Published March/April 2012 by Candy & Snack TODAY
In what some are calling the fastest-growing trade class, dollar stores are focused on front ends, maintaining key price points, and offering seasonal options to a growing consumer base.
MAJOR DOLLAR CHAINS are opening stores, remodeling existing locations and attracting a wider shopper base with a focus on adding consumables and targeted candy and snack merchandising. At the same time, they are concentrating on the checkout, clip strips and secondary placement to boost sales.
The four largest U.S. chains — Dollar General Corp.; Dollar Tree, Inc.; Family Dollar Stores, Inc.; and 99 Cents Only Stores — operate 21,500 stores, according to Ann Natunewicz, national manager of retail research for Colliers International. As of mid-2011, the three largest drug chains — Walgreen Co., CVS Caremark Corp. and Rite Aid Corp. — combined to operate 19,700 stores, illustrating the significance of the dollar channel, she says.Mark Keschl, national director of retail for Colliers, explains: “Five or six years ago, the Walmarts, Targets and Home Depots of the world were adding units and expanding square footage. Those were large in terms of square footage, but in terms of units, it’s nowhere near dollar stores.”
Natunewicz notes candy plays a significant role in dollar stores as an impulse buy.
“Consumers are looking for little indulgences and luxuries,” she says. “If consumers are there more frequently and there’s a good variety of candy in the store, they are more likely to pick it up.”
Illustrating the channel’s potential, Dollar General plans to open about 625 new stores in 2012, in addition to remodeling or relocating about 550, according to Tawn Earnest, senior director, corporate communications. With about 7,200 square feet of selling space, the average Dollar General location offers candy near the cash register, as well as in an aisle within the food assortment, though Earnest says the actual amount of space can vary.
“Dollar General’s approach to merchandising is simplicity,” Earnest says. “We know our customers are busy, so we set up and merchandise our stores to make locating departments and finding particular items easy.”
Family Dollar expects to open 450 to 500 stores in its next fiscal year, according to Josh Braverman, communication director. Each store features a full candy aisle, as well as candy at checkout and seasonal items merchandised in a promotional aisle, he says.
“Candy and snacks have held a long tradition of importance in our business,” he tells Candy & Snack TODAY. “Years ago, we started with salty snacks and candy, and that’s what people saw our business as, but it allowed us to build a customer base and offer other things.”
At all its stores, which average 7,000 square feet, the retailer is improving lighting, repainting, adding square footage, and renovating the parking lots. “We’re also looking at the adjacencies,” he adds, noting the food section is now next to a food storage section, for example. “It’s a major program aimed at providing our customers with a better shopping experience from end to end.”
In fact, the initiative is also affecting the front end. “The old checkout might have had some candy on the counter, but we now have the opportunity to display more of it and provide that impulse purchase,” Braverman says. Gum, mints, candy bars and chips are among the items stocked there, and during the next few years the renovations will touch all the chain’s stores, he says.
Considering Top Merchandising Tactics
At the front end, king-size bars, meat snacks and granola bars are all impulse items that attract consumers’ attention, according to Betty Kent, account executive for brokerage Burdette Beckmann, Inc. In inline sets, laydown bags can be merchandised in wire baskets attached to a gondola, and sets should feature a standard peg section, theater boxes and counter displays filled with novelty items, she says.
Positioning items at checkout is vital, according to Candace Corlett, president, WSL Strategic Retail. She notes store redesigns in a number of dollar chains have included honing in on neatly organized shelves and reduced clutter. “It’s more like a small grocery store. It has racks and shelves, but there’s less of everything and they tend to stock the smallest size so it’s much more approachable, and easy to choose what you want.”
Candy bars are often the focus, placed in racks near the checkout to entice consumers as they are trying to find an open lane, Corlett says.
Merchandising products as close to the entrance as possible — be it at the front end, in floor displays near the door, or in the store’s front windows — can draw consumers in, according to Infinity Sales, Inc.’s Sid Stern, vice-president of purchasing. “That way, the first impression is value,” he says.
Vivian Son, senior buyer, confections for 99 Cents Only, confirms candy’s impulse appeal makes it a natural fit for checkout.
The amount of space allocated to candy at 99 Cents Only varies depending on the location and the season, according to Son, who manages nearly 300 locations that are each about 20,000 square feet. Four-foot peg sections are generally featured at the end of each register, and four-foot racks over each belt display gum and singles, which are some of the top-selling products because of their immediacy.
Because square footage is limited, shippers and floor stands are few and far between, adds Kent, who has served as a broker for the channel for more than 30 years. She advises versatile merchandising options can increase sales without sacrificing valuable floor space.
“Clip strips can be merchandised anywhere; you can hang them wherever you want and they take up no actual shelf space,” she says, noting one dollar chain orders permanent everyday items on clip strips. “People looking for Advil typically won’t shop the candy aisle, so it makes sense to display candy in other places in the store,” she says.
In-and-outs can be merchandised on endcaps throughout the store, she notes, and clip strips work there as well. “Some stores do a Five for $5 section, or a $1 section that is secondary to inline or peg displays where candy would be merchandised,” she adds.
One source says shippers are no problem for larger, high-volume stores, but chains are increasingly focused on reducing inventory and high case counts can present a problem. “It’s a lazy way to sell product,” he says, but admits: “There’s always something that will work in one store that might not necessarily work, for whatever reason, in another. You have to understand each chain; it’s not one size fits all.”
In some stores, endcaps, counter units and cross-section merchandising in both promotional aisles and everyday candy sets work best, according to Stern, who argues floor displays attract more attention than standard inline sets. “Displays outsell open stock,” he says.
Most dollar stores feature 60- to 80-foot candy sets on both sides of the aisle, in addition to four-foot front end sets, Stern says. He suggests focusing on in-store circulars, newspaper ads, a clean store, good service, and compelling signage.
“If you’ve got a four-foot section with an endcap, the signage should say ‘Normal retail price $2.69, our everyday price $1,’” he explains.
Dollar stores are recognized by many shoppers as a great destination for candy, according to The Nielsen Co.’s Todd Hale, senior vice-president, consumer & shopper insights.
“The amount of candy they sell has to do with where they put it, what brands they stock, and how they appeal to the kinds of consumers who are shopping in those stores,” he says.
Understanding the customer for each specific item is important when determining where it should be merchandised, 99 Cents Only’s Son says.
Products that make a “value statement” are highlighted in sets and placed in focal areas, Son says, explaining consumers look at the set and are compelled to buy because of the amount of candy they’re getting for their dollar, or because they’re excited to get a brand they weren’t expecting to find at that price point.
As a result of this and recent growth in the premium chocolate segment, during the past few years, she has sought more premium count goods. “Manufacturers want to be able to get exposure with a different kind of customer, so they want to create items to be able to cater to that.” She notes if a manufacturer is trying to promote a particular item, adding multiple facings and special endcaps can draw attention.
“The dollar channel has become much more sophisticated,” says Joe Donnelly, president and co-owner of brokerage Trend Sales Inc. “Inventory goes immediately to the shelves for seasonal and everyday, and all aspects of the store are planogrammed. They still see that the dollar price point is magic.”
Offering Shoppers More Variety
When it comes to deciding what options will work best, research, and trial and error are key components to evaluating products, Son says.
“If it looks like a good value and it’s a recognizable brand, that’s probably a safer bet. Sometimes you’ll hear from manufacturers that there’s an upward trend in sour, and then you try to bring in a few more sour SKUs to see whether that’s the case with your consumer. It’s about understanding what people want.”
She notes dark chocolate is one recent example, explaining she added more facings of dark chocolate to her sets. “It’s not a huge upswing but it’s really holding its own, whereas before it might have been a much smaller percentage of sales,” she says.
Dollar stores typically stock proven sellers, Burdette Beckmann’s Kent says, explaining they look to data from Nielsen or SymphonyIRI Group, Inc. to show performance.
“They want to go with the top items to make sure they’re giving consumers what they want and keeping sales where they need to be,” Donnelly says, adding: “They’ve done such a good job at finding what SKUs are doing best for their customers.”
When evaluating products’ performance, Dollar General values shopper feedback, Earnest says. “We listen to what our customers want and provide a consistent, focused assortment of the brands and products they use most,” she tells Candy & Snack TODAY. “In addition to customers’ favorite name brands, we also offer an assortment of private brand candies.”
Considering the product mix, Hale explains that while private label would seem to fit perfectly with dollar stores’ value standpoint, stocking name brands is key. Even beyond the dollar channel, both candy and snacks are low growth areas for private label, because brands are important, and suppliers in the industry strive to innovate and develop new flavors and packs, he says.
“It’s hard for retailers to get into that space because of that equity that already exists,” he notes.
Family Dollar’s Braverman agrees, but points out that combining the strength of mainstream product lines with private label options can drive growth.
“Name brands bring shoppers in and build trust and show you have them; the non-name brands offer that extra value to the consumer,” he says.
Generally, confections are a personal purchase, 99 Cents Only’s Son says.
“It’s something that resonates with a customer, and when they look at a brand name they feel a personal connection to the product,” she explains. “There are some items that you can get away with not having a brand, but for the most part candy is a category where we shy away from getting a lot of private label in our stores.”
Stocking major national brands satisfies dollar store shoppers because they often take fewer risks on new items, Corlett says.
She points to well-known candy brands from The Hershey Co., Nestle USA, Inc. and other larger manufacturers, as well as Kellogg’s and Pepperidge Farm products, noting: “I’m not making a mistake if I buy it and the kids don’t eat it, whereas if I buy the private label chocolate they might not like it. These retailers are selling quality brands, and it just elevates the whole aura of what the store stands for. Dollar stores have perception on their side right now, and respectability.”
Whether private label or branded, “there is a focus on quality,” says another industry source, who notes the testing policy at one dollar chain is more rigorous than those of larger retailers, and products sometimes come in exclusive pack types.
Corlett notes larger stores and mass merchandisers in particular don’t always offer smaller-sized packs, so there’s opportunity for dollar stores in that arena.
Buyers have brought in more top brands during the past 10 years, and have still kept the mix of regional items and nostalgic products and candy and snacks that aren’t from only the largest manufacturers, Donnelly says. “Candy is a proven performer in a retail mix, and it doesn’t matter what time of year it is; you can have candy any day of the year and whether it ties in seasonally or just as an everyday snack, you can count on the performance of candy and snacks.”
Seasonal Business Stays Steady
Seasonal candy sales are big business for dollar stores, sources agree. Easter and Christmas are areas of focus, according to Burdette Beckmann’s Kent, who explains: “Halloween and Valentine’s are typically lastday shoppers, whereas Christmas and Easter have longer selling seasons, so there are more products merchandised for those holidays.”
Around Christmas, 99 Cents Only merchandises with endcaps and sets near the front end with a mixture of candy canes, boxed chocolates and general merchandise such as gift bags, home décor and stocking stuffers, Son says.
Dollar stores’ seasonal sets are one element that has influenced “treasure hunt” shopping, which Donnelly describes as a consumer going into a dollar store with the intention to find something special at a great price.
“That keeps people coming back, and dollar stores have done a great job of putting that promotional and seasonal aisle in the middle of their stores so consumers come in and can see the variety right away,” Donnelly says.
Some retailers have changed their approach to seasonal merchandising, going from undecorated cases and displays to themed display boxes to correspond with the season. “Whether it’s Halloween or Christmas, they ask the manufacturers to use the same kind of cases and style as far as the graphic design, which gives a nice uniform look to their program and ties in with other parts of the stores.”
Location, Location, Location
Placement of these new stores is also crucial, Natunewicz reveals, explaining that as dollar stores add more locations, they are showing up closer to consumers.
“Instead of having one within 20 miles of your house, you might have one within five miles, so they’re filling in the gaps,” she says.
“Because they’re small, you’re not having to walk across a huge supercenter parking lot to get to them, which makes it more of an in-and-out trip. So you might buy less in one trip, but you will be coming back in a few days.”
Exploratory formats will also continue to drive shoppers to stores, offering them a new experience and a fresh atmosphere, Hale says.
In addition to dollar stores adding grocery sections, some retailers in other channels have introduced smaller-format stores and concepts of new plans in the past year that echo the traditional setup of a dollar store, Colliers’ Keschl says, pointing to Walmart Express.
“The key today in all retail is bringing the product closer to the consumer, and that’s how many retailers are attempting to compete with the Internet, which brings your product as close as possible to the consumer. There’s a big push for traditional retailers to find ways to bring their products closer to consumers. If they can bring a smaller concept closer to their customer, that’s going to make a lot of sense.”
Retailers want to be on high-traffic streets and be close to the road instead of having a large parking lot in front of the store, Keschl says.
Dollar chains have opened more stores in middle-class neighborhoods just as the recession was hitting, Corlett says.
Real estate prices in the western region have fallen, and more strip malls are opening there, which will drive dollar channel growth, according to Hale.
The west coast remains a prime target for dollar stores to expand, Natunewicz agrees, though some retailers focus the majority of their attention there, such as 99 Cents Only.
Focusing on regional appeal, Son offers hometown favorites such as Red Vines from American Licorice Co. and items from Annabelle Candy Co., Inc., which do well with 99 Cents’ consumers in California, Son says, adding all items sell for 99 cents.
“A few years ago there was a lot of talk about whether it was feasible for dollar stores to be profitable with that retail price,” she says. “We provide a service to our consumers here, and it makes us fight really hard to keep the value for them. Because of the challenging economic times, it’s become more chic to save.”
Price Points Present A Challenge
Candy manufacturers and suppliers work with 99 Cents Only to provide products and pack sizes that enable the retailer to stay within its goals, Son says. “Sometimes packaging will need tweaking,” she explains. “We’re fortunate that we have a lot of great partners in the industry who understand our mission and what we sell for. They work with us to help us maintain that price point.”
The average basket ring in a dollar store in mid-2011 was $14.32 cents, according to Nielsen’s Hale. And that’s much smaller than drug, about $25; grocery, around $43; supercenters, around $63; and club, at $98, he adds.
“You’re buying fewer items at a dollar store, or multiple items at lower prices. But that’s just it; when you price yourself at oneor two- or three-dollar increments, it’s hard to drive up a basket when the items are so inexpensive.”
About 30 percent of Family Dollar’s product mix is priced at $1 or less, while many other items fall under $10, Braverman says.
In Dollar General stores, name brand and private label products are offered at varied price points, Earnest says.
“The majority of our products are priced at $10 or less with more than 2,000 products priced at $1 or less,” she says. “We work with all of our manufacturers, including candy suppliers, to ensure we have the products our customers want at an attractive, low price.”
Because Dollar Tree is the only major dollar chain that still limits price points to $1, the phrase “dollar stores” is a misnomer, Natunewicz says. “Saying ‘low price store’ isn’t catchy,” she explains, noting many retail channels make frequent use of the coveted dollar price tag: “Other stores have little sections in their stores called ‘Dollar Days.’ It’s a price point that catches people’s attention.”
Stern says dollar stores’ earnings reports are better than those of any other channel. “That’s the reason some of the other stores, like Walmart, Target and Walgreens, are putting in dollar sets,” he says. “They’re saying, ‘Why should we lose this business to the dollar stores?’”
Stern predicts more stores will offer multiples of a dollar, and points to retailers that offer products for $9.99 and under, and $5 and under.
While dollar stores have moved beyond the dollar price point, they’re still allowing consumers to spend on a limited budget, so their success will continue, Hale says. The five-year outlook for the dollar channel is a positive one, Keschl agrees.
“Dollar stores will continue to upgrade their look, their merchandise and the quality of the real estate, and the end result of that is they will continue to appeal to a wider and wider audience,” Keschl says.
