Dollar Tree management embraces private label after inflation lowered margins at Family Dollar.
What to know
Private label is a major margin driver across the retail landscape. According to Numerator, nine of the top ten retailers who offer private label products have increased their market share throughout the pandemic. It’s estimated that private-label products account for around 20% of all retail sales in normal times.
That number may be rising.
After nearly two years of price increases, consumers are facing tighter budgets and pivoting towards cheaper alternatives. They’re also switching spending from discretionary items (apparel) to consumables (food). That’s bad news for general retailers. Consumables have lower margins than discretionary items, which puts extra pressure on discounters like Dollar Tree. The company that owns Dollar Tree and Family Dollar finds itself facing higher costs while selling more low-margin products. Retailers that have significant private label brands are better positioned to manage this scenario.
That’s because private label typically delivers higher margins for retailers while offering lower prices for consumers. There is limited marketing or research cost associated with private label products. For major retailers like Dollar Tree, demand isn’t generated by a television advertisement but by being on the shelves at one of the company’s 16,200 locations.
Private Label brands are growing at Dollar Tree and the company is looking to invest more
- Private brand growth at Dollar Tree has outpaced national brands for 39 weeks. It was the opposite trend for the previous five years.
- Numerator estimates that the six fastest-growing private label brands are found at Aldi, Amazon, Wawa, Walmart and Kwik Trip.
- Dollar Tree management announced it would focus on three categories: over-the-counter (OTC) drug and health, everyday food, and paper products.
Private Label success depends on the product category
- Share of store-brand OTC medicine typically hovers around 25%.