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Hey Canada, prepare for a dollar store invasion!

Canada is in the midst of a dollar store invasion, but can these discount retailers take a bite out of the traditional grocery business?

In Canada, the leader is Dollarama, which has more than 1,200 stores, while its competitor Dollar Tree has roughly 220 stores. Canada is also home to other dollar store retailers such as Dollar Store and More, Great Canadian, and Buck or Two. That’s more than 1,700 dollar stores in Canada and we are expecting that number to increase by nearly 100 stores per year over the next few years. These stores sell everything from dishes, to gift wrapping, to clothes, to toys, and of course, food.

To compare, the U.S. has more than 30,000 dollar stores in the U.S.--more than Starbucks and McDonald's combined—and this could increase by 20% over the next two years. Some claim dollar stores are creating food deserts, forcing grocery stores located in urban centres to close.

Dollar stores in Canada are increasing their food offering in order to compete against grocery stores. Yearly sales at Dollarama are exceeding $3.5 billion. Last quarter, Dollarama reported some store sales were up by 5.3%--a number grocers can only dream of. On other words, business is good.

Dollarama doesn’t report food sales, but we estimate it sold more than $1.6 billion worth of food products last year. We can easily hypothesize that dollar stores in Canada sold more than $2.1 billion of food products in 2019. This is equal to sales generated by 212 regular-sized grocery stores in Canada. This does not represent a huge portion of the grocery market, a little under 2% really, but given how inexpensive these products are in dollar stores, traditional grocers have certainly felt the pressure.

Most Canadians still shop in traditional grocery stores, yet some of us are tempted by food sold in dollar stores. Many of these products are non-perishable, unlike in the United States where several dollar stores have freezers and fresh produce. None of our dollar stores sell fresh products, at least that we know of. However, what’s happening in the United States may be a sign of things to come. We may one day see dollar stores with a produce section and frozen food aisle.

The main reason consumers flock to dollar stores to buy food is snacking. Dollar stores are like discount convenience stores--they offer cheap, portable, in-between-meal options. But snacking could be just the beginning. Dollar stores in Canada could soon collect more of our food dollars by selling other staples such as fresh or frozen goods.

The dollar store invasion in North America is real, and it’s hard to see an end to it. However, this hardly marks the end of the grocery stores or creates food deserts for that matter. Grocers in Canada have done an incredible job defending urban markets in recent years, but the threat is real in suburbs and small towns.  It will be interesting to see how things may change over the next few years, given how well dollar store chains are managed.

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