How low can we go?
Grocery shoppers’ continuing push to find the lowest price is like a migraine that won’t go away for both retailers and manufacturers. Research from Nielsen Canada clearly shows the trend is unabated. The study shows 63% of shoppers decide where to shop based on the lowest price and 41% of dollars spent are with a promotion or price cut.
A Nielsen presentation titled The Power of a Dollar, shows that as a result dollar stores are gaining momentum in consumer packaged goods (CPG). The consumer quest to save “is defining retailer trends” with 73% of consumers trying to spend less on groceries and 42% of them shopping more at discount retailers. For CPG companies this has pushed dollar stores to the top of CPG sales increases to 10%, tied with warehouse club stores.
“Currently dollar stores account for 1.4% of CPG sales and are forecast to be 1.9% by 2020,” says the report. And, now dollar stores are shopped by three-quarters of Canadian households. The dollar store share is highest in the Maritimes at 1.8% “fueled by higher penetration.”
In the past five years dollar stores have made large gains in penetration, sales and shopping trips. They now represent $1.7 billion in CPG annual sales, says the report. This is driven primarily by categories typically sold in drug stores, though categories sold in grocery stores are still up by 10%. In food categories, the greatest growth in dollar stores is confectionery (+7.8%), followed by desserts and snacks (+1%), according to the report. Dollar stores have also gained market share in general merchandise, household products and health and beauty aids.
The average price per unit sold in dollar stores for CPG products is now $1.45, led by HABA at $1.97. More than 50% of units sold in dollar stores are priced at $1.00 to $2.99, with the highest price of $2.99 represent nearly 20% of dollars spent.
Interestingly, according to the Nielsen study, dollar stores are gaining momentum among higher income families with 24.4% of sales now coming from households with incomes of $70,000 to $100,000. Heavy dollar store shoppers spend an average of $319.50 per year.
Dollar store development in Canada lacks that in the U.S., meaning there is room for many more dollar stores here. Dollar stores in the U.S. are also ahead of their Canadian counterparts in the development of grocery sales.
Nielsen also notes the dollar store format here is very similar to the hard discount stores in Europe, which likely means Aldi and Lidl, both of which have been growing exponentially there and have been rumoured to be looking at Canada.
It is more than dollar stores that are attracting Canadian grocery shoppers. Discount supermarkets such as No Frills, Food Basics and FreshCo are all benefitting from the consumer drive to lower prices. In fact, several analysts have singled out FreshCo as one bright spot in Sobeys current difficulties after its purchase of Canada Safeway.
In my neighbourhood there are two No Frills, a Food Basics and a FreshCo, and all appear to be very successful.
With 41% of grocery dollars in Canada going to products with a price cut, more discount supermarkets on the drawing boards and the continuing growth of dollar stores, one has to wonder when the pressure to lower prices will relent. Like a migraine that won’t go away, maybe we’re looking at a permanent problem.
And then we have to wonder: how low can we go?