For Dollar Tree, the Addition of Cold Food is Paying Off

By The Virginian-Pilot, Norfolk, Va.

Apr. 27–Dollar Tree customers who pick up a dozen eggs, a package of hot dogs or a TV dinner have helped produce a notable boost in sales for the all-for-$1 retailer.

In stores where Dollar Tree Stores Inc. has added refrigerators and freezers packed with cold food — including pie crusts and frozen peas — sales have grown by an average of 5 to 6 percent, company officials said. By comparison, sales increased about 1 percent across all stores open at least a year, known as comparable stores, in the company’s latest fiscal quarter.

“So it’s an additional sale,” said Bob Sasser, Dollar Tree’s chief executive officer, of the cold items. “When people shop with us now, it’s one more thing they can buy from us.”

The cold cases came up during a presentation by Dollar Tree executives at a Merrill Lynch & Co. Inc. investors conference last month. The comparable-store results amount to “a good, solid payoff” that’s typical of retail chains other than big-box stores that add cold and frozen goods, said J. David Cumberland,

a senior research analyst for Baird Equity Research, a division of Robert W. Baird & Co. Inc.

Dollar Tree, based in Chesapeake, has added cases for refrigerated and frozen food in about 240 stores, or less than 10 percent of its 2,962 locations. It plans to put coolers into an additional 250 or so stores this year, Sasser said.

The company needs the additional stores to really test the potential success of the strategy and assess whether it will “really be meaningful as a contributor over time,” Cumberland said.

Even with the payoff of the cold goods, the nation’s largest everything’s-a-buck retailer will never put coolers in all of its stores, Sasser said. Dollar Tree typically has targeted the cold goods to stores with at least 10,000 square feet of space, which provide room both on the sales floor and in the stock room to hold the refrigerators and freezers. The retailer’s supply chain also must deliver the goods cost-effectively, Sasser said, and the shopping patterns must fit.

Dollar Tree won’t replace customers’ trips to the grocery store, Sasser added. A limited number of food items can meet the required one-buck price.

“I can’t sell you a gallon or even a half-gallon of milk for a dollar,” he said.

In just a few stores, though, Dollar Tree can sell wine. It has a license to do so at one store in Hampton Roads, at 1105 S. Military Hwy. in Chesapeake, and at a few dozen stores in California, Sasser said. Customers won’t always find wine on the shelves, only when Dollar Tree can price it for $1.

Aiming to provide “value,” Sasser said, Dollar Tree wouldn’t seek out items that already sell for 99 cents in the supermarket. The return must cover the higher cost to transport and store refrigerated foods plus the greater potential waste of perishable items with a limited shelf life.

“It’s always a deal,” Sasser said. “If we can’t offer a value, we just won’t have the item.”

In general, food generates a lower profit margin than other retail goods. Yet it also is a purchase shoppers make more frequently.

“It’s a customer that is attracted by the convenience,” Cumberland said.

Dollar Tree has shaped most of its food selection around convenience — focusing on candy, beverages and other snacks. Now, at the South Military Highway store, a wall of coolers offer a wide-enough selection of goods for customers to construct three meals a day: eggs, bacon and butter; bologna and cheese; frozen chicken thighs, broccoli and cheesecake.

It’s all guaranteed fresh, Sasser said. “We only buy good stuff and good quality.”

* Reach Carolyn Shapiro at (757) 446-2270 or carolyn.shapiro@pilotonline.com.

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Copyright (c) 2006, The Virginian-Pilot, Norfolk, Va.

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