Can Wal-Mart beat dollar stores on their own turf?

The world's largest retailer crushes most competitors except for dollar stores. Is this about to change?

By Forbes Digital May 14, 2013 10:54AM

WalMart store in Secaucus New Jersey Jin Lee Bloomberg via Getty ImagesBy George Anderson

What would happen to the dollar-store business if consumers were convinced they could get lower prices shopping at conveniently located Wal-Mart (WMT) stores? The answer to that question may be coming now that a 22-month study by Bloomberg Industries points to Wal-Mart offering better prices almost all the time.

According to the research, Wal-Mart had lower prices than Dollar General (DG) 100% of the time in household goods. It also beat its dollar-store competitor 85% of the time when it came to auto supplies, grocery, health and beauty care and pharmacy.

Assuming these facts hold up to scrutiny, it prompts the question "Why have dollar stores been eating Wal-Mart's lunch?"

According to Poonam Goyal, a senior analyst at Bloomberg Industries, the answer lies in dollar stores' positioning in residential areas. That advantage will disappear, she told Bloomberg News, as Wal-Mart opens its own small format of neighborhood stores.

Dollar stores have long been on Wal-Mart's radar. David Glass pointed to the channel as the biggest challenge facing the chain when he was CEO of Wal-Mart in the '90s. Back in 2011, The New York Post reported the retailer had approached suppliers in search of lower opening prices expressly to compete with dollar store pricing head-on.

Posting in a recent RetailWire online discussion, Paula Rosenblum, managing partner, RSR Research, found weakness in the assumption that Wal-Mart could scale down to run a small format competitive to dollar stores. "It seems to me that we ascribe abilities to Wal-Mart that the company just doesn't have," she wrote. "From the logistics, to the curated assortments, to replenishment, to staffing, it's just a different business."

Although Wal-Mart's Neighborhood Market may represent the fastest-growing segment of its current business, the format had been long in development and has struggled along the way. Richard J. George, Ph.D., professor of food marketing at Haub School of Business of Saint Joseph's University, has observed how dollar stores have stood up against Wal-Mart so far. "It has been argued that dollar stores are the only food retail format that can survive the scorched earth syndrome created when Wal-Mart crushes non-competitive retailers," he wrote on RetailWire. "Wal-Mart once referred to these formats as 'ankle biters.' The introduction of refrigerated, frozen and fresh foods certainly has transformed these players into bonafide competitors, not only to Wal-Mart but to every other food retailer."

And yet, as Wal-Mart increases its neighborhood-by-neighborhood presence, continually reminding shoppers of their lower prices, will dollar stores lose their edge? Consumer marketing strategist Liz Crawford believes these chains need to find a point of differentiation beyond price.

"Stocking a locally desirable assortment, configuring merchandising for optimum shoppability and offering a rewards program may help. But only maybe," she wrote on RetailWire.

More on Forbes

May 14, 2013 12:17PM
DG has a HUGE advantage over Wal-Mart when it comes to locations.  In our area, they are springing up all over the place, in perfect locations.  DG is moving into little towns that are 15 minutes from the nearest grocery store and 20 minutes from the nearest Wal-Mart.  If we need bread or milk or cold medicine, we aren't going to drive all the way to town when we can pay a fraction more and drive 3 minutes down the road.  The stores are small, the parking lots are small and you can get in and out in a minute or 2.  Can't do that at Wal-Mart or a regular grocery store. The DG stores around here are taking over the basic grocery and convenience business, leaving the gas stations to sell lottery tickets and gas and that's about it.

Wal-Mart will never be able to compete with DG in the  "convenience" business.
May 14, 2013 12:38PM
Wal-Mart, Dollar General, or any of the others will NEVER have the class that once was Woolworth's.
May 14, 2013 3:12PM
I try not to shop at Walmart.  Walmart Execs have the money to pay their work force better AND give better benefits packages.   Most of what Walmart sells comes from 3rd world countries paying pennies on the dollar.  Also, Walmart is one reason why the middle class is disappearing here in the U.S. 
May 14, 2013 2:17PM
Walmart needs to improve their check out lanes and they need smarter people you can relate to.  Kroger say: there's never a wait when it comes to checking out,  if Walmart is so great, lol,  why do they always have long lines a fewer checkers. I buy most my food at smaller stores where I know stuff or have a better idea where it comes from.
May 14, 2013 2:56PM

One reason is the lines at the Wal-Mart!!!! I abhore having to go to a Wal-Mart of any kind!!! And if I wanted a job as a cashier I would apply for one, I DO NOT want to check myself out!!!!! Our store is hideous!!!!! And they NEVER keep the shelves stocked!!

May 14, 2013 1:54PM

No matter the cost and will never shop at Wal-Mart.  They are bullies.

May 14, 2013 3:03PM
The dollar stores do have better prices on some items, but Wal-Mart has cornered the market on complete shopping, which includes groceries and pharmacy items.  However, Wal-Mart is  probably the worst company for customer service.  They do not keep their shelves stocked and when the do stock them, it is when all the shopper are in the store thus making congested aisles.  They also do not move to accommodate the shopper--you just have to walk around them or go to another aisle to get by.  Workers do not know the items in their departments.  Once they have put something on the shelf, you can't be sure that when you return to that place again the item will still be there.  It might be several aisles over behind something else.  Frankly, I don't like Wal-Mart.  You used to be able to get what you wanted on one visit.  Now they drop items that were very saleable.  They change brands like a snake shedding its skin.  Too convenient, too big, and too dysfunctional.
May 14, 2013 2:28PM
I would rather shop at  any other store than a wal mart. the wal marts stores  are out of their minds on pirces. DG stores will always get my dollar.
I live in a small town, it's a drive to get to Wal-mart.  I shop Family Dollar and DG (they are cheaper on laundry soap and TP..they are friendly and I don't wait in long lines. Can get in and get out. Coupons..Wal-mart will argue about every coupon!! Publix is easy match the coupon to the item and no arguments..wonderful experience. Food is fresher, staff is helpful and I can match wal-mart prices so I am paying the same. (Publix=Clean stores..walmarts are dark inside and makes it look dirty) Last couple of years I have become a Wal-Mart hater..don't even get me started about their Associates and the pay..ugh makes me angry!! Go Dollar Stores appreciate the ability to get good prices and not shop Wal-mart..thanks
May 14, 2013 4:49PM
No one mentioned Dollar Tree.  I buy all of my cleaning supplies, soap, toothpaste, socks, paper goods, frozen fruit, etc.  Everything is $1. I even found the same bras at Dollar Tree that I normally buy at Wal-Mart.  I shop for almost all of my groceries at Aldi's.  We lived in Germany for a while and shopped at Aldi's before they came to the US.
May 14, 2013 12:12PM
Could Hitler defeat Stalin??!!!  Let the battle of imported crap begin!!!!!!  Maybe they'll compete so hard and have to gouge their suppliers so much that they'll all go out of business.... not likely but one can hope.  Have been and will continue to avoid both stores, no tainted imported food and toothpaste for me thanks.
May 14, 2013 5:42PM
At least at the dollar store you can get what you need and get out of the store, unlike Wal Mart that has about 40 regristers to 3 to 4 cashiers. I hate shopping at Wal-Mart and will choose alternative all the time.
May 14, 2013 5:32PM
I have saved about 200 dollars in gas since since the small dollar store opened up in my town.My gas saveings will cover any small price increases at my local Dollar Store. I no longer have to drive 12 miles to Walmart. Dollar Stores in small towns is the best thing that has ever happened to help people.
May 14, 2013 4:36PM

I was recently in a Walmart and I only go there for a few items, under $20.00 once every two months.  I took a look around and was shocked at the high prices of stuff (not their brand) that has risen since the last time I bought them.  I might as well go to  Kmart, Target or Dollar General.   Greed always comes crashing down no matter what. 

May 14, 2013 2:38PM
walmart only has the advantage due to its size an ability of offerings.BUT,most smaller dg types I have gone in for stuff,the folks were nicer then walmarts hands down.also,ripping off stuff and re-boxing the wrong item(s) was a lot less an pops,maybe china too sometimes 'get it'.
May 14, 2013 3:58PM
May 14, 2013 5:26PM
If my local Dollar Store ever starts selling meat,fresh vegetables,chewing tobbaco.i will no longer need Walmart for anything.
May 14, 2013 4:54PM
always buy two of everything at the dollar stores cause one is bound to be non functioning,as far as WALMART..they are understaffed,understocked and not worth the headache
May 14, 2013 5:53PM
i remeber kresges & woolworth  and sprouse reitz  oh and ben franklin stores
May 14, 2013 5:49PM
All I know is I own Dollar Tree stock and in the last 5 years it is up over 300% while Walmart is up less than 50%.  I don't own any Walmart stock....  Enough said.
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