The Rise of Dollar Stores and the Massive CPG Opportunity Amidst COVID-19

COVID-19 has created a lot of uncertainty and spurred many changes for many people in 2020. At the current moment, it can feel like the only certain thing for consumers in upcoming months is uncertainty in and of itself.

Shoppers are currently hoping for the best while wisely preparing for whatever the unforeseeable future holds—which includes saving in every way possible. Both the pandemic and recession have led shoppers to look for the CPG products they’re accustomed to buying at a more affordable price.

Unsurprisingly to many, shoppers’ scrupulous mentality has led to booming business for dollar stores. But what might come as a surprise is that dollar stores’ have several key features that have drove audiences to these retailers during the current pandemic and even before COVID-19 struck.

Dollar stores have been ramping up with more locations, fresh produce, refrigerated sections, exclusive products, eCommerce solutions and more, which has attracted a wider consumer base and captured the attention of many CPG brands.

To learn how dollar stores have evolved over the years, set the stage for success even during uncertain times and created a massive opportunity for CPG brands, read on.

Potentially Rocky Financial Futures Ahead for Shoppers 

Initially with lockdown, many consumers stocked up on all their grocery needs and essentials. As quarantine has continued, shoppers have decided to stock up on cash! With the current recession, audiences are wisely deciding to increase their rainy-day funds and seeking cheaper alternatives. 

Person pulling single dollar bills out of their wallet.

To illustrate this point, McKinsey & Co.conducted a survey in April in which half of people answered they are cutting back and being extra cautious with their spending (Market Watch). Unfortunately, in the same survey, a third of US shoppers stated that their income has been altered due to the Coronavirus. Whether people’s income has personally been impacted or not, audiences could also be driven to save after witnessing friends, family members and neighbors experience financial hardship during this time. Potential pay cuts are a terrible outcome of this pandemic, but it also means offering shoppers value is important now more than ever. 

People are Stocking Up and Dollar Store Stocks are Up 

Dollar General’s value to customers is especially highlighted during troubling times, according to CEO Todd Vasos— and the numbers support his statement. As stated by Dollar General Investor Relations, “For the 26-week period ended July 31, 2020, net sales increased 25.9% to $17.1 billion, compared to $13.6 billion in the comparable 2019 period. This net sales increase included positive sales contributions from new stores and growth in same-store sales, modestly offset by the impact of store closures. Same-store sales increased 20.2% from the 2019 26-week period, driven by an increase in average transaction amount, partially offset by a slight decline in customer traffic. Same-store sales in the 2020 period included growth in the consumables, seasonal, home products and apparel categories, with the largest percentage increase in the home products category. The Company believes consumer behavior driven by COVID-19 had a significant positive effect on net sales and same-store sales.”

Analyst Anthony Chukumba, analyst at Loop Capital, believes that the $1,200 stimulus checks that citizens received played a factor in dollar store gains, since shoppers chose to stash up on pantry staples and other essentials with their supplemental funds (Financial Times). 

Recessionary Times Tend to Repeat Themselves

As we know, history has a tendency to repeat itself. In 2008, dollar stores offered great value to customers, especially in a financially tough landscape as supported the positive performance of dollar stores following the recession.  

In 2009, The New York Times reported that same-store sales for Dollar Tree the three months prior to Jan. 31 increased 2.2 percent at their 3,600 stores and counting while Dollar General experienced a 9.4 percent increase in same-store sales the three months prior to Jan. 30 at their over 8,400 operating locations. This began the trend of shoppers “trading down.” “Trading down” is the phenomenon of shoppers choosing to buy the products they usually do, but at a lower price point.

The time following the 2008 recession also continued the spread of dollar stores across the U.S.. Landlords sought well-performing businesses to fill empty storefronts and dollar stores were an easy choice due to their visible success and the budget-friendly values they offered to communities. This, paired with lowered interest rates and openings in better shopping strip locations, continued the growing momentum for these chains (New York Times). Dollar stores wisely took this opportunity to expand their product offerings to include more grocery and household necessities for consumers in need. 

Convenience Wins throughout COVID 

While many have made comparisons to the 2008 financial crisis, this recession differs from 2008 with the additional health risk factor in the mix. This pandemic-induced recession is predicted to drive shoppers to dollar stores due to their in-and-out, smaller shopping experience which allows for quicker errands while limiting shoppers’ potential Coronavirus exposure.

Person checking out with food and other products at a dollar store.

Additionally, Dollar General CEO, Vasos, thinks customers are choosing Dollar General based on proximity. This retailer now has more than 16,000 locations and can place CPG products within five miles of more than 75 percent of the U.S. population (Retail Wire).

In contrast, supermarkets are typically in less convenient locations than dollar stores, making them less appealing to shoppers who are reluctant or unable to travel (Financial Times). 

Expanding Product Range and Shopper Profiles

Even before the pandemic, dollar stores have been stepping it up in recent years by continuously adding more and more locations and appealing to a wider range of people while expanding their available products and CPG brands.  

Woman shopping at dollar store, standing in an aisle, holding a basket.

Dollar stores’ product assortment has evolved tremendously over the years. You can find refrigerated products, fresh produce and exclusive products in the dollar channel now that really didn’t exist in the past. Their shopper profile has expanded as well. It’s no longer just the rural neighborhood store— it’s now really open and appealing to many, many demographics.

In Dollar General’s Q2 earnings call, Vasos commented, “Data suggest another meaningful increase in new customers this quarter compared to Q2 2019, underscoring the broadening appeal of our value and convenience proposition. We are very focused on retaining these new customers, and the incremental spend of current customers.”

Seized Opportunity for a CPG

Many CPGs also recognize the huge opportunity at dollar stores. As just one example of a CPG shifting their focus to dollar stores, Mars Wrigley recently collaborated with Quotient to drive conversation about the SNICKERS® Hunger Bars with WWE. The SNICKERS® Hunger Bars were exclusively available at Dollar General for a limited time.

Quotient launched a campaign to deliver shoppers a digital experience rooted in WWE fandom by designing content to appeal to the WWE fans who frequently shop at Dollar General and were looking to stock up for WrestleMania. The campaign combined Quotient’s social-media influencer platform, a coupon offer and strategic paid media buys to earn both a 2020 Effie and a Silver Reggie while also resulting in CPG brand growth that outpaced the category and the competition.

New Shoppers are Discovering their Dollars’ Worth 

As dollar stores spread across the country, their “traditional” buyer profile is diversifying in response to the growing available CPG selection, economic landscape and convenience factor.  

Woman arrives home with her groceries.

Christopher McGovern, a retail services senior consultant from market research firm Numerator, revealed to Business Insider, “Dollar stores were already out-performing many other retail channels with the start of 2020 and the strong economy.” He also revealed, “Dollar stores like Dollar General and Dollar Tree have increasingly “attracted a younger, more diverse consumer base” which includes “middle- and higher-income groups [that] are electing to shop at dollar stores.”

Dollar Stores have Even More in Store for CPGs

Regardless of the pandemic, there’s no stopping the spread of dollar stores; in fact, the pandemic is accelerating their growth. Dollar stores are opening their doors in many new locations making this the perfect time for CPGs to extend their reach as well.

Dollar General plans to open 1,000 new stores and remodel 1,500 stores, amounting to 2,600 real estate projects in total. In addition, Dollar General is continuing their cooler door expansion project to add more high-capacity refrigerated sections and product diversity, adding and increasing their fresh produce, enhancing their mobile app and demoing their online pick-up at store capabilities (Supermarket News). 

With all this location, technological and grocery section expansion, CPG brands have an opportunity to offer their value-driven products in these stores to reach this growing crowd of consumers.

Despite potential economic hardship ahead, dollar stores remain steadfast for shoppers and CPG brands alike. By adding stores in more locations, expanding their product range, creating eCommerce solutions, hiring staff and offering value and convenience to shoppers when they need it most, dollar stores are providing endless value to their customers and creating opportunity for CPG brands.

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