Texas, appeals to men with its clever and funny Valentine's Day advertising circular (above) - "Attention All Romeos: Valentine's Tips From Your Friends at 99 Cents Only Stores - this week. View the full advertising circular here.

Valentine's Day offers a great selling opportunity for food and grocery retailers, particularly because it provides an opportunity in mid-February to sell many types of products in significant volume that, were it not for the special occasion, would move off the shelves at a slower, normal velocity.

Many of these products - gourmet candy, high-end floral bouquets, champagne and wine, steaks, seafood, non-food gift items and the like - are high-ring items that also in many instances have higher than average gross margins. A high item-ring plus higher than normal gross margin equals music (hear the cash registers ringing) to retailers' ears.

More music to retailer's ears: Compared to last year, the average shopper is expected to spend about 12% more on Valentine's Day gifts - an average of about $116 - than he or she did last year, according to retailing prognosticators who track holiday period sales.

Food and grocery retailers are well aware of the benefits Valentine's Day offers to both their top and bottom lines. That's why you see merchants go all out starting a couple weeks before the holiday, featuring Valentine's Day-themed in-store displays throughout every department. If its heart-shaped, for example, you'll see it in-store for Valentine's Day.

Nearly every food and grocery retailer in America also focuses its weekly advertising circular on Valentine's Day in the week leading up to today. Cookies, cupcakes, adult beverages, flowers, balloons, candy, gifts and cards, meats, seafood, gourmet foods, ready-to-heat gourmet meals and more are advertised at promotional prices beginning on the Tuesday or Wednesday before Valentine's Day, leading up to today.

As we do for each major merchandising holiday here at Fresh & Easy Buzz, this week we reviewed dozens of Valentine's Day-themed advertising circulars put out by grocers, mass merchants, dollar stores, drug chains and other format retailers located throughout the U.S.

The collective output is impressive, not only in the sheer number of items offered by retailers, but also because of the excellent prices offered this week for food, beverage and non-food items, all geared towards Valentine's Day.

But one retailer's ad circular stood out among the many we reviewed leading up to today, not because it's "better" than all the others but rather for its use of creativity and humor, tied-into its offering of various inexpensive gift items geared to male shoppers looking for Valentine's Day gifts for their sweethearts.

That retailer is the fast-growing Southern California-based dollar store format chain 99 Cents Only Stores, which this week took a clever and humorous angle in its Valentine's Day-themed ad, offering a variety of gifts "Romeo's" should consider buying for their sweethearts.

Unlike most other dollar store-format chains, 99 Cents Only Stores offers an assortment of perishable foods - meats, produce, dairy/deli - along with frozen foods and a strong selection of packaged food and grocery items (including gourmet and organic) in its 281 stores, which are located in California (75% of the units), Nevada, Arizona and Texas.

In the ad (pictured at top) headlined: "Attention All Romeos: Valentine's Tips From Your Friends at 99 Cents Only Stores," the retailer created two columns - "Good Choice" and "Bad Choice...but still a great deal" - each featuring items "Romeo's" should buy at the stores for their sweethearts.

Among the items in the "Good Choice" column include: chicken of the sea oysters, live flowering plants, condoms, whipped topping, a chocolate rose in a box and lady's lingerie, all for just 99-cents each.

Conversely, the "Bad Choice...But Still A Great Deal" column features items such as anti-wrinkle patches, a pregnancy test (see condoms in the good choice column) deodorant, diet tea, a mop and a broom, powdered Butt Aid and, perhaps as a companion item to the Butt Aid...douche. All of the "Bad Choice" items are also a mere 99-cents each, which demonstrates, at least in this case, that good choices cost the same as bad ones do.

[You can view the full ad circular and all the items here.]

The ad ends today. However, perhaps anticipating a rush by "Frugal Romeos" to the stores, 99 Cents Only has extended its stores hours, as noted in the circular.

But...back to that estimated average consumer spend of $116 this Valentine's Day, mentioned in the beginning of this piece. "Frugal Romeos" take note - and you still have time before the 99 Cents Only stores close today: You can purchase every single one of the items for your sweetheart on both the "Good Choice" and Bad Choice" lists featured in the 99 Cents Only Stores' ad circular - and still have plenty of cash left over for dinner out tonight at a decent restaurant.

Toy Store Chain Toys "R" Us Joins the Store-Within-A-Store Mini Grocery Trend; Now Has New "R" Market 'Grocery Stores' in Over 260 Toys "R" Us Stores

Retail Trends Report: Alternative-Format Retailers, Food & Grocery Sales, Store-Within-A-Store Limited Assortment Mini-Markets

In this April 15, 2009 piece [Family Dollar Discount Store Chain Increasing Amount of Store Square Footage Devoted to Merchandising Food-Grocery Items in Stores Beginning in May] about the Family Dollar dollar store chain and other alternate format retailers involved in selling food and grocery items, we mentioned an April 3, 2009 story in the food industry publication Natural~Specialty Foods Memo about toy store chain Toys "R" Us testing store-within-a-store mini-grocery sections named "R" Market in a handful of its Chicago, Illinois-area toy superstores. (See the photograph of the in-store "R" Market at top.)

[This is the original story from Natural~Specialty Foods Memo: [April 3, 2009: Retail Memo - Alternate Formats: Toys 'R' Us Testing Store-Within-Store 'R Market' Grocery Departments in Three Chicago-Area Toys 'R' Us Toy Stores.]

On April 28, 2009, Toys "R" Us confirmed that April 3 report published in Natural~Specialty Foods Memo, saying in a statement that it has opened what it calls "R" Market grocery sections in over 260 of its 585 Toys "R" us banner toy superstores in the U.S. A few of the "R" Market grocery sections are located in Toys "R" Us toy stores in California and Arizona, where Tesco has all but about 30 of its 120 Fresh & Easy grocery and fresh foods markets. The other regional market for Fresh & Easy is southern Nevada.

Toys "R" Us, Inc. operates more than 1,500 stores, including 847 Toys "R" Us (565 units) and Babies "R" Us (282 units) stores in the U.S., along with more than 700 international stores in 32 countries, which includes licensed and franchise stores. It also sells toys and related products via its Web site.

The "R" Market store-within-a-store grocery sections contain a mix of about 1,300 SKUs in the consumables and related non-foods packaged goods categories, according to Toys "R" Us.

Among the product categories (and merchandising themes) included in the "R" Market grocery store-within-the-Toys 'R" Us-toy-superstores are, according to and as described by the retailer:

>Light Snacks, Breakfast Foods and Drinks: Parents looking to fill lunchboxes or refuel while on-the-go will delight in the "R" Market assortment of snacks, including chips, puffs and pretzels, cookies and crackers, fruit snacks, cereals and nutrition bars from favorite brand names, as well as a variety of healthy munchies such as squeezable fruit and apple sauce."R" Market also features a variety of juice boxes, kid-sized nonperishable milks and other soda alternatives perfect for snack time. In addition, mom and dad can stock up and save on bulk packages of bottled water in regular and fun-sizes for kids.

>Paper Goods: From hosting birthday parties to wiping up minor spills, customers will find a broad assortment of disposable paper goods available in "R" Market, including napkins, paper towels and toilet paper. Paper towels and toilet paper are also offered in bulk packages at value prices.

>Cleaning Supplies and Laundry Detergent: Whether tidying up the house or mopping up after a messy play date, shoppers can find the supplies they need to make their homes sparkle in "R" Market. A selection of laundry detergents and fabric softeners from popular brands is also available, along with kid-friendly versions of stain removing wipes.

>Expanded Assortment of Essentials for Little Ones: Parents can now find an even larger assortment of basics for baby at Toys"R" Us. The "R" Market collection features a variety of diapers, wipes and changing products from favorite brands, including Pampers, Huggies, Seventh Generation and Earth's Best in one convenient location upon entry. Baby food and infant formula from Gerber, Earth's Best Organic, Similac, Enfamil and Nestle Good Start are also showcased in this unique assortment, which includes nutritional items for infants, as well as tasty snacks for toddlers and preschool-aged children.

>Health and Beauty Aids: From humidifiers to hand soap, this expanded collection of health and bath essentials includes first aid and wellness products to keep kids looking and feeling good.

>Sweet Treats: In the dedicated candy section within "R" Market, customers can browse through a world of chocolate, lollipops, cotton candy, mints, and sour and hard candies. Additional treats include animal crackers, popcorn tins, giant candy bars and a wall of theater candy boxes. Toys "R" Us has also added novelty items, including marshmallow blasters, gumball machines and PEZ dispensers to make indulging in candy even more fun. Unique candy playthings, including spinning lollipops, candy necklaces and other character-themed candies can also be found in this aisle.

>Together Time in the Kitchen: For families hoping for homemade treats, "R" Market also offers an assortment of pizza kits and baking mixes to make cooking a cinch. Kid-Focused Consumables: Making lunchtime more enjoyable is simple with the "R" Market assortment of unique fizz beverages and fruit juices featuring favorite characters, and plentiful mixes of Sesame Street organic munchies from the makers of Earth's Best Organic.

>Making Bath Time Fun: With cool products such as motorized toothbrushes, bathtub crayons and paint from brands like Crayola, playtime doesn't have to stop when kids jump in the tub.

{You can read the April 28, 2009 statement from Toys "R" Us about the new "R" Market grocery sections here.]

The "R" Market product mix contains only shelf-stable items. Their are no perishables.

The "R" Market store-within-a-store grocery sections are clearly set-off as a separate area within the Toys "R" Us toy stores, as you can see in the photograph at the top of this story. They have the look of a mini-grocery store inside the toy store, being set-off with colorful graphics designed to create an individual identity for the "R" market grocery section.

The "R" Market Strategy

The retailer's strategy behind the in-store grocery sections is to increase same store sales by offering the 1,300 consumable and related "essential" grocery and non-foods items in "R' Market, along with hoping to encourage shoppers to make more frequent trips to the Toys "R" Us stores now that they offer the grocery and related item selection.

The strategy is particularly motivated by the current economic recession. However it's a strategy that has utility even in good economic times as it offers the retailer the opportunity to gain incremental sales from customers as they pick up the grocery and non-foods packaged goods items while shopping in the store for destination-oriented items like toys and board games.

The grocery items might serve as impulse items for both kids and adults shopping the toy stores. That's what Toys "R" Us is hoping at least, as they are marketing the "R" Market in-store concept as being designed to create greater convenience for customers.

Alternate-formats and food & groceries: A growing trend

In this story from yesterday [May 11, 2009: Target on Tap to Put Mini-Grocery and Fresh Foods Markets Into 100 Target Discount Stores This Year; Many More Likely to Come in 2010] Fresh & Easy Buzz reported on and wrote about Target Corp.'s plans to put its new store-within-a-store mini-grocery and fresh foods markets in 100 of its Target discount format stores by the end of this year, with many more likely to come in 2010.

Like Target, Toys "R" Us is looking for a way to adapt its stores to the current consumer reality, which is finding an increasing number of shoppers focusing primarily on purchasing essential food, grocery and non-foods packaged goods items, while decreasing purchases of non-essential goods. This recession-induced "new frugality" of course comes at the expense of consumer purchases on items like toys, furniture, clothing and the like -- the type of items retailer's like Toys "R" Us and Target have historically focused on.

And like Target's in-store grocery and fresh foods mini-market development, the fact that Toys "R" Us has added the 1,300 SKU "R" Market grocery sections to over 260 of its U.S. stores thus far -- and it plans to add the sections to additional toy stores -- means another significant increase to the overall number of square-footage devoted to the retailing of food, grocery and non-foods packaged goods items in the U.S.

'Share of stomach' and 'share of pantry'

More such food and grocery square-footage -- particularly from alternate-format retailers like dollar stores, discount stores and even now toy stores -- added in the U.S. means greater competition for retailers that put a primary focus on retailing food, grocery and non-foods packaged goods items, such as supermarkets, mass merchandisers and other format grocers.

There's only so much "share of stomach" and "share of pantry" after all.

For example, if on a typical Saturday shopping outing, Mrs. consumer picks up laundry detergent, Pampers, hair shampoo and candy at Toys "R" Us while shopping for a board game for her kids, then while in a nearby Dollar General store she picks up $25 worth of canned and packaged food items, followed by a trip to a Target discount store, where along with buying a new pair of shoes for junior, she grabs a bunch of fresh produce, milk, eggs and butter in the in-store grocery and fresh foods mini-market, these are all items she won't purchase at the supermarket, which just happens to be her last stop on this typical Saturday shopping outing.

There's a growing trend among alternate-format retailers -- drug chains like Walgreens, CVS and Rite-Aid; home stores like Home Depot and Lowe's; office stores like Staples and Office Depot; 99-Cent and Dollar format stores; and general merchandise discount stores like Wal-Mart, Target and KMart, among others; and now even Toys "R" Us -- to offer limited assortments of consumables and non-foods packaged goods items for sale in their respective stores and formats.

These alternate-format retailers tend to pick-off item sales from supermarkets and other format retailers that focus on selling food and groceries, making it more difficult for grocers to maintain and increase the average market basket purchase size shoppers make in their stores, for the reason described in the "typical shopping outing" example we offered above. Average market basket refers to the total dollar amount a customer spends during his or her shopping trip to a store.

If a consumer can buy milk, eggs and other essentials at a drug store or discount store, get cleaning supplies at Home Depot or Toys "R" Us and the like, the convenience of such opportunity adds to the overall competition for supermarkets.

Not only are grocers increasingly competing with each other -- which is a rather competitive activity in and of itself -- but they also are competing against a myriad of alternate-format retailers offering various limited assortments of food, grocery and non-foods items in their stores. And that level of competition is increasing for grocers as more and more alternate-format retailers add food and grocery items to their stores and promote the items aggressively.

Attack of the alternative-formats': A growing trend

It's our analysis that this trend of alternate-format retailers adding limited food and grocery item assortments -- along with existing retailers like Dollar format stores and others increasing the assortments of consumables and non-foods items they merchandise -- will continue to grow in the U.S.

For example, as we've reported, the Walgreens' drug chain has embarked on a program in which it's significantly increasing the number of consumable and essential non-foods packaged goods items it offers in its drug stores throughout the U.S., including in California, Nevada and Arizona, the three Western U.S. states where Tesco's Fresh & Easy operates its current 120 small-format combination grocery and fresh foods markets.

Walgreens has increased its promotional advertising of consumable and non-foods packaged goods as well. The first two or three pages of its multi-page weekly advertising circular looks these days more like a supermarket promotional piece than it does a traditional drug chain ad circular, for example.

A number of dollar store format chains are also adding a significant number of new food and grocery SKUs to their overall item merchandising mix as well, including Dollar General, Dollar Tree and the 99-Cents Only chain,which is based in Southern California. The 99-Cents Only chain even offers perishables, including fresh produce and meats, in a number of its stores.

Long gone are the days when U.S. grocers only had to worry about competing against other grocers.

Instead, competitive strategy today must include keeping an eye out for alternate format retailers that want a share of shoppers' dollars in the food, grocery and non-foods packaged goods categories, and often use food and grocery items as promotional loss leaders designed to get customers in the door in the hope they will then purchase other items sold in the stores.

Doing so is part of the brave new world of food and grocery retailing in the U.S. We even have a suggested title for the movie version: "The attack of the Alternative-formats'."

Related Stories From Fresh & Easy Buzz:

>May 11, 2009: Target on Tap to Put Mini-Grocery and Fresh Foods Markets Into 100 Target Discount Stores This Year; Many More Likely to Come in 2010

>April 15, 2009: Family Dollar Discount Store Chain Increasing Amount of Store Square Footage Devoted to Merchandising Food-Grocery Items in Stores Beginning in May

>March 2, 2009: Walgreens Promotes Former Tesco Fresh & Easy Exec Bryan Pough to VP Merchandising Position; Move Fits Drug Chain's Current Strategic Focus

>January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?

>December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position

>April 18, 2009: Competitor News: Wal-Mart Close to Clearing First Major Hurdle For its 1.1 Million Square-Foot Regional Distribution Center in Merced, California

>September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

>December 29, 2008: Competitor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada

>December 16, 2008: Food & Grocery Retailing in the Recession: Bashas Broadening the Shopper-Base in its Hispanic Format Food City Stores; Shoppers Search for Value

>January 21, 2009: Breaking News: New-Wave, Hybrid Food-Grocery-Convenience Store 'Locali Conscious Convenience' to Open Tomorrow in Hollywood, California

[Follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.

[Photo Credit: Toys "R" Us, Inc.]

Family Dollar Discount Store Chain Increasing Amount of Store Square Footage Devoted to Merchandising Food-Grocery Items in Stores Beginning in May

Arizona Region Market Report
Alternate-Format Food & Grocery Retailing

Beginning next month, discount dollar store chain Family Dollar will start expanding the amount of space it devotes in its stores to merchandising food, grocery, household and related packaged goods items.

North Carolina-based Family Dollar operates 6,600 (in 44 states) of its small-format (7,500 -to- 10,000) square feet) dollar discount stores in the United States, including numerous stores in Arizona, one of the three states where Tesco operates its small-format (10,000 -to- 13,000 square foot) Fresh & Easy combination grocery and fresh foods markets. The other two states are California and Nevada.

The decision to expand the amount of square footage devoted to consumables and groceries in its stores beginning in May is all about consumer trends and sales in the current recession for Family Dollar, which is one of the U.S. retail chains that's currently benefiting from a flight to value retailers by shoppers in the current economic downturn in the U.S..

"Right now our customers are focused on needs, and so that's why we're focused on driving consumables," Kenneth Smith, Family Dollar's chief financial officer, said last week on Wednesday, April 9 in a Web-based conference call discussing the retailer's second-quarter financial results. "That's (consumables, groceries, essentials) where the action is today."

Family Dollar stores' s just-reported second-quarter financial results bare out the fact that consumables and essentials are where it's at for the retailer.

The dollar-discounter said a 13% increase in sales of consumables — including food, household-oriented packaged goods products, health and body care and pet food — drove second-quarter revenues up by 8.7% to $1.99 billion, compared $1.83 billion in the same quarter in 2008. As a percent of total sales, consumables increased to a whopping 61% at Family Dollar.

Gross margins are also looking rather good for the small-format, dollar-discount chain. For the second-quarter it reported its margins were up by 1% to 33.7% of sales.

Income for Family Dollar also is on the rise. The chain's Q2 net earnings improved 32.9% to $84.1 million, or 60 cents per share, up from the same period in 2008 when it reported $63.3 million and 45 cents per share.

It's clear the dollar-discount chain, which has Arizona stores in Phoenix, Tempe, Avondale and Tolleson, with additional units planned for the state, is benefiting from what we've identified and term a significant consumer flight to value-based retailers when it comes to much if not all of their food and grocery shopping in the current recession.

Fresh & Easy Buzz has learned that Family Dollar will carve out as much additional space in its stores for consumables, grocery, household cleaning and related "supermarket-type" items as it can. The retailer believes with its lower-cost, small-format store structure, combined with its huge buying power (the 6,600 stores), it can offer food and grocery items it currently isn't selling in its stores at prices that come in on a regular basis as the lowest in most of the market regions where it has its stores.

Family Dollar chairman and CEO Howard Levine said last week that he thinks the chain's combination of offering value (dollar store format and pricing) and convenience (the smaller footprint store size) positions the chain to continue doing well as it devotes the increased store square footage to consumables-groceries and the related packaged goods items, with at the same time continue to focus on value with its general merchandise product selection.

"In today’s challenging economic environment, families of all incomes are looking for ways to save money. Our strategy of providing both value and convenience continues to resonate well with consumers, and, as a result, we continue to capture more shopping trips and gain market share," Levine in a statement.

Family Dollar is the latest, but far from the only of what we call "alternative-format" retailers, to increase the amount of space (and number of SKUS) for food and grocery items in its stores.

For example, we've written about and offered analysis on drug chain Walgreens' major move to position its stores as offering more "affordable essentials" items, including dramatically expanding the number of food, grocery, household packaged goods, health and body care and related SKUS in its drug stores located throughout the U.S. Walgreens has hundreds of drug stores in California, Nevada and Arizona.

[Here are links to those stories: March 2, 2009: Walgreens Promotes Former Tesco Fresh & Easy Exec Bryan Pough to VP Merchandising Position; Move Fits Drug Chain's Current Strategic Focus...January 22, 2009: January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?...December 22, 2008: December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position.]

The dollar store retailing format segment in general is doing well, particularly in consumable and grocery sales, in the current economic downturn. As an example, the California-based "99 Cents Only" chain has already expanded the number of food and grocery SKUS it carries in its stores, which prior to that expansion was already a significant amount, across numerous categories.

Dollar stores were popular before the recession hit. But they've become even more popular since the recession started, and even more so as it has intensified. Many consumers who never bought consumable and related grocery items before at dollar or 99-cent stores are now doing so, which helps explain the double-digit sales growth at chains like Family Dollar.

Tesco's Fresh & Easy Neighborhood Market, like Target and others before it, has realized the popularity of dollar stores, and of 99-cent and $1 pricing. Like Target and others Fresh & Easy now has what it calls "Under $1 sections" in its small-format grocery and fresh foods stores.

Alternative-format retailers -- retailers that aren't positioned mainly as a supermarket or grocery stores but still sell limited assortments of food and grocery items -- like drug chains and dollar-99-cent store chains have numerous stores in the U.S.; the power of location. (Walgreens has over 10,000 units in the U.S. Add that to Family Dollar's 6,600 and you have about 17,000 stores represented by just two chains in these segments.)

Therefore, by adding even just a few hundred new SKUS in the food and grocery categories to their respective stores, such chain's can have a significant overall competitive influence on food and grocery format-centered retailers (supermarkets, ect.) because of this power of location; having so many stores in so many places and markets.

And in this recession there is a growing trend by various alternative-format retailers to increasing the variety and number of consumables and consumer packaged goods SKUS they offer in their stores.

For example, in the drug chain segment the CVS chain and Rite-Aid both are putting an increased emphasis on consumables and grocery items, particular in the number of items featured and discount-price promoted in their weekly advertising circulars.

Even big box home retailers like Home Depot and Lowes are offering more consumables, particularly bottled water and soda pop, on promotion in their stores. And these chain's are offering far more SKUS in the household cleaning products category than they were before the recession hit. They have to because the housing foreclosure crisis and recession took the bloom off the rose off what until early 2008 was a booming home improvement trend in the U.S. among consumers -- a trend that benefited home stores like Home Depot and Lowes significantly.

And, according to this April 3, 2009 report in Natural~Specialty Foods Memo [Retail Memo - Alternate Formats: Toys 'R' Us Testing Store-Within-Store 'R Market' Grocery Departments in Three Chicago-Area Toys 'R' Us Toy Stores], even the Toys "R" US chain is testing limited assortment food and grocery sections in three of its toy stores in the Chicago, Illinois Metro region.

It's our analysis that additional alternative-format retailers will continue to expand the amount of square footage devoted to food and grocery items in their stores, along with expanding the variety and number of SKUS they merchandise in the stores, during this economic recession.

We also believe many of the retailer's that do so will most likely keep the expanded food and grocery selections once the recession ends.

We even expect that a few other U.S. retailers that don't at present offer any food and grocery items for sale in their stores, like the Toys "R" Us example, will began offering limited assortments of consumables and groceries, particularly essentials, this year as a way to attempt to draw shoppers into their often empty stores, whatever the format, increase sales, and overall compete during a time when general merchandise, soft, hard and durable goods retailers are struggling in a very serious way.