Recession + Dollar Stores = Opportunity
More than a decade after the Great Recession saw many struggling Americans rely more heavily on dollar stores (and higher income shoppers to visit them for the first time), a similar pattern is showing up as shoppers try to manage inflation that’s at the highest level in 40 years. While this isn’t an apples to apples recessionary period, all consumers are feeling similarly pinched and looking to stretch their grocery dollar. Since the Great Recession, dollar chains like Dollar General and Dollar Tree/Family Dollar have grown faster than nearly any other retailers, adding thousands of new stores, often in underserved areas. They've also widened their product selection to lure customers away from pharmacies, convenience stores, mass retailers, and supermarkets.
Expanded Merchandising
Additional shopper personas, including a younger, more diverse affluent consumer base, have flocked to these evolved dollar stores. You can now find refrigerated and frozen grocery items, fresh produce, and exclusive products that really didn’t exist in the past. This is only the start of the dollar channel shifting more into traditional grocery offerings, as Dollar General has quickly opened fresh/frozen distribution centers that can now serve almost all of its 19K stores. The dollar channel is also aggressively adapting to omnichannel retailing and ecommerce consumer demands, which adds digital-only merchandising extensions that can give entry points for functional CPG categories to test this new sales channel strategy.
Overlooking the Opportunity
Why are so many functional CPG brands overlooking the dollar store opportunity? During the 2010s, many industry professionals were burned by the “race to the bottom” effect. This usually refers to the competitive situation that was caused by the lowering of various barriers of entry. This led to massive brand proliferation, negative pricing pressure, and product quality deterioration.
Is a “race to the bottom” effect happening across the functional CPG industry? Yes.
Is the “race to the bottom” effect always a negative thing?
While I acknowledge it can have some negative effects on stakeholders, the “race to the bottom” can provide massive opportunities for those that understand it. The first concept that you must except is that all functional CPG categories (heck all consumer categories) will continue to naturally bifurcate towards either end of the spectrum.
Higher End = Premium, Specialty, Personalization, and Brand Experience
Lower End = Economical, Commoditization, and Transactional
Anything in the middle, will and has already started to be washed out of the market. As a brand, you must pick a side and stay close to those extreme ends.
As the saying goes, when we try to be everything for everybody, we run the risk of being nothing for nobody. Most of functional CPG industry professionals are complaining about the “race to the bottom” because they have legacy beliefs that they must try and be everything for everybody. As digitally-native brands became more premium, special, and created direct emotional connections with customers, legacy brands (unbeknownst to them) moved towards the middle. Most haven’t even realized that fact yet. If they did, they would be feverishly moving downstream to become more economical, commoditized, and transactional in the eyes of the market.
There’s nothing wrong with being those things. In fact, it can be extremely advantageous, especially in periods (like right now) where you have elevated trade down consumer demand and retail merchandising support.
Dollar Stores are the Future
As new customer cohorts shop more frequently at dollar stores, they will look for trade downs across a broader range of CPG product categories. If patterns repeat from other retail channels, it will mean demand shifts towards “better for you” and “functional over conventional” CPG products when its available. This will drive merchandisers/buyers to seek options that fit the desired wants of these high-value consumers, providing massive opportunities for the functional CPG brands that are willing to serve this market.
If you need examples, just ask The Simply Goods Foods Company, Abbott Labs, Nestle, Monster Beverage, and many others how the dollar channel is becoming a larger piece of their sales channel strategy. It might not be the sexiest way to grow your revenue, but consider the alternative in a recessionary environment?
Final Thoughts
Consumers dictate where and how they want to shop. Many consumer brands will perish based on self-imposed dated channel beliefs. Dollar stores offer value and convenience to shoppers, so functional CPG brands should explore this sales channel strategy as the market continues to shift. If consumers are breaking down dated channel beliefs, why shouldn’t your functional CPG brand?