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Information Resources Inc. recently released a report on the fast-growing dollar store segment, evaluating and analyzing the segment’s development and potential -- especially as they relate to other formats and venues in the retail business.

MNB found it to be fascinating reading, and so we conducted an exclusive e-interview with Kali Klena, IRI’s VP of Retail Analytics, to get some further perspective on the dollar store format:

MNB: To what extent is the growth of the dollar store format keyed to the poor economy? What is the likely performance of the format if the economy were to once again turn robust?

Kali Klena: While the study didn't specifically address economic motivations for shopping the dollar channel, dollar stores have been experiencing double digit growth for several years even prior to the dot-com shakeup and the September 11th tragedies. Approximately 55% of Americans shop Dollar stores – enjoying the benefits the channel delivers. While many Dollar shoppers come from lower income households, more interesting is that many Dollar Store shoppers are quite involved with the channel, shopping multiple times a month, more often than they shop Drug stores. Those dollar store shoppers are also characterized by their love of the "hunt" for bargains not only in Dollar stores, but also across all channels.

Dollar stores would seem to exist to create doubt about the concept of 'one stop shopping,' suggesting that most people except high-end shoppers) have more time than money. True? And, if true, would this suggest that the major chains' desire to become one-stop shopping experiences is a faulty premise?

Kali Klena: There are a lot of shoppers who like or “need” to bargain hunt regardless of economic status. While many Americans would describe themselves as “time pressed”, the fact is that today’s consumers are shopping multiple outlets and more frequently. They are willing to pay more for those convenient, quick trips to c-stores, Drug stores, and Food stores. Conversely, they are also willing to travel further to save on a stock up trip at the club, supercenter, or Mass Merchandiser. On average, consumers are already making over 120 shopping trips a year to key channels. Dollar stores are simply offering convenience and price benefits with a narrower selection...a bargain browser’s paradise.

Because the dollar stores don't deal in perishables, does this suggest that grocery stores are less vulnerable to them than, say, Drug stores or discount stores?

Kali Klena: The Dollar store represents a threat to the Drug and Convenience channels and both are likely to lose traffic in their shelf-stable food and non- edible aisles where consumers were traditionally paying more for items like soup and laundry supplies in other channels. However, I would not discount the impact on grocery. The perishables department for most Food retailers remains a nearly uncontested area of strength. It is an area that has to be leveraged to enhance retailers’ relationships with shoppers, but perishables alone cannot hold off competition. With so much channel blurring already for non-edible and shelf-stable items, shoppers browsing Dollar stores will find items to pick up that will dent sales in Food stores and other channels.

As dollar stores' sales increase, will this primarily be because more people shop there for the products they carry now, or because they expand their product selection?

Kali Klena: We’re seeing multiple trends – first, the Dollar channel is adding new shoppers. Second, Dollar’s selection is being expanded, quality is improving and name brands are more readily available. These trends are fueling the growth. We expect these trends to continue in the near future. The expanded selection appears to be the trend with the longest life span. As the channel achieves further consumer penetration, Dollar stores will be seeking growth opportunities within their existing customer base. One of fundamental ways to achieve this is through offering expansion. Manufacturers have already begun to recognize Dollar channel’s potential by brining special versions or sizes of name brand products currently available in other channels of trade to Dollar stores.

Are there geographic areas or demographic areas more vulnerable to dollar stores' appeal than others?

Kali Klena: The study did not examine geographical impact. Demographically speaking, many lower income shoppers have already recognized the channel's benefits and improved selection and will continue to pre-empt purchases from other channels’ shopping baskets. Shoppers from middle-income households are just beginning to embrace the Dollar channel. As the Dollar channel continues to expand selection, offer better quality, and increase retail presence, the middle-income shopper will undoubtedly find more items to purchase.

What tends to be the impact of dollar stores on warehouse clubs and discount stores?

Kali Klena: Both channels are vulnerable to Dollar competition: Findings indicate the heavier the Dollar shopper; the less involved the shopper is with Club. Both Club and Discount are also subject to the “browsing factor.” As consumers find acceptable health and beauty products, non-edibles, and shelf-stable products, the likelihood of these items coming off another channel’s shopping list increases.

Based on the study's findings, what's the best way to compete with a dollar store?

Kali Klena: Dollar stores are approaching shoppers on two basic premises: convenience and price. With channel blurring on the rise, we’re seeing significant overlap between these value propositions. Looking towards the future, each channel must exploit their unique strengths to protect against encroachment from the Dollar channel.
KC's View:
In other, words, dollar stores have been successful because they have identified a marketing message that resonates with the consumer, and an approach that differentiates them from other retailing venues.

Contrast this with many other retailers that all are seeking survival through the same kinds of strategies…being all things to all people.

Which makes sense to you?