Dollar Tree Says Customers Respond to Lower Food Prices and Cleaner Stores

After being jeered for raising its long-standing $1 price point strategy a year ago, Dollar Tree said Tuesday (Nov. 22) that the change is working, and that the retailer is planning to add more $3 and $5 items to its fleet of 16,000 stores.

In speaking to investors about the Virginia-based chain’s Q3 earnings results, the parent of the Dollar Tree and Family Dollar banners said the pricing and product transformation was well received, widened its value spread against grocery and drugstores, and led to its first traffic increase in three years.

“Improving sales productivity is a vital component of the Family Dollar turnaround and we are extremely focused on driving sales per square foot, unit sales growth and transaction count growth,” Dollar Tree Executive Chairman Richard Dreiling said on the call, noting the company’s ongoing “cultural transformation” that he said would drive years of productivity gains.

“Our teams are focused on improving store standards,” Dreiling added. “They’re committed to clean ‘em up, straighten ‘em up and fill ‘em up,” he said.

Timing Is Everything

For the three months ending Oct. 29, Family Dollar said its total sales were up 8.1%, led by an 8.6% in same store sales at Dollar Tree and a 4.1% increase in Family Dollar, which it acquired in 2015 and accounts for roughly half its store count.

While noting the company’s recent strategic shift to focus on growing consumables at both brands, as well as an ongoing system-wide remodeling and store refresh program, CEO Mike Witynski told analysts the moves were well-timed to meet the changing needs of customers, particularly in hard-hit rural areas where retail choice is often limited.

“Our third quarter sales performance reflects the timely execution of merchandising initiatives to drive our consumables business in this uncertain and inflationary environment,” Witynski said.

In fact, thanks to strong contribution from food and beverage, snacks, cookies and candy, he said consumable comps were up 9.3%, marking the second consecutive quarter that they had grown more quickly than sales of discretionary items.

“Our transition to the $1.25 price point has enabled our merchants to greatly enhance value for our shoppers,” he added, while promising further expansion of the so-called “DT-Plus” format of $3 and $5 items to the remaining 70% of locations.

In referring to the changes as an environment of continuous improvement based on learnings, Witynski said the discount retailer would move forward with the changes in several key food categories.

“We are developing an assortment to meet our shoppers’ family needs as they are looking to save money by dining at home,” he said, before highlighting “aggressive” plans to offer “more protein, pizza, breakfast items and family-sized portions at price points that meet their budgets.”

To be sure, Dollar Tree is not alone in its shift to increase its sales of essential or consumable items in the face of rampant inflation and changed consumer buying habits, and the move echoes what large-format rivals Walmart and Target are doing, as well as the ongoing efforts by traditional supermarkets to expand their product mix, promos and convenience.

With expectations for economic gloom to continue well into next year — and perhaps even beyond — the pricing and product fight looks set to escalate, a fight that Witynski welcomes.

“Family Dollar, from a pricing perspective, is in the best position in more than a decade,” he said.

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