The almighty dollar (stores)

Theyre all big, and theyre getting bigger. However, the big three dollar store chains – Dollar General, Family Dollar and Dollar Tree – do differ in terms of scale. With fiscal 2011 sales of $14.8 billion and more than 10,000 stores, Dollar General clearly is the biggest of the bunch. Meanwhile, Family Dollar comes in second, reporting fiscal 2012 sales of $9.3 billion and operating more than 7,500 stores; and Dollar Tree comes in third, with fiscal 2011 sales of $6.6 billion and more than 4,500 stores.

And although all three of the chains bring their shoppers extreme savings, each one does so in its own way – especially when it comes to private label.

Dollar General

The "Dollar" part of Dollar Generals name might be somewhat misleading, as many of the products the retailer offers cost more than $1. However, the "General" part is spot on; Carol Spieckerman, president of retail consultancy newmarketbuilders, notes that the retailer is a "true" general store, offering standardized product assortments for families everyday needs.

Dollar General has been getting pretty aggressive with its own-brand consumables, growing their penetration. In fiscal 2011 (ending Feb. 3, 2012), the retailers dollar sales here made up 24 percent of overall consumables dollar sales, compared to 23 percent in fiscal 2010 and 22 percent in fiscal 2009, London-based Planet Retail reported. The firm said it expects this growth trend to continue.

Most of Dollar Generals store brands are national-brand-equivalent (NBE), including Clover Valley (food and beverage), DG Baby (baby care), DG Body (bath and body), DG Health (over-the-counter), DG Home (housewares), EverPet (pet) and more. The retailer also offers its value-tier Smart & Simple (formerly DG Value) brand, mostly made up of $1 products, says Terry Lee, founder and president of San Francisco-based Private Brand Consultants. He also is the retailers former vice president of private label.

Outside of its store brands, Dollar General distinguishes itself from the competition by offering exclusive products it develops through licensing partnerships. The retailer already offers products under the Rexall brand, which resonates with its primary shoppers (who are old enough to remember the Rexall name) and isnt "held back by the baggage" of the cheap products offered by dollar stores in the past, Lee says. He calls the brand – which hit store shelves in 2010 – a "true destination brand."

And Rexall is growing. During Dollar Generals fiscal 2012 third-quarter earnings call (which took place on Dec. 11, 2012), Rick Dreiling, chairman and CEO, said the retailer recently added 150 SKUs to the Rexall line.

An industry consultant close to the dollar store channel who asked to remain anonymous notes that Dollar General has been "impressive" with its development of its Rexall products, pointing out that the items give shoppers the opportunity to trade up from equivalent products under the DG Health or DG Body brands. In turn, the retailer has another chance to sell a house brand item.

Most recently, Dollar General entered into a licensing partnership with Franklin, Tenn.-based Mars Petcare US, which owns Pedigree, Whiskas and other pet food brands. In January 2012, the retailer said it licensed the Butchers Selects brand of premium dog food from Mars and partnered with the Waltham Centre for Pet Nutrition to develop exclusive products such as Chicken and Rice Dinner and Oven Roasted Chicken Recipe. All products in the line are made to promote good health.

As for other areas of growth, Dollar General is expanding into the perishables space. The industry consultant notes that the retailer now offers processed and natural cheese under the Clover Valley brand.

The introduction of the store brand cheese appears to be the beginning of a much bigger initiative, as Rick Dreiling, Dollar Generals chairman and CEO, recently said he sees much opportunity in perishables – particularly on the refrigerated and frozen side. During the retailers fiscal 2012 third-quarter earnings call, he noted that new stores currently are opening with 16 coolers, and the retailer plans to install additional cooler doors in approximately 2,200 existing locations to "better serve" its time-conscious customer.

Dollar General also has been expanding its beer and wine selection, with plans to offer beer or both beer and wine in 50 to 60 percent of its stores in 2013, Dreiling said. While he made no mention of store brands in the beer selection, he did mention a private brand wine.

"We are very pleased with our partnership with Gallo, who produces our private brand [Wine Spring Creek], which we are now selling at a rate of over 1,400 cases per week," he says.

Spieckerman says that through the Gallo partnership, Dollar General has taken "an innovative step in the dollar space" that is part of "an aggressive game of catch-up with its private brand expansion."

Dreiling also said during the call that Dollar General plans to roll out tobacco and cigarettes in 2013. However, he did not state whether or not the rollout would include private label items.

Family Dollar

Like Dollar General, Family Dollar also doesnt offer all of its products at a $1 price point, Lee says. And it, too, is a "true" general store, Spieckerman states.

Family Dollar also is serious about private label. In fiscal 2012, store brand products across all categories made up 25 percent of Family Dollars dollar sales, Planet Retail reported. In terms of consumables, private label products represented 17 percent of overall dollar sales.

Planet Retail added that this year, Family Dollar plans to launch some new brands, while also refreshing a number of its existing brands. It also intends to drive greater store brand awareness through increased marketing and visual merchandising support.

In terms of developing its own brands, Family Dollar takes a similar approach to Dollar General by incorporating its name into many of its own brands, including the value-tier Family Value brand, as well as the NBE Family Solutions (household items), Family Wellness (OTC) and Family Gourmet (food and beverage) brands, the last of which replaced the Family Pantry brand in 2011.

The rebranding might have been an early sign signaling Family Dollars seriousness about getting more involved in the food and beverage sector. But the industry consultant says the retailer made a bad move using the word "gourmet" to name a brand of NBE products.

"Most people dont interpret gourmet as national brand equivalent – they just dont," he says. "Its a poor choice of words."

However, the new name hasnt made a negative impact. During its fiscal 2013 first-quarter earnings call, which took place on Jan. 3, Michael Bloom, president and CEO, said dollar sales of private brand foods increased nearly 50 percent compared to the same time period the previous year.

"This growth speaks to our investments in quality, branding and assortment," he stated. "Customers love our Family Gourmet brand, and we will continue to look for select categories to increase our penetration."

Much like Dollar General, Family Dollar also is looking to make big strides in perishables. Bloom noted that the retailer signed a six-year exclusive agreement for Temple, Texas-based McLane to consolidate its supply chain. The long-term strategic partnership will enable the retailer to dramatically expand its assortment, improve its cooler in-stocks, cluster its assortment by region, and accelerate the development of private brand refrigerated and frozen food.

The agreement also will allow for stores to sell tobacco, Bloom stated. But like Dreiling, he didnt mention whether or not the retailer plans to introduce store brand tobacco products.

But whether or not Family Dollar and Dollar General add store brand products to their tobacco assortment likely wont matter; Spieckerman says the category provides them with a huge opportunity to leverage the increases in trip frequency driven by tobacco purchases toward increasing incremental sales – preferably of store brand products – in discretionary categories.

"Dollar General and Family Dollar are encouraged by the difference that tobacco sales are making in terms of trip frequency and incremental sales," she states. "However, that advantage may be short-lived as tobacco use declines overall, and with tobacco being a low-margin category."

Bloom also mentioned that the company drove first-quarter private label health-and-beauty dollar sales up 16 percent by adding a number of Family Wellness SKUs, including vitamins and headache, fever, pain, cold and allergy medications.

"We will continue to convert existing health and beauty aid SKUs from a control brand to a Family Dollar private brand, while also introducing new private brand alternatives to our customers favorite national brands," he added.

Dollar Tree

While Dollar General and Family Dollar mostly appeal to the low-income shopper looking to stretch his or her last $10 or $15 before the next paycheck arrives, Dollar Tree seems to appeal to all demographics. Paul Weitzel, managing partner with Barrington, Ill.-based Willard Bishop, notes that the chains stores traditionally have been located in suburban strip malls, and theyre "starting to see more traffic" from middle- and upper-income shippers. And unlike merchandise at the other two dollar-channel giants, everything Dollar Tree carries costs $1.

Spieckerman notes that Dollar Trees single-price strategy can be seen as either a blessing or a curse.

"On one hand, it separates them from the pack and places the burden on its suppliers to make the price point work for various products," she says. "On the other hand, its single-price strategy is inherently inflexible."

Spieckerman goes on to say that while Dollar General and Family Dollar are "true general stores" – offering more standardized product assortments – Dollar Tree is a "variety store in every sense of the word."

Lee agrees, pointing out that Dollar Tree is seen less as a place for someone to stretch the small remainder of his or her paycheck on items the family needs, and more of a place that provides people with a treasure-hunt-style shopping experience.

"Part of that is based on their assortment," Lee explains. "Their assortment is always changing. You dont expect to go into a Dollar Tree and go into any particular section of the store – lets just say beauty-care products – and expect it to [have] the exact same brands on the shelf as it did three weeks ago."

And Dollar Tree also takes a very different branding approach to own brands than Dollar General and Dollar Tree. While the other two chains tend to incorporate their banner names in their brand names, Dollar Tree does exactly the opposite.

"They will never put their name on a product because they want to give the illusion that the store is wall-to-wall [name] brands, even though you may not recognize those brands," the industry consultant explains.

In fact, the retailer wont even print "Distributed by Dollar Tree Stores" on the back of store brand packaging, he explains, opting instead to print "Distributed by Greenbrier International Inc."

When visiting a Chicago-area Dollar Tree, we found a number of brands bearing the "Distributed by Greenbrier International Inc." phrase, including Assured (OTC), April Bath & Shower (bath and body), Cooking Concepts (kitchenware), Greenbrier Kennel Club (pet care), The Home Store (household cleaners and storage) and more.

Also during our visit, we found that The Home Store was the most prominently placed and boasted the widest array of products of all the Dollar Tree brands. The anonymous source found this to be no surprise, telling us that although Dollar Tree has been known for not doing much in terms of own-brand support and promotions, it recently moved to a "more-aggressive posture" on its The Home Store brand.

"This really started to happen in 2012," he explains, noting that the retailer has gone so far as to create a "segmented section" of its stores dedicated to the brand.

Dollar Tree also does a great job with its line of kitchenware items, Lee says.

"[It] is quite broad and pretty extensive," he explains. "Its certainly merchandised well against the wall, and it struck me as a really solid offering for people looking for kitchen gadgets for a dollar. Its a pretty good value."