Consumers shop at different types of stores to fulfill different needs. Mass merchandisers like Canadian Tire provide a place where shoppers can find most of their needs under one roof. Discount mass merchandisers like Wal-Mart provide the right products in a one-stop shop at the lowest prices. Target and Costco also fall into this category, but differentiate themselves by making bargain-hunting trendy. Target is very skilled at keeping merchandise mix up-to-date and trendy by forming business partnerships with top designers and top performing celebrities and products that can be used to bring exciting products to stores.
Online retailers such as Amazon have also contributed to providing many products to consumers. Electronics have proven to be a key category for this retailer. In spite of all these successful retail store types, dollar stores have been one of the fastest growing retail sectors in Canada and they have filled a gap that the retail sector had left empty.
Dollar stores provide low prices, convenience and simplicity that appeals to both value-conscious and affluent customers. The simplified shopping experience that dollar stores provide is in direct competition with mass merchandisers where customers are required to navigate huge stores to find what they are looking for.
Dollar stores have the ability to respond quickly to customer demands and frequently check sales data to make optimal adjustments to inventory when necessary. According to CIBC World Markets, dollar store sales are increasing approximately 9% per year, which is greater than three times the average retail sector. Furthermore, dollar store sales are forecast to reach between $10-$12 billion in a decade, which is a substantial increase from the sales level of $2.3 billion in 2009.
Many retailers have felt the crunch from dollar stores and have seen how successful they have become. As a result, they have tried to copy the dollar store model in many ways. Some retailers have run dollar deal promotions and others have dedicated whole aisles or sections in stores for dollar store items. According to Shelley Broader, CEO Wal-Mart Canada Inc., “Do we really have an incredible dollar program? We do and we will.”
Wal-Mart has also started introducing its smaller express format stores in the US with plans for Canada also. These new, smaller stores are competing with dollar stores in a more simplified, smaller store model that will provide everyday commodities and grocery offerings and home and apparel lines. These smaller stores will fill in the gap that the big box stores are not currently providing.
Target stores in the US have their “Dollar Spot” sections positioned close to the entrance of the store and these “in-and-out” items help them improve their price image against Wal-Mart and other dollar formats such as Dollar Tree and Dollar General. We fully expect the Dollar Spot to be part of the Canadian store design when they launch in March 2013.
If stores such as Wal-Mart are currently adapting to the threats of dollar stores in the retail sector then they should continue to do so. According to industry reports, the dollar store industry in the US is more saturated than it is in Canada. In the U.S., there is one dollar store for every 14,000 people. It’s a different story in Canada where there is one dollar store for every 30,000 people. This represents an opportunity for growth and rest assured retailers will be vying to fill this dollar store need.
Montreal-based Dollarama is the biggest dollar store operator in Canada. It is followed by a distant second to Dollar Tree. Other more minor players in the industry include Dollar Store With More, Great Canadian, Buck Or Two and Everything For A Dollar.
As of January 29, 2012, Dollarama sat at 704 stores in Canada. The company differentiates itself from other dollar store operators in that it offers a more consistent product offering including everyday household items and a selection of nationally branded products and unique and seasonal items. This product mix is intended to drive customer loyalty and repeat traffic.
The general merchandise mix of Dollarama is comprised of general merchandise (party supplies, gift wrap, craft, stationary, housewares, hardware, electronics, toys, gifts and apparel) of 49%, consumable products (paper, plastics, foils, household products, cleaning supplies, health & body, candy, drinks and food) of 37% and 14% for seasonal products.
In 2009, the top selling products at dollar stores calculated by percent of shoppers that buy, included home cleaning (58%), greeting cards & wrap (54%), toiletries (50%), office & school supplies (48%), food & drinks (46%), health & beauty aids (38%), kitchen supplies (38%), decorations (29%), toys (25%) and gardening (23%).
Food offerings at dollar stores have proven to have a strong impact on sales and store operators are continually adding refrigerators and freezers to accommodate these offerings. This increased shift to consumables has increased the competition with grocers and mass merchandisers. In turn, this will benefit consumers since price pressure will help to keep prices low.
Since Dollarama and Dollar Tree have plans to continue to launch more new stores (Canada has less dollar stores per capita than the US) and Dollarama plans to move to products at price points above $2.00, we can expect that both companies will continue to steal share and conquer new categories in their quest for growth.
Suppliers that can adapt specific assortments to dollar stores, whether it be unique sizes, formats or even brand will be able to take advantage of this expanding retail channel. Meanwhile those who choose to not do business with dollar stores will be hard pressed to grow in the other channels that are losing share to dollar stores.
In today’s competitive retail marketplace, every dollar does count!