How Dollar Tree and Family Dollar are combining their model to become more relevant in small towns

Date : 29 March 2021

Maxime Delacour

Senior Retail Analyst

2020 has been a challenging year for Dollar Tree as it posted net sales growth of “only” 8% compared to 21% for direct competitor Dollar General. The group’s other banner Family Dollar was the main contributor to growth thanks to its larger assortment of grocery products, more relevant during the COVID-19 pandemic.

Building on the success of Family Dollar and the evolution of shoppers’ needs, Dollar Tree announced it will be rolling out a new store concept for small towns. The concept, quite unique in the industry, is a combination of its two banners, Dollar Tree and Family Dollar, and will feature both brans on the exterior of the store. So let’s see how it looks like and why we believe the discounter is going in the right direction with this new proposition.

Taking the best of both banners

The new store concept is an evolution of the Family Dollar format and combines the different proposition of two banners:

  • Family Dollar: a wide range of grocery products including chilled and frozen. Strong value for money destination image. The multi-price positioning enables to offer a large assortment of products covering most needs
  • Dollar tree: strong proposition of seasonal and non- grocery items. Mainly known for its seasonal finds and “treasure hunt” mission. Unique price point at $1

The new “Combo” stores have a larger footprint and offer a larger assortment of chilled and frozen food products compared to traditional Family Dollar stores. More space is also dedicated for home, seasonal and festive products from Dollar Tree to create a more exciting shopping environment and encourage shoppers to visit more frequently.

Compared to a standard Family Dollar store, the Combo store’s sales are 20% higher on average. The stores are also delivering higher gross margins and have better operating income thanks to improved costs management.

Source: Family Dollar

Offering a relevant proposition for small towns

The Combo store concept has been created specifically for small towns of 3,000–4,000 people in rural locations where shoppers usually must travel far to cover all their shopping needs. By combining the large grocery offer from Family Dollar with the constantly renewed range of seasonal products from Dollar Tree, the new concept aims at providing value for shoppers and cover most of their needs in locations where there isn’t currently such offer.

As of March 2020, there were around 50 Combo stores in operation. The discounter has set ambitious plans for 2021:

  • 400 new Dollar Tree stores
  • 200 new Family Dollar stores
  • Renovate 1,250 Family Dollar stores comprising of the H2 format (larger food assortment) and the new Combo format

In the longer term, 3,000 locations have been identified as potential future Combo stores across the US.

Our view: the right proposition in the right locations

Discounters across the world have been challenged more than usual since the COVID-19 pandemic. Several of them struggled to cater for the different grocery shopping missions due to their limited assortment.

One of the five trends shaping the discount channel we identified for 2021 is for operators to  review and refine the assortment. The roll-out of this new concept shows the importance for discounters to offer a relevant assortment and shopping experience as they can’t compete yet in terms of online services. They must differentiate in other ways. By targeting smaller towns in rural areas with a concept covering most shoppers’ grocery needs, we believe Dollar Tree could be in a good position to fill a gap in the market. This will be supported by the value proposition, expected to be especially appealing for families and savvy shoppers.

With Dollar General also evolving its model to offer more grocery products, it proves the discount channel is accelerating its transformation to become more relevant in the post COVID-19 world. More discounters are now investing in digital and online capabilities that will contribute to maintain their growth and strengthen again their disruptive role in the wider retail industry.

Source: Family Dollar/Youtube

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