Transcript Sources of Market Leakage

The Lurking Menace
Sources of Leakage
 Wholesale Clubs
 Drug Stores
 Department Stores
 Convenience Stores
 Dollar Stores
Wholesale Clubs
 BJ’s Club – 207 Stores, Grocery Sales $9 billion,
$836,000 per unit
 Costco – 469 Stores, Grocery Sales $44.4 billion,
$1,822,000 per unit
 Sam’s Club – 643 Stores, Grocery Sales estimated at
$1,000,000 per unit
Drug Stores
 CVS/Pharmacy – 7,749 Stores, Consumable Sales
estimated at 14.6%, or $23,000 per unit
 Walgreens – 8,207 Stores, Consumable Sales
estimated at 14%, or $25,000 per unit
 Rite Aid – 4,574 Stores, Consumable Sales estimated
at 14%, or $16,000 per unit
Department Stores
 Target – 1,801 Stores, Consumable Sales estimated
at $150,000-200,000 per unit
 Kmart – 1,221 Stores (and dropping) most include a
pantry
 Conventional (D1) Walmart stores. 474 units
remaining, many with significant pantry offering
Convenience Stores
 7-Eleven – 8,292 Stores, “Merchandise” Sales
estimated at $30,000 per unit
 Quik Trip
 Wawa
 Sheetz
 Speedway
 Casey’s General Store
 Hess, etc.
Dollar Stores
 Dollar General – 11,535 Stores, Consumable Sales
estimated at 75.0%, or $24,000 per unit
 Family Dollar – 8,042 Stores, Consumable Sales
estimated at 73.4%, or over $18,000 per unit
 Dollar Tree – 5,285 stores, Consumable sales
estimated at 49.4%, or over $15,000 per unit
Dollar Stores
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Low price points
Small, convenient to shop stores
Quick, in and out trips
Frequently carry smaller, off-size packaging to
appear lower priced than conventional stores
 Go-to-market strategies differ among the 3 major
players
 Most typically target low to middle income
consumers
Dollar General averages $32,000
per store, with consumable sales
of approximately $24,000 per
week (75%+ of total sales)
Dollar General Strategy
 Customer visits a combination of fill-in shopping,
periodic stock-up trips, and weekly (or more often)
regular trips to fill essential needs
 Typically will tailor individual stores’ merchandise
selection to meet the needs of each trade area
 Maintain direct buying relationships with producers
such as Proctor & Gamble, PepsiCo, Coca-Cola, Nestle,
General Mills, Unilever, Kimberly Clark, Kellogg’s and
Nabisco
 Carry a broad offering, but only a limited number of
SKUs per category, giving a pricing advantage
Dollar General Strategy
 Stores generally carry roughly 10,000 SKUs total
 Most items priced at $10 or less, with approximately
25% at $1.00 or less
 Increasing emphasis on private brand consumables,
with significant savings over national brands
 Consumables represented 75.2% of total store sales
in 2013. Other categories include Seasonal, Home
products and Apparel
Dollar General Positioning
 11,768 Stores (as of February 6, 2015)
 12 distribution centers
 Adding 106 stores in the next couple of months
 Operate in all but 9 states (Oregon, Washington, Idaho,
Montana, Wyoming, North Dakota, Maine, Alaska,
Hawaii)
 Typical Dollar General store is, on average, 7,400 selling
square feet
 66% of stores are freestanding, with 34% in strip centers
Dollar General Positioning
 Dollar General’s position is that of “rural America’s
convenience store”
 Most store visits are in and out in 10 minutes
 Majority of customers live within 3-5 miles, or a 10
minute drive, of their store
Dollar General Site Criteria
 Median Household Income less than $75,000
 At least 4,500 people
 9,100 square foot building (70x135 prototype)
 New Dollar General Plus format (10,640 sq. ft.)
with expanded grocery selection
 Minimum of 30 parking spaces
Dollar General Plans
 Dollar General offers to buy Family Dollar but is
rejected in favor of Dollar Tree’s lower bid
 Small acquisitions are likely as Dollar General
focuses on expanding its footprint while Family
Dollar /Dollar Tree slows growth to integrate their
operations
 New emphasis on digital coupon programs
 Plans to introduce more private label to increase
margins
New Dollar General Plus
Caney, KS
Family Dollar averages over
$25,000 per store, with
consumable sales of
approximately $18,000 per week
(73%+ of total sales)
Family Dollar Strategy
 Aim is to provide value and convenience to attract a
broad range of incomes and ethnicities
 Shopping trips are usually for fill-in needs for
essentials and periodic stock up trips
 Primary suppliers include producers such as
Proctor & Gamble, PepsiCo, Coca-Cola, Clorox,
Nestle, Georgia Pacific, Unilever, Kimberly Clark
and Frito-Lay
 National brands account for 71% of sales, private
brands for 29%
Family Dollar Strategy
 Stores generally carry 6,500 to 7,500 SKUs total
 Most items priced at $10 or less, with approximately
22% at $1.00 or less
 The number of transactions per store is decreasing,
but the average spend per trip is increasing
 Consumables represented 73.4% of total store sales
in 2014. Other categories include Seasonal &
Electronics, Home Products and Apparel &
Accessories
Family Dollar Positioning
 Approximately 8,100 stores currently open
 11 distribution centers
 Adding 31 stores in February 2015
 Operate in 46 states
 The average Family Dollar store is 7,100 selling
square feet
 24% of stores are located in large, urban markets,
20% in small urban markets or suburbs
Family Dollar Positioning
 55% of stores are in strip shopping centers, 43% are
freestanding and 2% are in CBD/Downtown
locations
 Tends to located near supermarkets and big box
retailers as a smaller, more convenient and less
expensive (?) alternative
 Majority of customers live within 3-5 miles of their
store
Family Dollar Site Criteria
 Conveniently located to low-to-middle income
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customer base
Food store anchored neighborhood shopping
centers, convenience strip centers, freestanding
locations
7,000-10,000 square foot footprint
25 or more parking spaces
Minimum of 60’ of frontage
Family Dollar Plans
 In 2013, Family Dollar announces plans to expand
its national footprint
 After continuing less than expected results, Family
Dollar closes 370 stores in 2014
What’s next for Family Dollar……..
Family Dollar Acquired
 Dollar Tree offers $8.5 billion for Family Dollar.
Family Dollar accepts the bid over a higher offer
from Dollar General on January 22, 2015
 Reportedly, a merger with Dollar General would
have resulted in 3,500-4,000 closures (FTC
mandated) versus just 500 with Dollar Tree
 Expect to see more cost efficient private label
consumables in Family Dollar Stores, making it
more price competitive
Family Dollar Acquired
 The new, combined chain will have over 13,000
total stores
 The deal is expected to be completed by March of
2015
 Family Dollar and Dollar Tree will continue to
operate under their current pricing and “go to
market” strategies, while taking advantage of the
strengths of each chain
Dollar Tree averages over $31,000
per store, with consumable sales
of approximately $15,000 per
week (49%+ of total sales)
Dollar Tree Strategy
 Retail all items at $1.00
 Merchandise largely imported from China
 Specializes in buying closeouts and promotional
items for the best price
 Ever-changing product line creates the “wow” factor
or “thrill of the hunt” atmosphere
 Dollar grocery items, including lots of private label
items from Con Agra, etc.
Dollar Tree Strategy
 Added frozen and refrigerated capacity to 608 stores in
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2013, offering these items in over 3,000 of the chains’
stores
Pace continues with the aim of offering frozen and
refrigerated items in all stores
Accept all manufacturers coupons
Initiated Dollar Tree Direct e-commerce business in
2009, growing to 21 million unique visitors by 2013
E-commerce targets unique items and larger quantity
orders for individuals, small businesses and
organizations
Dollar Tree Positioning
 Approximately 5,285 stores currently open
 10 distribution centers
 Growing at a steady pace, but expected to slow with
the integration of Family Dollar
 Operate in 48 contiguous states
 The average Dollar Tree store is 11,500 square feet
Dollar Tree Positioning
 Concept is designed to appeal to men and women
across a broad spectrum of income levels
 Targeted more as an urban and suburban format
store as opposed to Dollar General and Family
Dollar
 Deals stores offer items over $1.00 and was
developed to draw a wider consumer base and offer
a wider category selection
Dollar Tree Site Criteria
 Regional or neighborhood centers
 High visibility
 8,000-12,000 square foot building (11,500 ideal)
 Strong retail corridor, easy ingress/egress for
freestanding stores
Dollar Tree Plans
 With the acquisition of Family Dollar, the combined
chain will have an estimated 13,000+ stores, making
it the largest company of its type in the United
States
 Annual sales should reach more than $18 billion,
with around $12 billion in food and consumables*
 The new chain will benefit from increased
economies of scale and integration of learnings
*Supermarket News, February 2015
How to Combat
Dollar Stores
Focus on Dollar Store
Weaknesses
 Poor/limited service
 Quality of help
 Narrow/cramped aisles
 Poor housekeeping
 Limited/no perishables
In-store Strategies
 Focus on the overall store experience
 Develop vestibule lead-ins/promotions
 Consider a basket price comparison
 Emphasize perishables departments
 Include a “dollar aisle”
 Private label offering and promotion
 Special weekend promotions
In-store Strategies (cont’d)
 Category merchandising
 Event merchandising
 Service levels throughout the store
 Special promotions like “Pick 5” expanded to
non-food items
 Consider general merchandise promotions for
special events throughout the year