LDN - Business

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

[May 17, 2023] By Jessica DiNapoli

NEW YORK (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 and Kraft Heinz Co have overhauled or built new teams dedicated to working with the biggest U.S. dollar stores like Dollar Tree Inc and Dollar General Corp in the last year.

J M Smucker Co is looking into bringing seasonal flavors of its packaged Dunkin' coffee to the stores, while Hershey Co 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, 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 and surpassing Sam's Club, Target Corp and Kroger Co.

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 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.

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Household products made by Procter & Gamble Co are seen on shelves at a Dollar Tree in Newburgh, New York, U.S., May 14, 2023. REUTERS/Jessica DiNapoli

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.

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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 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."

(Reporting by Jessica DiNapoli in New York; Editing by Anna Driver)

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