The Dollar Store Invasion Gains Momentum

Dollar stores in Canada sold well over $2 billion worth of food last year. And given how aggressive dollar stores are, that could double quickly

A visit to any dollar store is something to remember: the bright lights, aisles filled with things you may or may not need, and the distinctive smell.

If we had to create a smell that mixes plastic with China, the smell in a dollar store would be it. It’s not overly appetizing but a greater number of Canadians are grocery shopping in dollar stores these days.

In the United States, there’s a true dollar store invasion. There are more dollar stores in the U.S. than Starbucks and McDonald’s combined, over 30,000 of them.

Major U.S. chains include Family Dollar, located mostly in cities, Dollar Tree, where everything is actually $1, and Dollar General, the largest retailer in the country when it comes to the number of stores. Dollar General has 16,000 stores in total.

By 2025, given how aggressive these companies are, the number of U.S. dollar stores could increase by 20 per cent in just two years.

Some claim dollar stores are creating U.S. food deserts, forcing grocery stores in urban centres to close.

In Canada, the picture is becoming similar. The leader in discount grocery stores in Canada is Dollarama, which has more than 1,200 stores. Dollar Tree has roughly 220 stores nationwide. Canada is also home to other retailers such as Dollar Store With More, Great Canadian and Buck or Two.

There are more than 1,700 dollar stores in Canada. Per capita, the ratio is not as high as in the United States, but the number is expected to increase by almost 100 stores a year over the next few years.

These stores sell everything from dishes to gift wrapping to clothes to toys and, of course, food. Dollar stores are increasing their food offering in order to compete against grocery stores.

Sales at Dollorama exceed $3.5 billion yearly. Last quarter, Dollorama reported that some store sales were up by 5.3 per cent. In other words, business is good.

That number can only make grocers dream.

Food sales are lifting Dollorama’s financial results. The biggest Canadian chain, it doesn’t report food sales. But we estimate the company sold more than $1.6 billion worth of food products last year. So it can easily be hypothesized that dollar stores in Canada sold well over $2.1 billion worth of food products this past year. That’s the same sales generated by 212 regular-sized grocery stores in Canada. And that number could reach $3 billion by the end of 2020.

This doesn’t represent a huge portion of the grocery market at a little under two per cent. But given low margins and how low-priced these products are in dollar stores, traditional grocers have felt the pressure.

Most Canadians still grocery shop in traditional grocery stores. Yet some of us are tempted by food sold in dollar stores, even though it’s anything but inspiring and many of products offer little or no health benefits. All of the food is non-perishable. Most brands carried by dollar stores are unknown to Canadians. Those that are known are sold at discounted prices.

Unlike in the U.S., where several dollar stores have freezers and fresh produce, no Canadian dollar stores sell fresh products, at least that we know of.

However, what’s happening in the United States may be a sign of things to come in Canada. Dollar stores in Canada could soon collect more of our food dollars by selling other staples such as fresh or frozen goods.

The main reason consumers buy food at dollar stores is for snacking. Dollar stores are like convenience stores, at a discount. They offer cheap, portable, simple quick-fixes for our in-between-meals cravings.

And let’s face it, many Canadians struggle financially, even if they have a job, a mortgage and a car. Dollar stores are conveniently becoming more accessible for craft goods, sticky notes, gift bags and, of course, food.

It’s difficult to see an end to the dollar store invasion in North America. However, this hardly marks the end of the grocery store, or even the creation of food deserts. Some data suggests dollar stores have generated organic growth in food sales; these products would not have been sold by other players in the market.

Grocers in Canada have also done an incredible job of defending urban markets in recent years. But the threat is real in suburbs and small towns.

Given how well dollar store chains are managed, it will be interesting to see how things change over the next few years.

By Dr. Sylvain Charlebois

Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

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