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Keeping up with the Dollar Channel

Guest Blog By Pat Conroy

Driven by changing consumer preferences, the U.S. retail landscape appears to be shifting.  The market share of the grocery and mass merchandise channels, while still dominant in CPG, has eroded as market shares of dollar, club, and convenience stores increased in recent years. CPG companies looking to stay on top of these shifts should not ignore the potential for the dollar channel, especially multi-price-point dollar stores, to play a growing role in national brands’ future performance.

In a recent Deloitte survey, CPG executives acknowledged consumers’ growing affinity for today’s new and improved dollar stores, and the shift in their views on the importance of different channels over the last three years is testimony to the significance of this trend. Sixty-two percent of the CPG executive respondents expected sales at dollar channel to increase over the next three years. These executives also expected dollar stores, in the same timeframe, to increase product choice by increasing the number of SKUs (85 percent), expand their geographic presence (75 percent), allocate more shelf space to private labels (58 percent), and improve in-store product presentation through means such as lighting and in-store displays (57 percent).

Looking ahead, CPG companies seeking to capitalize on the dollar channel’s growth should consider ways to appeal to the dollar channel’s increasingly diverse customer base while guarding against channel conflict and cannibalization. Core dollar-store consumers are being joined by new dollar consumers who shop at dollar stores less out of sheer financial necessity, but because they appreciate the dollar store’s national brand offerings and the improved in-store experience. For many CPG executives, the attraction of the dollar channel’s growing customer base is mitigated by the specter of rising channel conflict with mass merchandisers and grocery stores.

Our research shows that dollar stores are an important and profitable channel for some CPG companies that have tailored their businesses to suit the channel’s distinctive nature. These CPG companies appear to have cracked the code for selling through the dollar channel in five distinct areas:

  • CPG companies begin with a channel- and often retailer-specific approach to brand, product strategy, and innovation.
  • They pursue tailored merchandising and assortment strategies for the dollar channel at the store level.
  • Their pricing and trade promotion strategy acknowledges the potential for channel conflict by providing unique product-price value propositions in each channel.
  • They partner with dollar retailers to adapt their supply chain, distribution, and operations to the dollar channel’s unique logistics and warehousing environment.
  • CPG companies serious about succeeding in the dollar channel create channel focus by resourcing dollar stores with strong account and support teams that include marketing, product packaging, and supply chain expertise.

One would think that the dollar channel should be an important and strategic channel for most national brands, yet 42 percent of the consumer product executives surveyed do not view the dollar stores as a strategic channel. The CPG executives surveyed and interviewed seem, albeit gradually, to be coming to grips with this new reality.

Pat Conroy is vice chairman and U.S. Consumer Products leader at Deloitte LLP, a national practice that provides audit, tax, financial advisory and consulting services to consumer product manufacturers.  The national Consumer Products practice comprises more than 2,400 professionals, and is one of the largest industry practices at Deloitte.  Pat has more than 20 years of experience leading both domestic and international consulting engagements within the consumer products industry.  He has been a long-time advisor to many of the consumer packaged goods (CPG) industry’s leading chief executive officers and senior executives. His experiences range from strategic business planning to detailed implementation of operations and technology initiatives.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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