When is the last time you shopped at a dollar store? The days of rummaging through obsolete or discontinued merchandise in a cluttered store are a thing of the past. The dollar store channel has significantly matured over the years. The improved format offers an expanded assortment of SKUs made up of both national brands and improved store brands. Inventory has also beefed up with new categories including refrigerated and frozen products. The in-store experience has greatly improved as well with wider aisles, large signage and well-organized shelving displays. New dollar stores are popping up in suburban locations and even serving as anchor stores in some markets.

The clientele has also changed. Dollar stores today are gaining momentum and appeal among consumers of all income brackets. With shoppers still in post-recession recovery mode, they are very willing to look for values in nontraditional locations. The channel’s expanded selection of quality packaged goods and consumables also play a factor in attracting new customers. An improved perception (and acceptance) of private label brands has helped too. Yes, the old stigma associated with shopping at the dollar store is long gone.

The popularity of dollar stores has already caught the attention of some major retailers. Specialty “discount aisles” and dedicated “dollar sections” have been spotted within a growing number of popular mass merchandiser stores. As consumer shopping habits continue to evolve and the retail landscape shifts, Consumer Packaged Goods (CPG) companies would be wise not to ignore this $56 billion channel.

A recent survey by Perception Research Services International shows the percentage of shoppers who purchase groceries at dollar stores has increased from 32 percent in 2011 to 35 percent in 2012. Yet according to Deloitte’s new “Dollar Store Strategies for National Brands” study, only 58 percent of CPG executives view dollar stores as a strategic channel. Now granted, dealing with this growing channel does pose certain challenges for CPG manufacturers. The Deloitte research cited top barriers within five distinct areas:

-Brand, Product Strategy and Innovation

-Merchandising and Assortment

-Pricing and Trade Promotion Strategy

-Supply Chain, Distribution and Operations

-Account Team Structure, Staffing and Capabilities

That’s quite a list of hurdles to overcome. To address these challenges, the Deloitte study does offer some solid advice to help manufacturers find success in the dollar channel. CPG companies should begin by building a deep understanding of consumer attitudes and shopper behavior. Next, develop and launch channel-specific products, packaging and marketing. Finally, align distribution, supply chain and operation capabilities with the channel’s physical footprint.

For a more in depth look at the Deloitte study and its research findings, click here.

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