In a struggling economy, the consumers who struggle the most are frequently those who have the least. For them, the low, low prices at small format value retailers are most attractive.
Collectively, dollar stores had a great year in 2010, and that trend has continued. The two biggest chains, Dollar General and Family Dollar, operate more than 16,000 stores and plan to add about 900 more in 2011.
“I think the future of the space is continued growth,” says Patrick McKeever, senior analyst with MKM Partners. “There are still a lot of markets across the U.S. that don’t have dollar stores.”
Family Dollar, for example, operates in 44 states; Dollar General, though it has more stores, operates in only 35 states. Thanks to its acquisition of Dollar Giant last fall, Dollar Tree became the first U.S.-based dollar chain with a major presence in Canada, where it now has more than 85 stores. Dollar Tree plans to open 300 stores this year.
As it is in many other areas of retailing, food is the driving force among dollar stores. At Dollar Tree, for example, the company added freezers to about 420 stores last year and now has them in more than 1,800 locations. To keep prices low, Dollar Tree has taken to downsizing the quantities of items in each package, such as fewer than a dozen eggs. The result, notes Wells Fargo analyst Matt Nemer, is that in a group of 50 items, Dollar Tree was 28 percent cheaper than Walmart.