Dollar store deal could shakeup Canada’s competitive grocery market

A big merger in the dollar-store space is expected to put growing pressure on retailers in Canada, including on grocery and other stores that sell food.

While many Canadians don’t associate dollar stores with groceries, experts say that could change as more general retailers try to lure consumers with snacks and other packaged food items.

Virginia-based Dollar Tree said this week it’s buying North Carolina-based Family Dollar Stores Inc. to become North America’s largest discount retailer with 13,000 locations, offering everything from stationary and cleaning supplies to soup and snacks.

There are no Family Dollar stores in Canada, but Dollar Tree operates more than 200 stores, after buying 85 Dollar Giant Stores Ltd. in 2010, and reportedly has plans to grow to about 1,000 locations.

Dollar Tree CEO Bob Sasser also said this week he thinks the Canadian customer “would respond very well to the Family Dollar brand.”

Dollar Tree sells a mix of consumables, while Family Dollar stores mainly sell lower-margin food and household products, noted Reuters.

Dollar Tree’s Canadian presence is much smaller than rival Dollarama, the country’s largest dollar-store chain with 900 locations.

Experts say Dollar Tree could use its increased North American scale to better compete, which includes offering more food choices.

“There is an opportunity for them to strategically think about what they are doing around food,” says David Ian Gray, a retail consultant and founder of Vancouver-based DIG360.

For example, Dollar Tree could open up more space on its shelves for food items, and add more brand names. It could also spruce up its own brand, but without straying too far from the discount image that draws consumers.

RBC Capital Markets analyst Irene Nattel said the Dollar Tree’s deal should increase its buying power, but noted that operating costs are higher in Canada. “Dollar Tree stores in Canada offer all items except confectionery at $1.25,” she wrote in a note.

Hot grocery market

Grocery retail is becoming increasingly competitive in Canada due to added offerings from giant retailers such as Walmart Canada, Target and Amazon.ca.

Those are tough competitors, but experts believe Dollar Tree could still benefit from expanding its offerings.

“Dollar Tree Canada could feature food and roll the dice and try to get ahead on that basis. Canadian consumers tend to go shopping with their wallets — they are always up for a deal,” Ed Strapagiel, a Toronto-based retail consultant, told the Financial Post.

The categories Dollar Store would find most challenging are fresh and frozen food, and won’t likely try to compete there, says Gray of DIG360.

“The challenge for the Dollar Store is they don’t want to be sitting with a lot of inventory,” says Gray. “They want to be selective in terms of what they are putting out there.”