Can Walmart Beat Dollar Stores On Their Own Turf?

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

According to the research, Walmart had lower prices than Dollar General DG +0.49% 100 percent of the time in household goods. It also beat its dollar store competitor 85 percent of the time when it came auto supplies, grocery, health and beauty care and pharmacy.

Assuming these facts hold up to scrutiny, it begs the question: why have dollar stores been “eating Walmart’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 Walmart opens its own small format “Neighborhood” stores in said territory.

Dollar stores have long been on Walmart’s radar. David Glass pointed to the channel as the biggest challenge facing the chain when he was CEO of Walmart 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 Walmart could scale down to run a small format competitive to dollar stores. “It seems to me that we ascribe abilities to Walmart 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 Walmart’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, Haub School of Business, Saint Joseph’s University has observed how dollar stores have stood up against them so far. “It has been argued that dollar stores are the only food retail format that can survive the scorched earth syndrome created when Walmart crushes non-competitive retailers,” he wrote on RetailWire. “Walmart 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 Walmart but to every other food retailer.”

And yet, as Walmart 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.