Focus: As household budgets tighten, big brands double down in dollar stores

Edgewell Personal Care

17/05/2023 11:00

By Jessica DiNapoli
       NEW YORK, May 17 (Reuters) - Makers of brand-name
household basics like Dunkin' coffee and Schick razors are
bulking up sales teams and adding specialized and lower-cost
products to the shelves of America's ubiquitous dollar stores in
a bid to reach more budget-conscious shoppers.
    Razor manufacturer Edgewell Personal Care Co  EPC.N  and
Kraft Heinz Co  KHC.O  have overhauled or built new teams
dedicated to working with the biggest U.S. dollar stores like
Dollar Tree Inc  DLTR.O  and Dollar General Corp  DG.N  in the
last year.
    J M Smucker Co  SJM.N  is looking into bringing seasonal
flavors of its packaged Dunkin' coffee to the stores, while
Hershey Co  HSY.N  is in talks to launch its Dot's Pretzels to
the retailers, executives said in recent interviews.
    Makers of food and household staples are pushing deeper into
dollar stores because the low-cost retailers are opening
thousands of locations each year. They are adding fresh produce
and attracting shoppers squeezed by inflation, giving
manufacturers with slumping sales a chance to grow.
        "It used to be, you would get odds and ends" liquidated
from other retailers' unsold inventories, said Ed Johnson, a
principal with Deloitte Consulting LLP focused on retail and
consumer products. 
        Now, makers of pantry staples are treating dollar chains
with the same rigor as Walmart due to their size and scale,
Johnson said. 
        A study by Tufts University found the low-cost stores,
which number well over 35,000 in the U.S., are the
fastest-growing U.S. food retailers by share of household
spending - though Dollar Tree stopped selling eggs.
    Executives at packaged food companies like Conagra Brands
Inc,  CAG.N  say the stores are increasingly attractive because
they are installing more freezers and refrigerators for items
like budget TV dinners, breakfast sandwiches and yogurt.
    Proprietary data provided by Kraft Heinz shows that Dollar
Tree's Family Dollar chain had the second-highest growth in food
and beverage sales in the first quarter through February 12, at
14.1%, second to rival Walmart Inc  WMT.N  and surpassing Sam's
Club, Target Corp  TGT.N  and Kroger Co  KR.N . 
    Dollar Tree, which is scheduled to report earnings on May
25, declined to comment when asked about the data.
    But, makers of national brands face tougher competition as 
dollar stores expand their private label selection, even as they
continue to rely on well-known brands like Coke and Procter &
Gamble Co's  PG.N  Tide to draw in shoppers.
    "The main play is frozen vegetables," and frozen fruit, in
dollar stores' expansion into private label food, said Jim
Griffin, executive vice president at Daymon, a consulting firm
that works with retailers on their store brands. "There's strong
consumer acceptance."
    Griffin added that dollar stores are also introducing more
"premium" private label brands, like Dollar General's Nature's
Menu for pets.
    J M Smucker is looking at expanding its line-up of Dunkin
packaged coffee in dollar stores with seasonal flavors, because
the food maker sees shoppers buying more than just necessities
at the retailers, said Robert Crane, head of sales at the
Orrville, Ohio-based company. 
    It may also sell its hazelnut and peanut butter and honey
varieties of its frozen Uncrustables sandwiches in dollar
stores, as it builds a new factory to add capacity, Crane said.
    Most dollar stores - which are less than half the size of a
Walmart location or most traditional grocery stores - only sell
the fastest-selling, basic items because of limited shelf space.
    Crane said the metric dollar store executives watch the
closest is "dollars per point of distribution" for individual
products, which measures how much in sales each item generates
over time.
    "If it does not meet their threshold, they will look for
something else for the space," he said.
    After launching its fall-themed pumpkin spice Cup of Noodles
at Walmart - and seeing consumers slurp it up - Nissin Foods
expanded the product to dollar stores, said Priscila Stanton, a
marketing executive with the noodle maker. 
        
    UNTAPPED CHANNEL 
    Edgewell last year rolled out three-count packages of men's
and women's Schick three-blade razors for Dollar General because
they wanted to introduce a product selling for a lower price
than other retailers, said Eric O'Toole, president of the
company's North America business in an interview.
    The razors sell for $5.35, according to Dollar General's
website. Edgewell introduced the package because Dollar General
shoppers had previously been repeatedly buying lower-price shave
kits instead of refill packs to minimize out-of-pocket expenses,
a spokeswoman said. 
    Kraft-Heinz also created a new team of five people late last
year to identify and develop products for dollar stores, a
spokesman said. 
    The macaroni and cheese maker would like to "change the
perception the dollar space doesn't offer 'better for you'
well-rounded" meal choices for families, another spokesperson
said.
    "We’re trying to provide solutions that show the dollar
space as more than 'soda and a snack,'" the spokesperson said.  
 
    Consumer products companies are also plowing into U.S.
dollar stores as a defensive tactic because of what they have
seen in Europe - the growth and popularity of discounters like
Aldi and Lidl who offer inexpensive private label goods, said
Arnab Sinha with Boston Consulting Group. Those chains are
growing in the U.S.
    "As a (consumer packaged goods company), of course, that is
an issue, I don’t want people moving away from retail formats
that actually have a good selection of brands to one that is
almost all private label," he said.
    Hershey Co  HSY.N  is in discussions with dollar stores to
introduce Dot's Pretzels as part of an effort to grow the brand
beyond its core Midwestern base, said Kristen Riggs, president
of the chocolate maker's salty snacks business. 
    The Reese's cup maker in 2021 bought Dot's in a bid to
expand beyond chocolate.
    "I think that channel right now is untapped," Riggs said.
"We're talking to the customer about the right opportunity,
time, pack size, the right price point for the dollar customer."
    

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Dollar Tree store count    https://tmsnrt.rs/44XHZba
Family Dollar store count    https://tmsnrt.rs/44NwCma
Dollar General store count    https://tmsnrt.rs/3O4sb0k
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 (Reporting by Jessica DiNapoli in New York; Editing by Anna
Driver)
 ((Jessica.DiNapoli@thomsonreuters.com; 845-591-4428;
@jessicadinapoli))