Are Dollar Stores the Latest Threat to Traditional Supermarkets?

A jolt in perishable sales threatens to dethrone the grocery kings.

Mar 27, 2014 at 10:01AM

Increasingly, Dollar Tree Stores (NASDAQ:DLTR), Dollar General (NYSE:DG), and Family Dollar Stores (NYSE:FDO) are each becoming the main destination of shopping trips rather than just a side one. As all sorts of groceries, including perishables, line the shelves in increasing numbers, these dollar stores threaten to take a greater piece of the supermarket pie. Can you really live on dollar stores alone?

About
Source: Dollar Tree

The real threat
The concern here for supermarkets isn't that mass quantities of people will avoid them altogether. Most, if not all, of us can't imagine being without the traditional grocery aisles we've come to rely on. The threat, though, is that the more we don't have to take specific mini-trips for certain items, the more we may find other things while at the dollar stores.

For example, if we can get eggs at the dollar store, we may end up grabbing other items: paper towels, a birthday card, a pack of pens, and toilet bowl cleaner that we would have otherwise bought at the grocery store. The grocery stores know it; that's why they keep the eggs in the back corner in the first place.

It's not about quality necessarily
They key to consider is the theory that if you "could" do all your shopping at the dollar store, then there is the potential to sell most "emergency" goods to consumers. Consumers may get accustomed to checking out the local dollar store first for a quick trip before looking elsewhere.

A quick pop into my local store revealed you can indeed get just about every traditional food category you can think of. Whether it's bread, milk, cheese, eggs, lunch meat, pizza, bacon, orange juice, coffee -- they have it all at Dollar Tree! Items come in much smaller sizes than traditionally in most cases, but they're available. You can even get a tiny rib eye steak if you look hard enough.

Seriously, a rib eye steak at the dollar store?
Since I wasn't brave enough to take the challenge on my own, I found an article written by Doug Bennett of The Tampa Bay Times who actually tried the $1 rib eye. To me, that is the ultimate test of dollar stores. If one of them, in this case Dollar Tree, could get away with selling an edible piece of steak of such high quality as a rib eye, perhaps there is more to this threat than you think.

Images

Source: Dollar General

The verdict was that the rib eye was found to be "tender with a deep, meaty flavor." The review, however, added, "Just don't pretend you're getting a real steak. It's almost sandwich-style thin but could be parlayed into a great cheesesteak." Okay, Dollar Tree probably won't be putting Ruth's Chris Steakhouse out of business any time soon, but any additional market share it can snag is good for the company and bad for grocery stores.

What the stores are saying
Dollar Tree's third-quarter conference call was loaded with details. CEO Bob Sasser has been saying for quite some time that the "consumables" category, as he calls it, is where the excitement is. He attributed that quarter's fantastic growth mostly to consumables for Dollar Tree. Sasser mentioned that Dollar Tree has been seeing this trend for several years for two reasons.

First, the bad economy has been pulling more grocery shoppers into dollar stores looking for bargains. Second, the expanded selection of consumables has in turn attracted more shoppers.

For Family Dollar Stores and Dollar General, it's been similar. Dollar General has enjoyed 24 consecutive years of same-store sales growth. However, last quarter, results were barely positive at 1.6%. It may have been negative were it not for the addition of tobacco and -- you guessed it -- the rise in perishable-goods sales.

Storephoto

Source: Family Dollar

For Family Dollar Stores, refrigerated and frozen foods showed the strongest gains last quarter, rising by 4.7%; same-store sales on everything else, however, actually fell by 2.8%. Chief executive Howard Levine stated, "I know for sure...that we have to stand for low prices every day, and we have to offer [customers] competitiveness on those consumables that [they're] buying every day."

Conclusion
Since you can get just about anything at dollar stores, even rib eye steaks, you can bet some people indeed will do so. Expect to see more consumables available at Dollar General and Family Dollar Stores everywhere.

3 stocks that could become your next huge winner
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have done it before with great stocks. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers