As inflation hits harder, middle class shoppers gravitate to dollar stores

As inflation continues to push up the prices of consumer goods, shoppers in higher income levels are starting to ditch their usual grocery store in favor of a new favorite: the dollar store.

These no-frills retail stores, where shoppers can buy everything from cotton underwear to toothpaste for around a dollar, have traditionally served low-income and rural shoppers with few options for stocking up on what they want. need. But during the pandemic, middle-class shoppers have flocked to dollar stores for their basic necessities.

Buyers who exchange more expensive items in big box stores for dollar items “continue to exceed our expected retention rate,” Todd Vasos, CEO of Dollar General, told investors on an earnings call Thursday. .

In September, he said the company continued to “serve an even larger subset of the consumer base” while “trying to find ways to appeal to a larger cross-section of America.”

Dollar General, which said Thursday it now owns 18,000 black and yellow theme stores across the country, has made huge gains among middle-income shoppers during the pandemic. The company’s main consumer has a family income of $ 40,000 or less, Vasos told investors in June. But the company’s new higher-income client is somewhere between $ 60,000 and $ 75,000, with some buyers earning as much as $ 100,000, he said.

At the end of July, the company more than doubled its expected retention of this new cohort of high-income buyers who swap certain items for cheaper alternatives at Dollar General, Vasos said.

New dollar store customers earn up to $ 100,000 per year.

“We are an all-time brand and always have been, and it’s even more pronounced now,” Vasos told investors. “When times are good, we do pretty well. And when times aren’t so good, that consumer needs us more. And now we have this new business customer that we got that will apparently have a little more money even when times get a little negative for our major customers.

Dollar stores and discount stores exploded in the aftermath of the Great Recession from 2007 to 2009. As unemployment rose during the financial crisis, shoppers swapped more expensive items from stores like Walmart for cheaper alternatives in the United States. discount stores. Dollar Tree, which until recently only sold $ 1 items, outmoded $ 5 billion in sales. Family Dollar, which was acquired by Dollar Tree in 2015, reported $ 7.4 billion in sales that year, while Dollar General achieved a save $ 11.8 billion in sales.

Although the economy recovered, purchasing habits persisted. The same consumers who opt for a small bottle of detergent at a dollar store instead of a more expensive pitcher at Walmart have stuck with their bargain-hunting habits, dollar and discount store executives say .

“We have seen each other coming back,” said Kenneth Bull, Chief Financial Officer of Five Below, on a conference call with investors in March 2020. “It was the clients who really discovered the value we could deliver because we were another choice at the end of the day.

Unlike the Great Recession, household wealth during the pandemic has been relatively stable. Federal stimulus payments intended to keep the economy afloat have kept many consumers fairly liquid, said Joe Feldman, retail analyst at Telsey Advisory Group. This means that buyers are not largely abandoning the more expensive retailers for the discounters. Instead, they just buy more at discount stores, he said.

“A lot of people are winning in this environment,” he said, adding that retailers like Target and Walmart have also seen their sales skyrocket.

For shoppers like Terrie Bergeron in Farwell, Mich., Bargaining has become an extreme sport. Bergeron, a stay-at-home mom of three, whose husband is a dairy farmer, said Dollar General now accounts for around 40% of her budget, up from around 5% before the pandemic.

“If I don’t have a coupon, I don’t buy the item,” she said of the Dollar General discount coupons and the manufacturer she collects. “Almost the only thing I don’t buy from Dollar General is dairy, refrigerated or frozen food.”

Dollar stores are doubling their efforts to woo shoppers like Bergeron. Dollar General announced Thursday that it will open 1,000 new stores aimed at middle-income shoppers by the end of 2025. Dollar Tree and Five Below both have new partnerships with Instacart aimed at high-income shoppers. Already, Dollar Tree has seen average ticket sizes increase through its Instacart partnership, company CEO Michael Witynski told investors in March.

“We believe that the Instacart platform allows us to expand our customer base,” he said.

Kevin Adair, a singer and songwriter from Tuskegee, Ala., Told NBC News he became a routine buyer at a dollar store last year when people started hoarding toilet paper by fear of a prolonged lockdown in the event of a pandemic.

Adair and his wife, Carmen, who earn an income selling clothes on Poshmark, earned more than $ 100,000 a year to support themselves and the four children they had from previous marriages. But as the pandemic set in, Adair had fewer concerts and his wife’s clothing orders were delayed due to supply chain issues. The couple’s income has fallen to between $ 50,000 and $ 75,000 this year, Adair said.

“We had to find something that would benefit our family and find an affordable lifestyle without sacrificing too much,” he said.

They are now buying Dollar General penny deals, where stores are reducing clearance items to just a dime. The couple bought all of their Christmas presents with Dollar General penny items. Recently, they filled their car trunk with everything from candy to kitchen utensils they bought with Dollar General penny offers. Their total was about $ 4.

“I wanted to kick myself in the pants because I realized I had spent so much money on things and could have spent half the price at the dollar store,” a- he declared. “I can’t see stopping this, even if things go back to pre-Covid.”

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