You may have missed the story this week (maybe because the deal was announced on Thanksgiving Monday), but the dollar store market in Canada is set to get another boost through increased competition for channel leader Dollarama.
The new competition comes from south of the border, with US operator Dollar Tree purchasing the Vancouver-based, Dollar Giant chain, which operates 85 stores in British Columbia, Alberta, Saskatchewan and Ontario.
Dollar Tree is a big-time operator in this segment with almost 4,000 stores in 48 US states. It is an advanced operator as well, with a developed on-line business that features exclusive products and free shipping for orders that are picked up at your local store.
I have long been encouraging CPG suppliers to develop a specific SKU offering in order to meet the business strategy of the dollar store operators, most of which carry products that retail for $2.00 or less.
Too often this channel is an afterthought for COG suppliers, being used as a “clear-out” option for the major brands.
As these chains have become more organized, the volumes they are able to generate can be significant, when the price is right.
It is not about offering your products at market disturbing (or money losing) price points. It should be about developing unique smaller size formats that show value to the shopper and match the channel strategy.
Another significant risk is the development of a cross boarder player in the segment who can leverage its North American purchasing power with 4,000 stores. If I was in charge of this channel for a Canadian CPG firm, I would be making contact with my US counterpart ASAP.
By comparison, Canada’s channel powerhouse Dollarama has only 623 stores.
Dollar Tree will put pressure on Canadian dollar store retailers to show better value but also increased strains on margins, as those with less purchasing power try to compete with Dollar Giant / Dollar Tree.
For CPG suppliers we may find more US products leaking into the Canadian market – especially those where production has already been “harmonized” with bilingual packaging.
For the Grocery & Drug channels, retailers need to be thinking about how they can stem the growth of the dollar store channel, by developing a coherent offering which appeals to their shoppers who are already buying at dollar stores.
The acquisition of Dollar Giant may be just the beginning of further consolidation in this channel in Canada. If I was a small independent owner of a dollar store I would be looking to join one of the big two operators out of fear of getting run over. Watch this space.