The cheapest stuff is finally available online

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General dollar (DG), Dollar tree (DLTR), Family Dollar (owned by Dollar Tree), Five below (FIVE) and Grocery store (GO) have all started offering store delivery within the past year.

They use delivery companies, such as Instacart and DoorDash, which rely on the network of platform-independent contract drivers to pick up and deliver same-day orders to their stores. The platforms receive a share of the sales.

Chains have said in recent months that offering the delivery will help them cut spending for existing shoppers who have increased their online shopping during the pandemic. The stores will be listed on the delivery platforms’ websites, and they are betting that they can attract customers who have never bought with them before.

“We think being online initially here through this pilot with Instacart is a great way for us to introduce the brand” to new shoppers, said Grocery Outlet CEO Eric Lindberg on a conference call this month. last. Grocery Outlet, sometimes known as TJMaxx of supermarkets, announced in October that it was testing delivery to California stores for the first time in its 75-year history.

Initial resistance

These companies want customers to shop in their stores – and until recently refused to offer delivery due to concerns about profitability, the impact it would have on in-store sales and lack of demand. of their customers.

Online delivery is notoriously unprofitable, which is hampered by the low-cost operating models of discount stores. Their ability to sell things at low prices depends on reducing overheads, so building their own delivery networks, for example, would be prohibitive.

The average shopper only spends around $ 10 when shopping at dollar stores and around $ 15 at Five Below, making it even more difficult to profit from online sales than competitors racking up income. important every time a customer orders online.

Some of these stores are designed to be a “scavenger hunt,” where customers make impulse purchases when they walk inside and pick up a few items that grab their attention. Unplanned purchases are less common online.

Customers “don’t knock on our door delivering groceries,” Lindberg said in a March interview with CNN Business. “I don’t think it’s profitable” for the supermarkets, and it’s “very difficult to replicate the scavenger hunt, to replicate the values ​​online.”

Likewise, Dollar General CEO Todd Vasos told a conference in September 2020 that “our primary consumer, while starting their digital journey, is still somewhat behind the rest of America.” . Major Dollar General clients earn approximately $ 40,000 per year per household.

Dollar General had offered online shopping, in-store pickup and scan-and-go, which allows shoppers to scan and pay for items on their phones without waiting in line. But online delivery “isn’t that important” to Dollar General’s major buyers, Vasos said last year.

A change of heart

Many discount chains remain stuck on deliveries, including Trader Joe’s, Burlington (BURL), Ross Stores (ROST) and Ollie’s Bargain Outlet (OLLI). But Grocery Outlet, Dollar General and others have changed their stance.

They are responding to competition, to increased demand from their customers for online options, and to the growth of platforms like Instacart that can handle their delivery operations.

Their discount competitors such as Walmart (WMT), Target (TGT), Costco (COST), Large lots (BIG) and Aldi have been successful in delivering to buyers, while pharmacies and convenience stores have also grown online. They risked losing customers eager to buy online to their competitors if they continued to wait for delivery.

The Covid-19 pandemic has also prompted millions of people to shop online for the first time, including many shoppers within the low-income base of these chains.

E-commerce sales jumped from 11% of all retail sales around the start of the pandemic to a high of over 15%, according to Commerce Department data. Online sales are expected to continue to grow at a faster rate than physical sales in the years to come.

“They’ve heard enough from their clients and investors that there would be a demand for this,” said Joseph Feldman, retail analyst at Telsey Advisory Group.

Despite the growth in online shopping, the shift from discount chains to online delivery through partnerships carries certain risks.

Instacart, DoorDash, and other delivery platforms are starting to build their own warehouses and stock them with food, essential household items, and other merchandise. It’s possible that, knowing exactly what Dollar Tree or Five Below are buying on their website, the platforms are trying to drive channel customers away from them and steer them to their own new offerings.

And some stores are concerned that customers will replace visiting the store with shopping online, Feldman said. This would reduce the more profitable in-person sales of the chains and lead them to make less impulse buying which is crucial for the chains.


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