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?

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.


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.


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."

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information