Private Label Buyer

Family Dollar Goes Gourmet

September 16, 2011
By using warm, vibrant colors on its private label packaging and investing in an extensive marketing campaign, Family Dollar has managed to post big private label sales gains and provide lessons others can use.
In the ultra competitive, ever-changing retail landscape, Matthews, N.C.-based discount retailer Family Dollar has zigged while others have zagged.

By using warm, vibrant colors on its private label packaging and investing in an extensive marketing campaign, Family Dollar has managed to post big private label sales gains and provide lessons others can use.
In the ultra competitive, ever-changing retail landscape, Matthews, N.C.-based discount retailer Family Dollar has zigged while others have zagged.

One example-it used colors to help its private labels stand out from the ever-present white on other, new private label packages.

“Family Dollar was really ahead of the curve with the color trend and other retailers such as Walmart, Target and Kmart are changing their private label packaging along the way to get closer to what Family Dollar did from the beginning,” says Carol Spieckerman, president of newmarketbuilders, a Bentonville, Ark.-based marketing firm. “They really got that one right,” she says.

“Use of vivid color continues to be a critical design element for us,” Mary Rachide, divisional vice president for private brand at Family Dollar, has told PLBuyer. “Despite the whitening trend across many other retailers, and in our national brand equivalent quality products, leveraging the Family equity is critical to helping our shoppers connect the product back to Family Dollar.”

And there’s more to Family Dollar than just a pretty package. It’s also garnered success by supporting its private label through extensive marketing efforts, adding private brand alternatives in key categories such as consumables and health and beauty care, improving its inventory availability and transforming the customer shopping experience by renovating more than 800 of its stores.

Its private labels today include Family Gourmet, Family Pet, Kidgets, Family Chef, Interiors by Design, Outdoors by Design, Tropic Sun, Highland Outfitters and Extremely Me!, among others. Rather than follow a tiered approach with a premium, national brand equivalent and value private label, Family Dollar has opted to dramatically increase its assortment of name brand products and compliment that with a growing assortment of national brand equivalent products, says Family Dollar spokesman Joshua Braverman.

Family Dollar stores typically range from 7,500 to 9,500 square feet, most of which are operated in leased facilities. Just over half of its shoppers have annual household incomes of under $40,000 a year and about a third of its shoppers are African-American or Hispanic. About two-thirds of its shoppers are age 45 and older. To reach this market, it has made improvements to its merchandise assortment, its store environment and the way it interacts with its customers.

The result? Family Dollar already has reported strong customer response to its assortment expansions in its renovated stores and intends to incorporate much of the expanded food and HBA assortments into the rest of the chain.

Although it is analyzing categories and looking to add more PL SKUs throughout the store, its strategy also includes working towards a more centralized way of developing its private brands that will eventually include pruning some of its private labels.

For Family Dollar to continue its winning PL ways, it will need  to achieve the product assortment its core customers want, being wary of over-broadening its Family Dollar private label lines, while also fending off challenges from new, smaller format stores competing for those traditional Family Dollar shoppers.

Big PL Investment

Earlier this year, Family Dollar announced its partnership with Fort Worth, Texas-based private brand marketing firm Marketing Management Inc. (MMI), with hopes the deal would boost its private label sales. MMI assists Family Dollar with private brand sourcing, product development, category analytics, assortment strategy, quality assurance and customer insights.

“Enhancing our private brand assortment to drive margin improvement and customer loyalty is a key strategic initiative for Family Dollar,” said Don Hamblen, Family Dollar senior vice president – customer marketing. “A compelling assortment of private brand merchandise gives our value-conscious customer more choices at lower prices without lower standards. Our alignment with MMI will help ensure our assortment is focused on quality and value across all our consumables departments.”
In 2011, the company also added 500 store brands SKUs across several private label lines including Family Gourmet, Kidgets and Family Chef.

Hamblen noted the company has made significant quality investments in its private label products and that it plans to expand in categories such as consumables and health and wellness in the near future.
“Family Dollar is quite bold in its compare and save promotional campaigns, going directly against name (and named) brands,” says Jim Hertel, managing partner of the Barrington, Ill.-based consulting firm Willard Bishop. “It communicates that it has confidence in its own label’s quality and that’s powerful.”
“Family Dollar looks at its business holistically, rather than keeping private brands in a silo off to the side and daring it to succeed,” says Spieckerman. “At the same time, it’s growing its private label, it’s doing things such as improving the packaging and product quality.”

Earlier this spring, the retailer reached out to mommy bloggers and value seekers to help with the introduction of its Family Gourmet private brand. The bloggers give their opinions on Family Gourmet products on behalf of Family Dollar for SocialSpark, a sponsorship marketplace that connects bloggers with advertisers.

“Viral efforts such as this can leverage the power of peer endorsements,” says Hertel. “It can help Family Dollar attract new shoppers who may not currently shop there, but try the chain because of a mommy blogger recommendation.”

“Social media is simply an extension of the relationship every retailer should be building with its customers,” says Chris Durham, founder, and a member of PLBuyer’s editorial advisory board. “The effort to work with mommy bloggers is a smart move to engage influential moms and their readers.”

FD has announced plans for continued expansion of its Family Gourmet and Family Pet lines as well.
“The expansion of Family Gourmet and Family Pet is a smart move that allows it to create brands and products that reinforce its overarching retail brand positioning,” says Durham. “This will provide customers another reason to choose a convenient, local Family Dollar store over the big-box store down the street.”

It’s a smart move and is also very much in line with where its higher-end competitors are going, adds Spieckerman. “The trend has been to turn private brands into more of lifestyle brands that can stand on their own. The brands need to be prominent in the store and most importantly pervasive in every category. I think that’s where Family Dollar is going and it’s smart to do that.”

Focus on Private Label

The discount chain racked up estimated private label grocery sales of $800 million in 2009, putting Family Dollar at No. 29 on PLBuyer’s exclusive list of North American private label grocery retailers, as compiled by London-based research firm Planet Retail. Look for PLBuyer’s 2010 Top 35 list of North American private label grocery retailers, as compiled by Miami-based Retail Systems Research (RSR Research) coming in the October issue of PLBuyer.

Family Dollar saw overall private label sales rise approximately 22 percent in the third quarter of fiscal 2011, while sales of private label consumables, i.e. food items, were up about 27 percent in the same period, Howard Levine, chairman and CEO, announced in an earnings conference call with analysts June 29. This is due to it maintaining a strong price perception with customers, investments it made to increase merchandising quality and expanding its private label product lines. Family Dollar reported third quarter net income of $111.1 million, a 6.5 percent increase compared to the $104.4 million in the same quarter last year.

“The economy and product line expansion were key drivers of such large private brand growth at Family Dollar,” says Ben Ball, senior vice president of Dechert-Hampe, a Deerfield, Ill.-based consulting firm.
“Family Dollar shoppers are value-oriented to begin with, so willingness to try its private brands should be commensurately higher. The products will still have to deliver on consumer satisfaction for long-term success, however,” he says.

“Family Dollar has chosen to take control of its own destiny and create brands, which it can use not only to increase its margins, but also to generate customer engagement and loyalty,” says Durham. “As it becomes more proficient at creating and building brands, it will be able to create unique offers that solve its customer wants and needs in unique ways and create meaningful differentiation that helps drive shopper preference of Family Dollar.”
Not Without Challenges

While the dollar store format will see continued growth, the key for dollar stores such as Family Dollar will be to get the assortment right, says Hertel. “It needs to continue its push toward regularly-stocked staple items including consumables so as to remain relevant and competitive.” FD already plans to add to its private label food offerings and to launch new in-store and direct marketing efforts to support them.
Family Dollar also needs to be wary of the problem of expanding its private label too broadly and losing brand identification.

“It’s easy to overdo the label strategy,” says Ball. “Not every item you sell has to be covered with a label equivalent.”

“The real question for Family Dollar’s private brand portfolio is how far it can or should stretch the Family set of brands such as Family Gourmet, Family Chef, Family Value, etc.,” adds Durham.

Family Dollar also needs to be aware of increased competition from retailers such as Walmart’s and Target’s continued push into urban and rural markets with smaller format stores, says Spieckerman. All these small format stores will be competing for traditional Family Dollar customers.

Flip Side

“I think it has a real potential to gain meaningful traction in the next three to five years if it plays its cards right and doesn’t assume that the current competitive landscape is just going to stay the same,” she says.

Family Dollar also needs to ensure that its private brands are competitive not just with comparable national brands, but also with other retailers’ private brands.

“Consumers are smart and they don’t think of Family Gourmet as a separate brand that has no comparison,” says Spieckerman. “Customers are going to start comparing Family Gourmet to Walmart’s Great Value and Dollar General’s Clover Valley and even Walgreen’s Delish brand they brought in from Duane Reade, instead of just comparing them to the national brands. Family Dollar is going to start getting hit on all sides and so it’s going to have to make sure it’s value proposition is very clear.”

If Family Dollar can leverage its private brands, store count, location and value to continue to reinforce and build its retail brand, it will continue with its success, says Durham.

“It has clearly defined what its retail brand stands for and it is laser focused on delivering its promise to its customers,” he says.

“Family Dollar has already figured out the formula for this small format general store type of layout,” says Spieckerman.

“But it needs to just continue to aggressively revisit it and make changes along the way and really defend its position. Because once everyone else figures out what it knows, it’s going to get really interesting.”
Family Dollar At-A-Glance:
Family Dollar Stores
PL Grocery Sales: $800 million*
Retail banner: Family Dollar
No. of stores: 7,000+ in 44 states
No. of employees: 50,000+
Family Dollar private labels: Family Gourmet, Family Pet, Kidgets, Family Chef, Interiors by Design, Outdoors by Design, Tropic Sun, Highland Outfitters, Extremely Me!
*Planet Retail 2009 estimate done for PLBuyer.