The value and dollar channel is the fastest-growing segment in retail for food by household expenditure, thriving in a tumultuous economic environment. In 2022, there were over 37,000 dollar stores across the United States, an increase of 7,000 locations since 2017. There are no signs of the growth slowing – this year alone, Dollar General plans to open about 1,050 new stores. Discount and dollar stores also outpaced shopping centers, grocery stores and superstores in terms of change in monthly visits.
A significant driver of the channel’s growth has been the rampant inflation of everyday spend items. Millions of customers have sought lower prices on essentials, sometimes trading down in pack size to decrease weekly expenditures.
Why dollar is delivering
It would be easy to attribute most of the channel’s recent success to economic factors, but that is not the whole story. While consumers feel the price pinch, the dollar channel offers convenience. With a smaller store footprint, there are more viable locations where the surrounding population might not be big enough to support a larger store format.
Dollar stores have also met new and existing customers with expanded offerings, providing greater breadth and depth in their product catalogs. As the fastest-growing channel for grocery sales, retailers are placing particular focus on the all-important categories of fresh, refrigerated, and frozen. Dollar General installed more than 65,000 cooler doors in fiscal 2022. In 2023, Family Dollar plans to add more than 16,000 doors with a goal of 30 doors per store.
The net impact of these trends has been a large increase in store visits and sales. A study found that from January 2020 to January 2022, foot traffic to Family Dollar and Dollar General increased by more than 19%.
How dollar can continue to win
The perceived value, convenience and expanded offerings have helped dollar stores thrive. The channel is also investing in customer experience, including digital enhancements. Features such as pickup and delivery have become table stakes at larger format retailers. We expect that dollar store shoppers will increasingly expect similar access to these services.
Dollar store shoppers naturally expect lower prices and overall trip spend. However, as economic pressures inevitably ease, dollar channel retailers will benefit from continuing to highlight the promotional value they offer shoppers with regular in-store and digital marketing. Retailers that put savings and rewards front and center enhance their value proposition and help customers stretch their budget.
Finally, retailers can enhance shopper loyalty by transitioning to rewards-based models that build positive currency and keep value in their stores. Retailers that offer a seamless experience in-store and online that provides shoppers with maximum value, will help them retain the new customers that have been pulled into the channel by macroeconomic trends.
How brands can ride the wave
With inflation causing so many shoppers to trade down and switch channels, brands and manufacturers are wise to continue investing in the dollar channel.
An Ibotta study of consumers found that for shoppers, sales, and offers are significantly more important than non-promotional advertisements when deciding what to buy. Brands can capture share of wallet by extending national promotions to cover dollar-channel-specific SKUs, ensuring that this growing population of shoppers is not left out on national promotions. With the Ibotta Performance Network, brands can even adjust reward values to reflect channel-specific pack sizes and pricing.
Manufacturers can also leverage promotions to get the most out of their growing investments indollar channel retail media networks (RMNs). Naturally, advertisements with an incentive have greater click-through rates, buy-through rates, and ROAS than advertisements without an incentive. Shopper marketers who run retailer-specific media that highlights a national promotion amplify their available budget by putting national dollars to work. Brands win with increased sales and more trackable media performance, retailers win through the growth of their media network and by giving shoppers access to incremental national budgets that are not already earmarked for use at that retailer, and shoppers win through savings and rewards.
While the dollar channel is booming, the economic factors that have contributed to its recent growth may not be around much longer. Now is the time for manufacturers to capitalize on the larger audience shopping in this channel and for retailers to continue making smart investments in promotions, retail media, and the customer experience to keep shoppers in their stores for the long-haul.
