Grocery Business

June 10, 2015

Dollarama edges further on grocers’ turf
The settling in of Johanne Choinière, a former Metro executive, as chief operating officer, signals a growing interest in selling food and other consumables

Discount merchandiser Dollarama Inc. held its annual general meeting this morning and announced strong first quarter 2016  numbers. While grocers tend to look down on this little upstart, there are several signs that they need to take notice.

For one, Dollarama’s sales, which exceeded $2.3 billion during the year ending February 1, 2015, rose a further 13.0% during the first quarter of this year. According to Larry Rossy, its chief executive officer, Dollarama will add a further 70 to 80 stores this year, bringing the total to more than 1,000.

While grocers tend to focus more on the threat from other non-sector players such as Wal-Mart, Costco and the pharmacies, Dollarama continues to chip away, grabbing an ever growing market share. Consumable products, of the kind also sold in grocery stores, such as food, cleaning supplies and household products, now account for 38% of Dollarama sales. As if that wasn’t enough, the company’s comparable store sales grew by 6.9% during the quarter, far outpacing the grocery industry average.

The recent drop in the Canadian dollar has hit Dollarama hard, and the company needs to find new ways to grow margins. The hiring of Johanne Choinière, a former Metro vice-president, as it new chief operating officer, provided a strong signal of where Dollarama will be looking for growth. Just about half of the Dollarama’s purchases are in Asia, mostly in China, whose currency is tied to the US dollar. This is driving up costs at Dollarama stores, where 73.2% of revenues are now from products priced higher than $1.00.

How much this will affect Dollarama store level sales is unclear. For one, the company continues to benefit from a strong secular trend, towards value retailing in Canada. Stagnant incomes and heavily indebted Canadian households, signal that that trend will likely continue for some time.

Yet while grocers have been feeling the pain from Dollarama’s continued incursions, it could get a lot worse. Dollar stores as a group tend to sells less consumable goods as a percentage of total sales in Canada than do US dollar stores. That’s particularly true in the case of refrigerated goods, where grocers have a crucial edge. Rossy denies that there are any plans underway to change that. How long that will continue remains an open question.

An even bigger threat is that Dollarama, which now sells merchandise at seven price points ranging between $0.77 and $3.00, will raise that upper limit ever further, thus increasing the range of SKU categories in which this growing chain competes with Canada’s grocers.


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