Graduates Win with Aunts and Uncles


 
Graduation Season is here! The time to celebrate a lifetime of accomplishments and the beginning of a promising new stage. Parents couldn’t be prouder, Grandma is definitely going to cry, and aunts and uncles apparently get generous.

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According to one of our recent surveys, more graduation gifts are purchased for nieces and nephews than anyone else. This makes sense, especially in bigger families where people likely have have more nieces and nephews than sons or daughters. So what are they gifting?

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Graduates received mostly gift cards this year, with greeting cards and actual cash also among the popular gift-giving options. Other gifts like coffee and cars—much needed elements of adulthood—get honorable mentions. Female grads were more likely to receive flowers, while male grads were more likely to receive electronics.
 

When deciding what to gift a graduate, the number one consideration was “something that would be useful” in the next stage of their life. One curious data point also related to this decision is that uncles and aunts were more likely to ask the family and friends of the grad for gift recommendations, while mom and dad were more likely to ask the grad directly.

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Gift card purchasers are twice as likely to buy a greeting card in the same shopping trip during graduation season than during the Christmas season. The difference suggests that shoppers try to get gift and greeting cards in the same trip for graduates, while spreading the purchase of those two categories across more trips during the holiday period.

 

Another tip for all retailers out there: an overwhelming 61% of shoppers return to buy their graduation greeting cards at the same retailer where they bought their Mother’s Day card. So if you’re capturing that Mother’s Day shopper, you’re more likely to capture the graduation greeting card shopper.

 

As to which retailers people prefer for purchasing their greeting cards, the usual suspects of Walmart and Target show up on top. There is also a considerable showing from the dollar channel (Dollar Tree and Dollar General), which achieved significantly high unit sales but underperformed in dollar sales, a common trait for the channel due to its usually lower price points.

 

In summary, parents need to step up their gifting game. Spoiling uncles everywhere are going for the cash game while parents skew towards the traditionally more emotional and thoughtful greeting cards.
 
As a marketer, are you interested in knowing more about seasonal gifting in your category or other aspects of shopping behavior? Are you curious about which brands of gift cards these graduates received? Get in touch with us at contactus@infoscoutinc.com and we’ll be happy to help you out!

The Family Dollar Saga Part Two: Choosing The Better Suitor

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In Part One we showed why we believe antitrust concerns are a non-issue in the battle to acquire Family Dollar. In Part Two, we assume that both Dollar General and Dollar Tree could overcome any potential attempts by the FTC to block their acquisition of Family Dollar, and focus entirely on the question of which bid Family Dollar’s Board should support. Certainly Dollar General’s higher, all cash bid seems more attractive in terms of immediate return for Family Dollar shareholders. But which suitor would make integration easier?  Which suitor is more likely to ensure operational and financial success once the companies are combined? Again, we look to our data for answers.

Product Assortment and Pricing

Dollar Store Product Category Ranks

When we look at product assortment, Dollar General and Family Dollar have the most overlap in terms of items they sell, with a significant emphasis on grocery items such as chips, soft drinks, milk, pet food, paper products, and candy at both retailers. As we saw previously, their pricing models are also closely aligned. Dollar Tree on the other hand, depends more on party supplies and seasonal items, while sticking to the $1 price point. There is assortment overlap between Dollar Tree and Family Dollar in categories such as candy, soft drinks, paper products, and household cleaning products.

Dollar General’s wide assortment overlap with Family Dollar would give it several advantages over Dollar Tree. For one, it would potentially lead to better purchasing power with its existing vendors given the higher volumes it would be ordering. This could allow it to save costs and/or lower prices for consumers (again the FTC is going to have a tough time arguing that prices will rise for dollar store consumers!). Further, the combined Dollar General & Family Dollar supply chain would be less complicated than with Dollar Tree due to increased volumes with fewer vendors, resulting in more full truckload logistics for lower costs as well as having less dependence on hard to plan seasonal and closeout merchandise.

Lastly, if Dollar Tree wins and decides to migrate Family Dollar stores to its pricing and assortment model, that could potentially drive away existing customers or introduce operational risk at the very least. Perhaps instead, Dollar Tree sees a Family Dollar acquisition as a path to reducing its own dependence on managing constantly changing seasonal and closeout merchandise – a strategy that must be difficult to scale much further. Either way Dollar Tree seems to be at a disadvantage from a merchandising integration standpoint given its very different assortment and pricing model.

Overlapping Footprints

Geographic Overlap

As a recent Bloomberg Businessweek article points out, Dollar General and Family Dollar also share a high degree of geographic overlap. We ran our own analysis based on store zip codes and found that 65% of Family Dollar stores share their zip code with at least one Dollar General store. On the flip side, only 35% of Family Dollar stores share their zip code with a Dollar Tree store. It is to Dollar Tree’s advantage to have lower geographic overlap, because it means they will be getting access to more new territories. Of course it’s what also allows them to say that they have fewer chances to remove competition from markets they operate in after the acquisition. That all being said, even with higher existing overlap, a Dollar General-Family Dollar combo would reach 2,400 more distinct zip codes in total than a Dollar Tree-Family Dollar combo because of sheer size.

Of course what really matters is not just proximity, but the extent to which consumers already cross-shop the potentially merged retailers. As we saw in Part One, many dollar store chain shoppers tend to stick to one chain in any given month – despite shopping for groceries several times each month.  According to our data, while Dollar General and Family Dollar have significant geographic overlap, only 21% of Dollar General shoppers also shop at a Family Dollar store in a given month.

Financial Considerations

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The financial ramifications of either deal will be interesting. The goal of nearly every acquisition is to obtain synergies, both on the revenue side and the cost side. Dollar General has promised nearly double the cost synergies as Dollar Tree, with a target of $600 million by year three. Revenue synergies will be more difficult since price hikes are a non-starter for dollar stores, but perhaps synergistic promotional opportunities exist. For example the merged entity should garner more trade funds from vendors, allowing greater economies of scale to be achieved through each promotional dollar spent. By virtue of its assortment variety and different pricing model, Dollar Tree might have an edge with cross promotions across, except that it has less geographic overlap and its shoppers are less likely to also shop at Family Dollar. The Dollar General deal would lead to a combined company with a higher initial debt level of about 4.3X net debt to EBITDA (Earnings Before Interest Taxes and Depreciation & Amortization) versus roughly 3.75X with Dollar Tree.

The good news is that either Dollar Tree or Dollar General will likely bring operational efficiencies and margin enhancement to Family Dollar because both chains have higher annual revenue per store and higher operating margins than Family Dollar. That would help either combined company pay down debt faster with increased operating income. Dollar General’s commitment to sell a significant number of overlapping Family Dollar stores while shuttering significantly under-performing stores would seem to increase the likelihood of its ability to improve Family Dollar’s operating margins. In addition, our data indicates that among dollar store buyers, the dollar store channel has seen a slight “share of wallet” increase so far this year. That bodes well for all three chains.

Our Closing Thoughts

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Though it depends how you weight each decision factor, it appears the the Family Dollar board is going to have a hard time justifying its rejection of the higher Dollar General bid to its shareholders based on what we have shown here in part two of our Family Dollar Saga blog series. If you are curious to know more about what our data shows, give us a shout at contactus@infoscout.co!

The Family Dollar Saga Part One: Why Antitrust Concerns Are Overblown

Family Dollar Tug of War

There’s a fierce tug of war happening this month between Dollar General and Dollar Tree over the future of Family Dollar.  In late July, Dollar Tree announced its intention to acquire Family Dollar.  Not content to sit idly by and watch the two smaller chains combine forces, Dollar General extended a higher bid of its own for Family Dollar. Despite General’s offer being roughly $460 million richer, the Board of Directors at Family Dollar rejected the higher offer in favor of Dollar Tree’s lower offer. In doing so, Family Dollar’s Board claimed that a Dollar General-Family Dollar combination would face more significant antitrust hurdles with federal regulators. We are data geeks at heart over here at InfoScout, sitting on a treasure-trove of consumer shopping data, so we decided to put this antitrust claim to the test.

Though the official merger guidelines of the FTC are long, broad, and a better sleep inducer than a glass of warm milk, in practice antitrust concerns typically revolve around a Key Findingsfew key principles relating to “market power”. The FTC seeks to limit mergers that would enhance market power in a manner that leads to higher prices, reduced output, less innovation, or reduced service for consumers. The FTC puts particular emphasis on anticipated pricing effects, and takes a negative view of mergers that they believe will lead to higher prices.  So, how likely is it that a Dollar General acquisition of Family Dollar would lead to higher prices for consumers?

Dollars and Sense: What We Can Learn From Each Retailer’s Prices

Infoscout Dollar Store Data

Our consumer panel includes 78,957 households who have shared with us their receipts from over 470,000 shopping trips to the three major dollar store chains thus far in 2014. The first thing we looked at in our analysis was average item level pricing levels for these three major dollar chains across the country. We found that Family Dollar’s average price per item purchased was the highest, at $2.20 each. Dollar General came in next at $2.08, and finally Dollar Tree at $0.97. This isn’t too surprising given the business models of each chain, with Family Dollar and Dollar General offering plenty of merchandise above $1.00, while Dollar Tree tends to stick to the traditional dollar store model by offering a unique rotating assortment of smaller packaged items that can be offered at a price point below $1.00. Dollar General and Family Dollar carry a very similar assortment of products (as opposed to Dollar Tree), as they both sell a significant amount of grocery type consumable products. This allowed us to drill-down into specific, popular products where they overlap to compare prices. For most products, Family Dollar’s average sales prices were higher than Dollar General’s corresponding prices.  Given Dollar General’s already lower pricing, it seems unlikely that the Federal Trade Commission could successfully argue that their acquisition of Family Dollar would result in higher prices at Family Dollar stores.  If anything, we would expect Dollar General to leverage its purchasing power and economies of scale to drive down prices even further.

Dollar Store Item Pricing comparison

But what might happen if Dollar General did raise prices at Family Dollar stores after an acquisition?

Substitutes for Consumers and a Lack of Market Power

Do adequate substitutes exist for consumers?   To answer this question, we looked at both shoppers’ opinions and their actual shopping behavior, and found overwhelming support that dollar store customers have good substitutes which they are already shopping.

Family Dollar consumer survey data

When surveyed through our mobile platform, Family Dollar shoppers made it clear that low pricing is the primary reason for their patronage.  So, given Walmart’s de facto status as America’s low price leader, we then asked Family Dollar shoppers if they consider Walmart a good substitute. Over 80% of those surveyed responded that yes indeed, they consider Walmart a good substitute. In fact, less than 10% of the Family Dollar shoppers surveyed said they would be unlikely to switch to Walmart if Family Dollar raised prices. Clearly, raising prices would be a very bad strategy for Family Dollar, and would likely send a slew of their shoppers Walmart’s way.  It is interesting to note, however, that only 44% of Family Dollar shoppers consider traditional grocery stores to be a good substitute.

Dollar Store Cross Channel Shopping

Of course it’s not just what consumers say, but what they actually do that really counts. When it comes to actual shopping trip behavior, the data is even more conclusive. We studied those consumers who have shopped at dollar stores so far this year and found that in any given month, over 90% of dollar store shoppers also shopped at supercenters such as Walmart, Target, or Kmart. Dollar store buyers do not appear to have a lack of access to stores they consider substitutes. Additionally, over 90% of dollar store shoppers also visit traditional grocery stores each month. Further, we found that for dollar store shoppers specifically, dollar stores as a whole have only accounted for roughly 2.5% of their total spend on fast moving consumer goods thus far in 2014. This tiny share of wallet across the industry, combined with consumers active shopping at potential substitute stores, means that it would be very difficult for a dollar store chain to raise prices and not lose customers en masse.   Consumers, therefore, would not be trapped if prices were raised at Family Dollar.

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Interestingly, although dollar store customers cross shop other mass and grocery retailers, most do not typically shop at more than one dollar store in a given month. Close to 80% of the shoppers at these three major dollar chains only shop one of the chains in a given month. Antitrust regulators would have a difficult time arguing that merged dollar chains will have an incentive to reduce customer access by consolidating or shutting down stores. By shutting down large numbers of stores, dollar chains would be unlikely to retain affected customers, and would instead be losing them to other retailers.

Whole Foods’ 2007 acquisition of Wild Oats is a useful and comparable case study. The FTC tried to challenge that combination on the grounds that Whole Foods and Wild Oats compete in a tightly defined natural food grocer market, but ultimately lost that fight because the reality is that natural food grocers compete in a larger price competitive grocery market. Our data conclusively shows that the same factors apply to Dollar General’s bid for Family Dollar.   Simply put, the combined chains would still hold less than 4% of the US market for fast moving consumer goods – insufficient to justify an antitrust-based challenge by the FTC.

Although we find no basis for the Board of Family Dollar to reject Dollar General’s offer on the grounds that the acquisition could be blocked by the FTC for antitrust reasons, there may be other reasons why a merger with Dollar Tree could make more sense.  Which suitor should the Family Dollar board ultimately pick?  Stay tuned for Part Two where we will present more consumer insights around who’s the better business fit.

 

Walmart’s Millennial Problem: 5 Reasons Dollar Stores are Beating the World’s Largest Retailer

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It’s no secret that Millennials’ widespread adoption of technology has helped transform many industries. Their use of social media has shifted how we communicate, their adoption of smartphones has changed how we shop, and their use of taxicab replacements like Uber and Lyft is altering how we get around. Even Walmart’s tried and true grocery business has not been spared. As Millennials enter their 30s, they are beginning to influence a grocery sector traditionally dominated by multi-person households. 3 factors are driving this:

  1.  The Millennials (born between the early 1980s and 2000s), at 78 MM, are the largest U.S. demographic group today
  2.  As shoppers, Millennials favor convenience and wear their ideals on their sleeves
  3.  Due to societal trends and poor job prospects, Millennials are delaying marriage and family formation

From 2007 to 2012, the percentage of young Americans who are married fell from 30% to 25%.  As Millennials wait to marry and have kids, their grocery behavior deviates from those of past generations. A single-person household has fewer needs than a full family, and thus purchases a smaller quantity of products in a given week. As a consequence, single Millennials can complete their grocery trips more quickly than someone stocking the pantry for an entire family. So why would a Millennial spend close to an hour pushing a cart around a giant Walmart store when he or she can get in and out of a smaller dollar store in half an hour or less? Using InfoScout’s database of U.S. grocery shopping behavior, we determined this is more or less exactly how consumers shop at Walmart and dollar stores. For example, at Walmart, the average basket is 13.5 items while at Dollar General, it’s only 6.3. We also studied where else Walmart shoppers bought groceries in the first half of 2013, discovering that more than 1-in-4 started spending relatively less at Walmart and more at dollar stores over time. Who are these dollar store ‘converts’?

  •  Lower income: 50% earn less than $60K per year
  •  Unemployed: almost 2x as likely to be unemployed
  •  Young: 43% are between age 21 and 34

By means of InfoScout survey data, we also identified the top reasons these customers are leaving Walmart for dollar stores:


spending#1 Consumers are having a hard time making ends meet:
31% of dollar store ‘converts’ either lost a job or had hours reduced within the last 6 months

#2 Their grocery budgets are falling: 37% of dollar store converts decreased their grocery budget over the last 6 months

#3 The Walmart brand doesn’t resonate: converts are 2.5x as likely to complain about the Walmart brand

#4 Dollar stores expanding and getting closer to Walmart’s customers: Family Dollar, Dollar General, and others opened hundreds of new stores in 2013.  24% of converts had a new dollar store open nearby within the last 6 months (often within walking distance, important to Millennials who are less likely to have a car compared to earlier generations at the same age)

#5 Shopping at Walmart isn’t convenient, especially for quick trips: 24% of dollar store converts say Walmart stores are inconvenient, too big, or confusing to navigate.  In addition, 77% dollar store shoppers name location and convenience as the primary reason why they shop at dollar stores versus just 60% for Walmart.

 

This trend is not limited to Walmart – So what can retailers and brand marketers do?

  • Offer great prices on the products that matter most to this segment
  • Invest in new smaller-footprint store formats, and make it easier to get in and out quickly
  • Reach Millennials where they spend their time (online and social media), support causes Millennials care about, offer innovative products to save them time, and reward them for their loyalty

Now what Millennial wouldn’t take interest in that?