What CPGs Need to Know about the Dollar Channel
By John Gibson
With CPG brands challenged to sustain growth in a grocery marketplace marked by flat sales and thinning margins, now is the time for manufacturers to look strategically at the Dollar Channel. The channel’s meteoric physical expansion and increasing popularity with an ever-broadening range of shoppers make it imperative that CPGs give full and immediate attention to the sales- and brand-building opportunities proliferating in this retail vertical. The channel’s potential for generating new and much-needed shopper activation is all the more obvious in light of the following:
Store Count Is Increasing
According to Inmar’s 2018 Future of Food Retailing Report, Dollar Channel store counts exceeded 32,000 in 2017 – an increase of 5.5 percent over 2016. And all indications are that this upward trend is only going to continue as industry analysts expect the dollar store count to grow 18 percent by 2022.
With an expansive – and expanding – national footprint that includes both rural and urban locations, the Dollar Channel represents a formidable white space opportunity for brands to enter the small-format environment and engage shoppers in thousands of stores across the country. This is particularly true as retailers in the channel work to extend their category offerings to meet existing shopper demand and attract new shoppers.
Sales Are Growing
Inmar’s analysis of the Dollar Channel – conducted as part of the company’s report on the future of food retailing – found that sales in this retail vertical grew an impressive 6.6 percent in 2017. Only Limited Assortment – Aldi, Lidl, etc. – performed better, with sales for these retailers growing 6.7 percent last year compared to 2016.
The Dollar Channel’s sales growth is a direct reflection of consumers’ changing perceptions of dollar stores as well as their positive response to expanding assortments, increased promotion availability and proven value delivery. Dollar stores are increasingly taking share from traditional grocery retailers. Brands that fail to optimize their presence in the Dollar Channel could pay a heavy price in lost sales.
Shopper Base Is Diverse
A long-held perception is that the Dollar Channel serves – almost exclusively – lower-income shoppers. That is not the case. A recent Inmar Analytics survey of shoppers in this channel found them to be a richly diverse group, representing all educational backgrounds and income levels.
Seventy-two percent of survey participants reported having obtained a college associate degree or above; 53 percent said they held a bachelor’s degree or higher. As for income, 66 percent of those surveyed reported annual household incomes of $40,000 or more while 21 percent reported annual household incomes of $100,000 or more. The growing presence of more affluent shoppers in the Dollar Channel points to a larger addressable market for brands and the opportunity to regularly engage shoppers who possess greater purchasing power.
Shoppers Are Brand Conscious
While store brands continue to be an assortment mainstay for dollar stores, Inmar’s research reveals that shoppers in the Dollar Channel want to purchase name brands. In the top five product categories purchased by surveyed shoppers, shoppers voiced a preference for national brands. For example, in the personal care category, only 39 percent of survey participants said they were more likely to purchase a store brand.
However, to leverage shoppers’ affinity for established brands successfully, CPGs will need to provide the right product size at the right price point to maintain acceptable profit margins. The financials must be managed closely, but the brand-building potential is compelling.
Promotions Are Critical
Already-low prices may be the primary driver for shoppers in the Dollar Channel, but these budget-minded consumers want to save even more. Almost a third of the shoppers surveyed by Inmar reported using coupons at the dollar store. Forty-six percent of these shoppers said they used paper coupons, while 36 percent used digital coupons.
The lesser number for digital coupons reflects offer availability rather than preference. Redemption volume for digital offers in the dollar channel increased 276 percent from 2016 to 2017, and 2018 redemption volume is on pace to surpass 2017 totals. Brands will need to prioritize digital promotions to be successful in the dollar channel – especially as 70 percent of coupon-active millennials in the Dollar Channel prefer this offer method.
Not an Opportunity to Ignore
The dollar channel represents an outstanding opportunity for CPGs to build brand and grow share. There are more than 32,000 stores providing access to a generationally and economically diverse shopper base – of which 40 percent visit a store at least once a week. Effectively engaging the digitally-connected and savings-focused shoppers in this channel will require thoughtful product placement and strategic promotion deployment. But the investment will, without question, bring a fully proportionate return.
John Gibson is President, Client Development, at Inmar. For more information: www.inmar.com.