A new report from Coresight Research sees dollar stores in an excellent position to increase its share of the U.S. grocery market.
The report, entitled “Dollar Stores: Flexing Muscle in U.S. Grocery,” found that since October more than one in five consumers consistently report visiting dollar stores to buy groceries.
Although dollar stores only captured an estimated 3.3% of total grocery sales in 2022, in recent years companies like Dollar General and Dollar Tree/Family Dollar have focused on expanding their grocery offerings in more stores. Grocery shopping is popular for its potential to drive traffic and visit frequency, despite the fact as a category it yields lower margins.
These efforts to expand into grocery have paid off, according to the Coresight report, as dollar stores had double-digit gains in customer visits over the past three years.
Both Dollar General and Dollar Tree/Family Dollar also rank in the top five retailers where consumers buy grocery products, often beating out Kroger-owned banners on a weekly basis.
A key advantage for dollar stores, in addition to their lower prices, is the number of stores, especially in rural areas, according to Coresight. Dollar General has added an average of 1,018 new stores each year from 2019 to 2022, while Dollar Tree has added 211 new locations and Family Dollar 104 new stores.
“We believe supermarket chains with significant store overlap with dollar stores could be at risk of serious margin pressure in the coming years,” Coresight said
However, supermarkets might not be the only ones losing sales. The dollar chains also pose a potential threat to discount grocery retailers including Aldi, Lidl and Save A Lot, according to the report.
“Grocery retailers will have to pay close attention to whether the dollar chains’ push into grocery constitutes a material threat,” the report concluded. “If the two retailers continue to improve the quality of their fresh food while maintaining the low prices associated with their brands, there is a high chance it will bolster their value proposition with their existing consumer base and also pull in new customers from higher-priced retailers.”