In last week’s Shopper Marketing Expo held October 16-18 in Chicago keynote speakers Wendy Leibmann CEO WSL Strategic Retail, and Mike Bloom, COO of Family Dollar shared the podium to discuss the changing value-driven consumer and how Family Dollar is responding to this ever-growing segment.
Wendy’s research shows that 75% of consumers believe that the recession will last for 3 more years. Virtually half say that they only have enough money for the basics and the remainder can afford the basics plus “a little bit more”. 75% of consumers state that the lowest price is the one driver in their purchase decisions, and more than two-thirds report that before they buy anything- they ask, “is this a smart use of my money?” Consumers now study the value of every item she buys.
As a result, the discount retail channel is dramatically expanding. Once a “destination for the destitute”, now 58% of all consumers shop at a dollar store regularly, with 46% of these consumers having incomes of $100k or more.
Recent research from Kantar Media TGI, as reported in Marketing Week’s “Lower-income consumers snap up big brands”, adds some insight to these findings. It indicates that cultural capital, a person’s level of education or knowledge, may be driving consumer’s price orientation and purchase behavior. Consumers with high cultural capital understand the differences – or lack thereof – between brands and a retailers’ Private Brand. Thus, this segment of value-shoppers are more price-driven which, combined with the current economic condition, creates an opportunity for retailers like Family Dollar to target a new type of consumer.
With this in mind, Mike Bloom outlined how Family Dollar has dedicated the last 12 months to transforming its product mix, launching new Private Brands, redesigning and refurbishing their stores and driving Everyday Value Pricing strategy, all of which ladder up to the goal of making Family Dollar more relevant to these consumers.
A key to Family Dollar’s success has been retaining their core customers (female HH with less than $40k income) while attracting a younger and more affluent segment which Mike calls “Trade In Customers”, those with $40 to 70k of annual income. Family Dollar has seen nearly double-digit growth in this segment all income levels.
Research showed that the average spend per trip has remained relatively unchanged for many years. Therefore, Family Dollar’s strategy was to increase the number of trips by revamping their assortment to include significantly more consumables including food, beverage, personal care, etc. On average consumers make 114 trips for food per year, but Family Dollar was only getting 6 of those trips. Family Dollar expanded its food and beverage assortment by more than 1,000 SKUs and its HBA offerings by 1,600 SKUs. An intelligent mix of traditional CPGs and Private Brands, Family Dollar’s assortment is now as competitive as any other retailer.
While consumables drive trips, margins on these items are much less than Family Dollar’s core SKUs, and so Mike also drove the development of the retailer’s higher margin Private Brands. Within the last year they’ve launched over 400 new Private Brand products with more than 500 new products planned. Many of these new products are tiered across a good/better best pricing strategy. These include the entry basic tier brand “Value Option”, the NBE health & wellness brand “Family Solutions” brand and their highly successful NBE consumables brand “Family Gourmet”, all recently redesigned by branding agency Wallace Church. Driven by these successes, Family Dollar is committed to carrying 2,000 Private Brand products by 2015.
In addition to expanding Family Dollar’s Private Brand portfolio, Mike and his team have greatly improved the in-store experience. Prior stores were so dirty, poorly lit and disorganized that the products were often perceived as diverted goods. Now the retail brand has lost its “cheap” stigma and Family Dollar has become a destination for value, quality, convenience and relevance.
Mike ended his talk with the statistic that only 52% of CPG marketers think of dollar stores as a strategic channel, but with a 64% anticipated growth in sales, the dollar channel is actually a true contender and strong advocate of Private Brands that solve for the needs of value focused customers.