Small-Format Value

Supermarkets standing alongside dollar stores, closeout merchants and a chain of small discount stores. This could only happen in a category labeled small-format value retailers.

Trader Joe’s, Aldi and Save-A-Lot are limited-assortment grocers, but it is unlikely that regular shoppers of a Family Dollar or Dollar General would wander into a Trader Joe’s. Many consumers in this segment might otherwise be at Walmart; Kantar Retail’s Mary Brett Whitfield notes that surveys of Walmart shoppers show that dollar stores are their most frequent alternative.

Consumables are a small but important category at dollar and closeout stores, but it is the household cleaners, laundry products and the like that are critical. Food items, whether packaged dry goods or frozen/refrigerated products, can be found in most of them, but not fresh produce or meat. West Coast-based 99 Cents Only is an exception, with 54 percent of its volume coming from the food and grocery category.

Averaging around 15,000 sq. ft., Trader Joe’s, Aldi and Save-A-Lot stores are roughly three times larger than typical Dollar General, Family Dollar and Dollar Tree units and about 40 percent smaller than Big Lots and 99 Cents Only locations. When discussing rivals, the non-supermarket small-format value players make little or no mention of grocers — but when they do, they point to the “dollar zone” and similar sections.

Much has been made of how well dollar and closeout stores fared in the recession but, like value apparel retailers, they counter that business is actually better in good times when margins can be widened. “We are definitely a fan of an improving economic environment,” says Big Lots CFO Joe Cooper, who could be speaking for the industry as a whole. “We believe we would flourish much more in an expanding economy.”