Dollar Stores Benefit From Inflation

Sebastien Callebaut -

Higher Prices Push Consumers To Cheaper Alternatives

As a result of rising prices, many families claim that forgoing vacations and eating out is no longer enough to keep their budget balanced. They are now looking for measures to reduce the price of necessities as long as inflation is high. One way they are doing this is by buying more groceries at dollar and bargain stores.

  • According to analytics company InMarket, average grocery expenditure at bargain retailers climbed 71% between October 2021 and June 2022
  • Spending on similar items in grocery stores declined by 5% over that time

Meaningful Increases

Data gathered by Placer.ai shows that foot traffic to dollar and discount stores is above pre-pandemic levels. In comparison to the first quarter of 2022, visits increased by 13%. Foot traffic increased by 8.5% year over year and by 20.6% when compared to the same quarter in 2018.

  • Discount and dollar stores have become popular shopping destinations as a result of the pandemic
  • Weekly visits increased compared to 2021 and were much higher than levels in 2019 in the second quarter of 2022

"The dramatic rise in Yo3Y weekly visits reveals the long-term advantage the pandemic gave the category. In the early days of COVID, dollar and discount stores were one of the few retail categories that remained open as essential businesses, which led many shoppers to discover the value priced one-stop-shops – and these shoppers have been coming back ever since," Placer.ai report

BENCHMARK'S TAKE

  • Dollar stores play an important role as they provide basic necessities at an affordable price and serve smaller cities and communities often shunned by larger retailers

"The closest Walmart or Kroger is 20 miles away, a costly trip when gas prices have soared past $4.20 a gallon. Residents are already struggling to stretch paychecks that average $28,000 a year, with a quarter of the population living below the poverty line." by Lauren Debter for Forbes

  • Many discovered dollar stores during the pandemic and rising prices are now retaining these consumers
  • Of course, dollar stores also see their own cost structure increase but are still able to pass price increases on to consumers
  • In an interesting way, we believe that two type of goods are inflation proof: luxury and discount items
  • Luxury retailers are able to pass a vast share of cost increases to consumers who buy these goods in an effort to signal their status
  • All while discount retailers, who are at the bottom of the price hierarchy, attract consumers who have little other choice

You can find our full take on Dollar General right here.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Fikri Rasyid on Unsplash.