Family Dollar has three big direct competitors within the dollar store industry. The first and

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1 5. Competitive Surrounding 5.1 Direct Competitors and Competition Matrix Family Dollar has three big direct competitors within the dollar store industry. The first and biggest direct competitor is Dollar General. Dollar General is the leader of the industry, bringing in almost half of the revenue between Family Dollars direct competitors. Dollar General brings in 13,035,000,000 worth of revenue with a gross margin and $627,857,000 in net income. They currently employ 86,000 people, have a share price of $31.82, and currently operate 9,414 retail stores. The second biggest direct competitor that rivals Family Dollar is Dollar Tree. Dollar Tree takes 21% of the market share between Family Dollar s biggest direct competitors and takes in revenue of $5,882,400,000. Dollar Tree also has a gross margin with a $397,300,000 net income. Dollar Tree currently employs just over 13,000 employees, has a share price of $55.69, and currently operates 4,015 retail stores. 99 Cent Stores are Family Dollars third biggest direct competitor, only holding 5% of the revenue amongst its three other bigger competitors. They bring in revenue of $1,355,170,000 with a gross margin of and a net income of $60,447, Cent Stores employs 11,700 employees, has a share price of $19.80, and currently operates 275 retail stores. Wal-Mart is currently listed as an indirect competitor; although they have begun building Wal-Mart Express s which are 1/10 th the size of an average Wal-Mart and carry items similar to that of Family Dollar (Mergent Online).

2 Revenue-Direct Competitors 5% 21% 28% Family Dollar Dollar General Dollar Tree 99 Cent Store 46% In terms of indirect competitors, Family Dollar also goes upon against a few big names that employ the cheaper price, value for your dollar strategy. The first one is seemingly everyone s competitor, Wal-Mart. After Wal-Mart Family Dollars biggest indirect competitors are Big Lots, Target, BJ s Wholesale, and Costco Wholesale. The graph below represents the percentage of revenue between Family Dollar and its direct and indirect competitors. As you can see, Wal-Mart, Target, and Costco account for 93% of the revenue amongst these companies.

3 Revenue: Direct+Indirect Competitors 1% 1% 0% 1% 2% 11% 2% 13% 69% Family Dollar Dollar General Dollar Tree 99 Cent Store Wal Mart Cotsco BJ's Big Lots Target 5.2 Business Model Difference Independently, the 4 major direct competitors that Family Dollar has can be broken up into two categories. The first category is retail stores that rarely sell any products that cost over a dollar. Dollar Tree and 99 Cent Stores fit into this category, as the majority of the items are not priced any higher than 99 cents or a dollar. This business strategy varies from Family Dollar and Dollar General, in which they choose to offer discounted prices on often off-brand items, but they are not necessarily restricted to costing a dollar or less. Family Dollar offers a few products that Dollar General is not known for having, such as trendy low-cost clothing as well as home-decorating items such as curtains and rugs. Family Dollar also recently had an Urban Initiative in which they specialized stores with urban clothing and took on the challenging urban market (Speer, 2011). Even though Dollar General has more stores than Family Dollar, Family Dollar out-performs Dollar General in terms of percentage of people that live

4 within 1 mile of one of its own stores. 12.4% of the US population lives within 1 mile of a Dollar General, whereas 17.2% of the US population lives within 1 mile of a Family Dollar, this is thanks in large part to the Urban Initiative (Hudson, WSJ). 5.3 Key Success Factors Family Dollar has 3 primary key success factors. The first being they offer low-cost everyday items. In this time where the economy is struggling, dollar stores have been thriving. People are looking to cut costs in every way possible, and one primary way to achieve this is through purchasing knock-off items or going to a retail store which sells products cheaper than anywhere else. A second key factor of success is also related to people looking to cut costs in every way possible. As said prior, 17.2% of the US population lives within 1 mile of a Family Dollar. This means that consumers don t need to travel far to pick up the necessary items and it allows them to save on both gas and time. Wal-Mart is seeing the extreme benefits of these companies and as said prior as well they are opening up Wal-Mart Express which can be in more convenient locations for consumers who are not looking to travel far and for places that are not big enough to put a large-scale Wal-Mart. Third, they ve enhanced their inventory productivity. The company s gross margin of return on inventory (GMROI) has steadily increased over the past few years, with the number being 2.5, and in 2005 it was only 1.9 ( They have focused on getting the right mix and the best inventory-levels they can possible have in their stores. Their focus in inventory has enhanced their profitability. 5.4 Relative Positioning and Creative Value Family Dollar is in an industry where there are quite a few tough competitors, and they are all positioned differently. Dollar General is the top dog in the group in terms of revenue and net profits. They have the most stores, and are easily the biggest dollar-store type company in the United States. However, they are only in 35 states whereas Family Dollar is in 44 different states. Both Dollar General

5 and Family Dollar have positioned themselves as more than dollar stores. They are a cross between Wal-Mart type-products and 99 Cent Stores accessibility and size. 99 Cent Stores and Dollar Tree have both positioned themselves in the lower-end of the value-retail market. Almost everything they sell is a dollar or less. 6. Competitive Risk Barriers to Entry In the discount retail industry, there are very low barriers to entry due to the low costs. Owners of dollar stores have low overhead costs and do not have to pay employees big wages. Most of their items are purchased in bulk, therefore making them cheaper than they already are when purchasing. Many dollar stores are placed in less-desirable areas or parts of towns which make the rent cheaper than it would be for a similar sized store. They also are supplied with many off-brands which are generally less expensive than more well-known brands. Threats of Substitutes The threat of substitutes is very high in the discount variety stores. Most consumers are not generally attached to one value store over another; they would make the majority of their decisions based on convenience and location. Supplier Power Supplier Power is generally fairly low within the dollar store industry. A lot of times the products have been discontinued, and Family Dollar happily takes the products off the supplier s hands. Dollar Stores tend to go for whoever has the cheapest prices, so the suppliers are competing to have cheaper prices to sell the dollar stores. Vikas Wai, Family Dollar s director of e-commerce, said in 2004

6 We need a strong relationship with our suppliers to ensure that we can manage our inventory to keep the prices low and the right products in stock. Degree of Rivalry There is a high degree of rivalry in the discount variety store industry. There are a few big-time dollar stores all which compete with each other, and beyond that there are many smaller dollar stores independently owned. The market is a high concentrated market and often the battle is decided just based on proximity of the stores. Buyer Power The company targets customers in the low, medium and fixed income segments as majority of the products in Family Dollar stores are priced at $10 or less. In 2009, the average customer purchase per product was $9.84. The company s core customer has an annual income of less than $40,000 per annum. Family Dollar is attracting customers who earned between $40,000 and $70,000 per year throughout this period of economic hardship. The company s EDLP strategy helped the company in expanding its customer base (Data monitor). The buyers are very price sensitive, as they choose to shop their not for the quality of the products but for the prices offered. The entire brand identity and product differentiation is all about the prices. The buyers have moderate power; if the prices increase or a closer store opens up they will leave. 7. Company Strategic Positioning 7.1 General Discussion of Competitive Positioning

7 The ability of Family Dollar is mostly imitable. They are currently developing a private brand, which will give them a competitive advantage for the short-term. They also have a short-term competitive advantage when working with urban areas, as they ve done vast amount of research on the areas and have specially formatted their stores in that area to tend to those needs instead of having generic stores that are the same everywhere. Other than those few things, the products and services Family Dollar offers is very imitable, as seen with the high concentration of dollar stores around the country. 7.2 Strategic Outlook: Defenses and Attacks Defenses o Officially Launched MMI Strategic Alliances Marketing Management, Inc. will assist Family Dollar with private brand sourcing, product development, category analytics, assortment strategy, quality assurance, and customer insights. (Marketing Weekly News) o Conceptual Renewal All new Easy-to-shop layout, lane designs, fixtures, registers, point of sales systems. More impulse products are stocked at the cash registers and complimentary products are now grouped together better. They want to increase the in-store experience for consumers as well as increasing the number of shopping trips per customer. (Heller, Retailing Today) Attacks o Urban Initiative Family Dollar attempted and is succeeding in taking over the urban market when it comes to retail-value stores. They have specialized their urban stores to

8 fit their specific needs and added a variety of items. (Hudson, WSJ) (Anonymous, Progressive Grocer)