Is the Dollar Channel Encroaching on the C-Store?
The dollar channel has seen a 5.5% increase in number of locations from 2014 to 2015, compared to a 0.9% growth in convenience. This growth is driven by the two dominating players – Dollar General and Dollar Tree.
Dollar General has 13,000 stores, with plans to open 900 in 2016 and 1,000 more in 2017. Dollar Tree has doubled its store count overnight to approximately 13,600 U.S. stores after acquiring Family Dollar in 2015. Not only is the dollar channel seeing strong unit growth, but also sales growth which is outpacing the c-store channel at 7.5% vs. 4.75%.
Why is all of this so concerning for our industry? Not only does the dollar channel benefit from economies of sale and greater efficiencies, but they are also starting to get into the tobacco and alcohol categories and have begun experimenting with fuel. Tobacco drives a lot of the traffic that goes into c-stores (as well as add-on purchases), if these store visits start to shift to the dollar channel it could mean trouble for c-stores.
Right now their sales in tobacco don’t make them too much of a threat-- they account for only 2% of tobacco sales in 2015 (with c-stores accounting for 70%), but the potential is there. Figures for 2015 volumes (increases or decreases) are shown below:
Category Dollar Stores C-Stores
Premium Cigarettes +14% +2%
Discount Cigarettes +31% -1%
Large Cigars +11% +6%
Small Cigars +55% -12%
As far as the outlook for alcohol, Dollar General has been selling beer and wine at some of its stores since 2008, but has now increased selling these categories into about 7,000 locations and has seen a growth rate of more than 250%. When it comes to fuel, they are also not unexperienced. The had only been selling fuel at one larger location until the purchase of 41 former Walmart Express locations, which were purchased earlier this year. They plan to operate fueling at 37 of these sites.
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