The Dollar Channel Could Dominate 2021

2020 was a tough year for many retailers. Physical shopping had already been going through a years-long transformation, but the coronavirus pandemic only accelerated the consumer shift to ecommerce. We are only a few days into the new year, yet major retailers like Macy’s, GameStop, and Gap Inc. have already announced store closures for 2021. However, one channel is experiencing so much success in the pandemic that they are likely to dominate 2021: the dollar channel.

Dollar General’s same-store sales growth was twice as large in the first quarter as Walmart or Target, and Dollar Tree also beat out both retailers by 5%. Rising unemployment, financial uncertainty, and periods of low stock at traditional retailers have driven consumers to the dollar channel. Additionally, these stores are usually smaller and can’t hold as many shoppers as a large grocery or big box chain, which provided some peace of mind to consumers that have been avoiding crowds. Shoppers have also been staying closer to home in the pandemic, and retailers in the dollar channel have benefited from their close proximity to consumers – according to Todd Vasos, CEO of Dollar General, 75% of the American population lives within 5 miles of one of the retailer’s 16,000 locations.

So how is this sales growth impacting dollar channel retailers’ strategies moving forward? One big change is that retailers in the channel are really doubling down on fresh grocery options. Dollar channel retailers had begun dipping their toes in this area before the pandemic, but now there is a feeling that they need to push it more aggressively in order to convert new pandemic shoppers into long-term customers. For example, Dollar General announced in early August that they would build three new cold storage facilities in order to supply 1,500 locations with fresh inventory.

Another change is that dollar channel retailers are trying to expand beyond their image as stores that serve mainly low-income shoppers. The pandemic has affected so many different types of consumers, and this new sense of frugality means that dollar channel shoppers have been getting more diverse.

This is a very important change for CPG brands to watch, and brands that typically target middle and high-income earners may want to consider selling in the dollar channel for the first time. As shoppers in this channel depend on these retailers for a bigger part of their grocery basket, it’s not a given that premium brands will be able to draw shoppers into traditional grocers. Premium snacks, beverages, and frozen items could find that they need to meet consumers where they are, and more of them are showing up in a channel that wouldn’t have seemed like a good fit five years ago.

For all of the talk about the “retail apocalypse,” not all retailers are hemorrhaging customers to ecommerce platforms. The dollar channel is thriving, and these retailers are rolling out plans to keep the momentum going long after the pandemic.  

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