Rise of the loonies
Dollar stores don't pose much of a threat to grocers. But what if another 900 of them were to open?
The departure of Target has not made a great deal of difference to the competitive nature of the Canadian grocery industry.
Like its general merchandise and home goods sections, Target’s food department never really caught on with Canadian shoppers. Sobeys, which supplied Target’s food section, has said the loss will have no impact on Sobeys’ results.
The coming year should be slightly better for Canadian grocers, despite ongoing competitive pressure from retailers of all stripes. The growth of retail square footage devoted to groceries has slowed to more manageable levels; food prices are increasing ever so slightly; and just about all grocers in the country are finding ways to stay competitive.
But intense competition from retailers such as Walmart, Costco, specialty food stores and drugstores means there’s no letup for grocers. To compete more effectively, the big have gotten even bigger, as witnessed by Loblaw buying Shoppers Drug Mart and Sobeys acquiring Canada Safeway.
Metro is expanding its ethnic Adonis stores, but the company is likely relieved it didn’t make an acquisition in Western Canada last year because of the toll that the falling price of oil has taken on the economy and consumers in the western provinces.
Just running under the radar, though, is another group of retailers that is thriving and offering ever-larger assortments of food products.
These are the dollar stores, which now total nearly 2,000 in Canada, according to CIBC World Markets. The biggest dollar store chains, Dollarama and Dollar Tree, are both adding new locations here at a rapid rate.
Canada’s largest dollar chain, Dollarama, now has more than 900 stores and is adding at least 20 per year. Dollar Tree, which is based in the U.S., is relatively new to Canada, but it already has 200 stores and is aggressively looking for more.
In my Toronto neighbourhood alone, there are five chain dollar stores and two independent dollar stores, all within a six minute drive of my home. All have a grocery section and the biggest ones are adding some national brand products to their previous selection of unknown labels.
While “dollar” stores are a misnomer today, with many products selling for $1.25 to $2.50, these stores certainly appeal to a vast number of shoppers. They seem to transcend all income levels, all ethnic groups and virtually all types of neighbourhoods.
In my area, shoppers arrive at the dollar store on foot, by transit, by taxi and by car (and that can sometimes mean an expensive luxury model). Dollar stores seem to be the preferred stop for greeting cards, small housewares, gift wrap, prizes and, increasingly, some food products.
Despite the rapid growth of dollar stores so far, CIBC World Markets estimates there is room for a great many more in this country, especially when compared with the penetration rate of dollar stores in the U.S. CIBC estimates that there are 25,805 dollar stores in America.
That means there is almost one dollar store (specifically, 0.82) for every 10,000 people in America. In states with the highest density of dollar stores, the ratio is 1.91 stores for every
10,000 people. That compares with CIBC estimates for Canada of 0.56 stores for every 10,000 people.
If Canada and the U.S. had equal ratios of dollar stores to population, Canada would have more than 2,850 dollar stores, rather than the 1,970 it currently has. That means room for another 900 dollar stores in this country.
I certainly don’t need any more dollar stores in my neighbourhood, but there are many other neighbourhoods in which a dollar store would do well.
No grocery store in Canada is going to worry much about competition from dollar stores for now. Some stores in the old Price Chopper chain contained a dollar aisle that never really seemed to be merchandised properly and died even before the chain did.
But with Canadian shoppers still seeking out bargain prices, and with dollar stores adding more food products and more locations at a rapid rate, maybe, just maybe, it’s time for grocers to pay a little more attention to dollar stores.