2008 Archives

In Tough Times, It Pays to Stretch a Dollar as Far as You Can


The following appeared in the Oct. 19, 2008, edition of The AARP Bulletin. Marketing Professor Edward Fox of SMU's Cox School of Business provided expertise for this story.

October 19, 2008

By Carolyn Shapiro
The Virginian-Pilot

CHESAPEAKE -- Louis Soto picked his way through the Dollar Tree aisles and filled his cart with eggs, margarine, juice, crackers, frozen Salisbury steak dinners and Comet cleanser.

It was Soto's second grocery-shopping trip to the all-for-$1 store on South Military Highway near his Chesapeake home. He still stops at a Food Lion (NYSE:DEG) supermarket for some items but tries to grab as much as he can at Dollar Tree.

"I'm going to school and funds are tight, and it's economical for me," said Soto, who is studying aviation mechanics. "It's cheap. It's easy. It's quick. And for the money, you get the most bang for your buck."

Soto and other consumers gobbling up groceries at Dollar Tree have helped the national retailer thrive while other chains struggle through this economic slump. For its most recent quarter, Dollar Tree Inc. reported a 6.5 percent increase in comparable-store sales -- at stores open at least 12 months -- from the same period in 2007. Earnings for the first half of the year rose 15 percent, and its stock is up about 64 percent from its 52-week low in mid-January.

Dollar Tree officials attribute the boost to customers buying more "consumables" -- food, beverages and other basic household necessities. Those goods bring customers to the store more frequently and encourage them to spend more, said Bob Sasser, Dollar Tree's chief executive.

"I believe we're seeing people that would not have shopped with us in the past come into our stores," Sasser told analysts during a conference last week at the company's headquarters, on Volvo Parkway in Chesapeake. "And I believe because of the mix of products that we have now -- the things that people need every day -- and the fact that we're really going after that business right now, we are seeing new customers. We're seeing repeat customers. And that's what's driving our sales increases in the quarter."

The $1 tag doesn't always offer the best deal on certain groceries, but dollar stores we re enjoying elevated appeal as a place to buy basics even before the recent economic fallout.

Consumers today are more price conscious, more likely to "cherry pick" certain items in certain stores, seeking the best deals, said Edward Fox, an associate professor of marketing who specializes in consumer packaged goods at the Cox School of Business at Southern Methodist University in Dallas.

"They are people who value a bargain," Fox said of dollar-store grocery buyers. "They want to think of themselves as smart shoppers."

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