Competition for Consumers’ Grocery Spending Heats up Among Discount Retailers

After years of trade-down in grocery and discount retailers’ consequent efforts to woo consumers with their food and beverage offerings, the space has grown significantly more competitive.

Take, for instance, Canadian dollar store giant Dollarama, which has more than 1,500 locations across the country.

On a call with analysts Wednesday (Dec. 13) discussing the company’s most recent earnings report, President and CEO Neil Rossy noted, “On core consumables, we are seeing that the market is becoming more competitive.”

In the United States, major discount retailers have been touting their gains in grocery. For instance, on an earnings call with analysts earlier this month, Dollar General CEO Todd Vasos highlighted market share growth, both in terms of dollars spent and the number of products sold, in “highly consumable” categories. The retailer has also been rethinking its physical stores accordingly to capture this demand.

“Nearly 70% [of our new locations] are planned to be in our [Dollar General Traditional Plus (DGTP)] format, which will provide the opportunity for significant increase in cooler count as well as the potential to add fresh produce in many of these stores,” Vasos explained.

Similarly, discount retail giant Dollar Tree shared on its earnings call in November that its sales mix has been shifting toward consumables, and sales in the category have grown low double digits. However, when it comes to holiday season food spending, the company has seen increased competition from big-box chains.

“I will tell you, [for] Thanksgiving, being an old-time grocer, historically, you get the right price on turkey,” Dollar Tree Chairman and CEO Rick Dreiling said. “Then, you make your money on all the grocery items around it. We saw a lot of incredibly well-priced grocery items this year coming out of the big box in the grocery channel, which is a little contrary.”

Still, discount retailers are coming to play a growing role in food and beverage sales. Even younger consumers — tweens and teens — are trading down to discount retailers, as Five Below, a discount chain targeting these age groups, has seen.

“We continue to see our customers focused on needs-based product, which, for us, is primarily seen in our consumables offering — in the candy world and beauty department,” Five Below President and CEO Joel Anderson noted on a call discussing the company’s most recent earnings results.

Overall, consumers have indeed been looking for budget-friendly food options. The PYMNTS Intelligence study “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” which drew from a survey of more than 2,000 U.S. consumers, revealed that 57% of consumers reported having cut down on nonessential grocery spending. Meanwhile, 47% traded down to grocers with lower prices and one-third downgraded from their favorite brands, probably switching to private label.

Budgets are strained, requiring consumers to make difficult tradeoffs to get their food needs met. The PYMNTS Intelligence Paycheck-to-Paycheck Report, created in collaboration with LendingClub, revealed that around 60% of the country’s population has consistently struggled to make ends meet over the past two years.