With the first half of 2023 firmly in the rearview mirror, we checked in with the discount and dollar segment – a category that has been propelled forward in recent months by consumers trading down in the face of inflation.
Still Outperforming Groceries and Superstores
Throughout H1 2023 and into July, leading discount and dollar chains continued to perform remarkably well. Dollar Tree, Family Dollar (also owned by Dollar Tree Inc.), Ollie’s Bargain Outlet, and Five Below all experienced positive year-over-year (YoY) foot traffic growth for every month of the year through July, far outpacing groceries and superstores. Dollar General, America’s largest dollar store, did see some slight YoY visit gaps, perhaps due in part to a particularly strong 2022 – but the chain’s July 2023 visits still remained above its already impressive January 2022 baseline.
Some of this visit growth was undoubtedly fueled by the chains’ expansion: Over the last year, Dollar General, Dollar Tree, Ollie’s Bargain Outlet, and Five Below all significantly grew their brick-and-mortar footprints. But with the exception of Dollar General, which opened a whopping 1,039 new stores in 2022, the analyzed brands also saw quarterly YoY increases in the average number of visits per venue, indicating that the new stores are already filling up with visitors.
A Variety of Audiences
Who are the customers driving these visit increases? A look at the demographic breakdown of the five brands’ captured markets* shows that – while the chains certainly compete with one another – their varied offerings also attract different market segments.
Of all the leading dollar chains, Family Dollar served the least affluent demographic in Q2 2023. Nationwide, the median household income (HHI) of Family Dollar’s captured markets was just $50.2K, 28% below the national baseline. Next in line was Dollar General, with a captured market median HHI of $55.8K, 20% below the nationwide average. Ollie’s Bargain Outlet and Dollar Tree appealed to a somewhat wealthier customer base, and Five Below attracted shoppers with the highest median HHI of all – just 6% under the nationwide median. This pattern held true on a statewide level as well, in Pennsylvania, Texas, and Florida – all states in different regions of the country where the analyzed chains boast a significant presence.
*A chain or venue’s captured market refers to the population residing in its trade area, weighted to reflect the actual share of visits from each Census Block Group comprising the trade area. Analyzing a chain’s captured market provides insight into its customer base – the people that visit the chain.
Basic Necessities and Affordable Luxuries
Leading discount and dollar chains also experience different consumer visitation patterns. Dollar General, with its enormous fleet of nearly 20,000 venues, attracts the most frequent visits, with 29.2% of shoppers visiting the chain at least three times in Q2 2023. At the same time, Dollar General draws the smallest smallest share of extended visits. Dollar Tree and Family Dollar also draw relatively few long visits and more repeat visitors. Five Below and Ollie’s Bargain Outlet visitors, on the other hand, tend to visit less often, but stay in-store significantly longer.
These differences appear to reflect, in part, the distinct roles played by different discount and dollar brands. Dollar General and Family Dollar have emerged in recent months as key destinations for families seeking basics at the lowest possible price. Both chains have diverged from the $1.00 price point in order to broaden their offerings, and both have begun stocking a wider selection of grocery items – including, in some locations, fresh produce. The two chains also carry a wide variety of private-label products. Though Dollar Tree continues to operate as a more traditional dollar store – with the vast majority of its merchandise priced at $1.25 – it too has made a push into grocery, offering some food items with higher price points.
Ollie’s Bargain Outlet and Five Below, in contrast, stand out as places to indulge in affordable luxuries. While Five Below carries some necessities, the chain focuses more on recreational items like toys, candy, and party supplies, inviting shoppers to “let go and have fun”. Ollie’s Bargain Outlet, which encourages shoppers to “get good stuff cheap”, employs an opportunistic buying model to stock name-brand, high quality items – from patio furniture to electronics and pet supplies. Its constantly-shifting inventory cultivates the thrill of the treasure hunt, encouraging customers to seek out low-priced, fun items they might not strictly need. People visit the two chains less frequently, but spend more time browsing the aisles – reflecting the behavior of customers engaged in more recreational shopping.
Even as inflation cools, shoppers continue to flock to discount retailers for everything from basic necessities to affordable splurges. How will the segment continue to perform as the year goes on? Will stabilizing prices fuel a greater return to traditional groceries and superstores?