For the recent past, an aggressive agenda of store expansion has contributed to strong dollar channel sales growth. Between 2006 and 2001, more than 7,300 additional dollar stores were added to the retail landscape, according to The Nielsen Company’s 2007 “U.S. Retailing & Consumer Trends” analysis compiled by Todd Hale, senior vice president, consumer and shopper insights.

Channel leader Dollar General’s acquisition by private equity firm Kohlberg, Kravis & Roberts Co. was completed earlier this summer. The chain had already slowed its pace of store openings and closed hundreds of its lower-performing stores, and retail analysts expect that under KKR’s ownership, the pace of closings will increase.  

According to National Confectioners Association data, the dollar channel still accounts for a modest — 2.7% in 2006 — share of total confections category sales. Clearly, however, the category has been getting more respect from candy vendors, who have acknowledged its importance with pack types and price points tailored specifically to the channel. The candy category tends to be well developed in dollar stores. It plays a key role in the packaged goods assortment of retailers in each of the category’s two segments — single-price chains where virtually all merchandise is priced at $1 or 99 cents and those like Dollar General with a strong value orientation but a broader array of price points.

One-third of dollar store shoppers — mainly lower-income consumers — account for 85 percent of channel sales, according to an Information Resources Inc. “Times and Trends” report on the channel.

Still, however, dollar stores — like other “value” retailers (club stores and supercenters) are popular with more upscale consumers who don’t hesitate to seek out good deals and understand that shopping in a variety of channels is a good way to find them. “U.S. consumers have a big thirst for variety,” Hale states in his analysis.

Channel Leaders
Chain	Annual Sales % (in billions)	Change (vs. prior year)
1. Dollar General	$9.2	6.8%
2. Family Dollar	$6.4	9.8%
3. Dollar Tree	$3.9	17.0%
4. Fred's	$1.8	11.2%
5. 99 Cents Only	$1.1	7.9%
Most recent fiscal year Source: Hoovers

“Today’s dollar stores have captured the hearts and imagination of the under $25,000-a-year-income consumer, while simultaneously penetrating the up-market consumer with a very appealing value equation — two major feats in retailing,” summarizes Thom Blischok, president, IRI Retailing Solutions, Strategic Consulting and Integrated Solutions.

In addition, key players in the channel are making dollar stores a more welcoming environment for consumers as many of the chains have relaxed their one-time prohibitions on acceptance of credit and debit cards and food stamps.

Non-food products traditionally have represented more than half of dollar store CPG sales. The major players in the category are adding refrigerated and frozen capacity, and dollar retailers have begun to compete more aggressively with the grocery channel thanks to their expanding assortment of food and beverage SKUs, which, in turn, drives shopping frequency as well as per-trip spending.