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Rock-bottom prices at Dollarama a game-changer for the food industry

Sylvain CharleboisIn an era of continuous cost of living surges, the quest for budget-friendly groceries has become a financial challenge for many Canadians. Recent investigations by intrepid reporters in Quebec and Ontario have uncovered a revelation that may surprise some: Dollar stores, most notably Dollarama, provide identical non-perishable products to regular grocery stores but at significantly lower prices, often falling within the 30 to 75 percent range.

While many shoppers were aware of this, many likely were not.

But this begs the question: How can Dollarama offer the same products, in the same size, and from the same brands, at a much lower price?

Different business models, full stop. Dollarama’s ability to offer rock-bottom prices is underpinned by two critical pillars: remarkably low operational costs and robust supplier-retailer relationships. While one might assume limited variety, exemplified by having only one option for ketchup or peanut butter, the reality is that the products are indistinguishable from those found in major grocery chains. This might appear counterintuitive, but the key lies in Dollarama’s dominance over supplier shelf space in its vast network of over 1,400 stores.

dollarama retail grocery
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Suppliers recognize the advantages of collaborating with Dollarama. They no longer need to contend for limited shelf space or engage in cutthroat competition with rival brands, making it an appealing proposition. The result is beneficial deals that ultimately trickle down to the consumer’s advantage. Suppliers can also sidestep concerns about how grocers may prioritize their in-house labels. Dollarama’s house-brand strategy is not strong.

With projections hinting at surpassing 2,000 stores by 2030, Dollarama Dollarama’s influence in the market is poised for substantial growth, including the sale of more food products. For consumers, Dollarama’s approach of providing only a single option for each product might initially appear limiting in a world that frequently values choice; having just one brand of ketchup or peanut butter may raise eyebrows. Nevertheless, this simplicity forms the core of Dollarama’s cost-effective strategy, resulting in competitive pricing.

Dollarama’s success, however, extends beyond its pricing strategy. It excels at maintaining minimal operational costs, with daily average staffing expenses capped at a mere $500. Its stores operate with efficiency and simplicity, unlike major grocery chains such as Loblaw, Metro, and Empire, which also function as real estate giants, potentially driving up overhead costs over time.

Furthermore, dollar stores like Dollarama bypass expensive advertising campaigns. These cost savings can be transferred to consumers through lower prices. When you spot Galen Weston on TV, you’re essentially covering the cost of those ads when shopping at Loblaw. In contrast, Dollarama shoppers enjoy the benefits of lower prices without the need to subsidize a celebrity-studded marketing campaign.

But let’s be candid: critics contend that Dollarama faces socioeconomic biases and challenges related to product quality and store ambiance. A visit to Dollarama might reveal an unpleasant odour reminiscent of a plastic manufacturing plant in Beijing. While that may be true in some stores, many consumers are willing to overlook it for the sake of their budgets. The reality is that Dollarama serves as a lifeline for numerous Canadians struggling to make ends meet.

Nevertheless, Dollarama is not without its challenges. Recent investigations have brought to light instances where Dollarama stores located near major grocery retailers are pressured to limit their product offerings. This practice is not unique to Dollarama and underscores broader issues within the retail sector. Addressing these concerns is imperative if we want to genuinely foster competitive pricing within the grocery sector, and Canada’s Competition Bureau should do so without delay.

Dollarama’s ascendancy is nothing short of remarkable. Its unorthodox approach challenges the traditional grocery store model, prompting a re-evaluation of what we value in our shopping experience. It serves as a reminder that different business models can yield different benefits, and sometimes, simplicity and efficiency can be the keys to success.

While the food elites may continue to dismiss the role of dollar stores, the reality is that dollar stores are making the market more competitive. The chain is opening 70 new stores this year alone. As Canadians wait for a knight in shining armour to bring more competition to the grocery sector, dollar stores are already doing so, silently and effectively, providing affordability where it is needed most.

Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

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