Following Family Dollar Stores’ results announcement last week, it seems that an expanded food selection is proving to be a winning strategy for general merchandise retailers in the US.
Family Dollar has not been the only US operator to cotton on to the trend, with Target launching its Pfresh range and drugstore operator Walgreens getting in on the act as well.
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While convenience for consumers seems to be a buzz word for many of these retailers, it is really only one of the drivers behind this trend. The shift towards food has been a recessionary tactic, with general merchandise retailers attempting to boost spending and drive traffic while customers cut back on non-essential items.
With the economic environment in the US continuing to look bleak, it is likely that more retailers will continue to push consumables in a bid to drive traffic and impulse purchases.
“Simplistically the reason they move more into food is to drive more traffic and more visits. And food is purchased more frequently, it is still the largest category of merchandise in retail, so if you want to get more people in the door more frequently, selling them food is a good way to do it,” says McMillan Doolittle retail consultant Neil Stern.
“For retailers like Target, its how to drive frequency out of the customers coming through the door. Target talks about one more trip, one more item.”
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These initiatives are starting to bear fruit for the retailer, making it easy to see why other general merchandise retailers would be looking to expand their reach into food.
A Target spokesperson tells just-food that its stores with expanded food sections have experienced traffic and sales growth of approximately 6%, with some stores seeing increases of more than 10%.
It seems that the addition of food is having a halo effect on sales of products that would often be bought in a weekly supermarket shop. “We’re seeing the biggest sales lift in food items, as well as notable sales increases in categories such as health and beauty, household chemicals and paper products,” the spokesperson says.
Target plans to roll out the format into 350 stores by the end of this year, and a further 400 stores across the US in 2011.
In its earnings call last week, Family Dollar revealed that it widened its assortment of consumables as well as expanding its private-label programme. Stern describes the moves as a “catch-up strategy” against competitor Dollar General.
“When you look at Family Dollar, they’re doing everything that Dollar General has already done. In their case they’re still a couple of years behind, so if you look at market penetration, consumables and their market share in private label, they trail Dollar General.”
However, Stern says that, for the convenience discount store channel, the moves are an “extension of what they were already very good at and they haven’t moved significantly into fresh or perishable products”.
Drugstore operator Walgreens also recently entered the channel, offering an expanded food selection in a number of Chicago communities it identified as “food deserts – areas that lack access to basic foods necessary to maintain a healthy diet”. Walgreens also extended the DR Delish range of snacks and convenience foods, which began in its Duane Reade stores in New York, to all of its outlets.
Stern says Walgreens’ offer is focused on convenience and “leveraging the traffic that’s coming through the doors” rather than increasing footfall. However, he adds that the concept of drugstore operators offering food is “not new” but that US operators “lag significantly behind [UK retailer] Boots in terms of its convenience offer”. “It’s been around in the UK for a long time, but nobody’s done it here,” he says.
Stern generally thinks that retailers moving into food is a good strategy, although they need to be aware of the lower margins that food offers compared to general merchandise. Additionally, perishables can also provide extra work for retailers as they “increase the operational requirements for a store, particularly as you move into perishability, it’s more difficult for retailers to manage”.
Also retailers face issues around managing their brand image, and if they want to work food into the equation they need to work around and with “what the brand has traditionally stood for”, Stern adds.
Target has a reputation for its “cheap chic” as a fashion retailer, which “doesn’t necessarily translate to food” says the consultant. “They all, at least reputationally have something they need to overcome if they’re going to be successful in the food arena,” he says.
Despite the challenges that all of these retailers have had to overcome to offer food in their stores, Stern believes that expanding the offer is one that seems natural.
“It’s fairly natural that these companies would gravitate towards food to continue to be relevant for consumers.”
