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    Competitive Watch: Family Dollar To Offer More Groceries

    Discount chain wants to be destination for consumers' fill-in shopping trips.

    MATTHEWS, N.C. -- In an effort to carve out a niche as a "neighborhood convenience store without the convenience-store prices," discount chain Family Dollar Stores Inc. announced plans to substantially expand the food offering in its stores in the coming fiscal year, and begin installing machines capable of accepting food stamps.

    "To better meet our customers' frequent fill-in food-shopping trip needs, we intend to continue to enhance our food strategy," said Howard R. Levine, chairman and CEO of the Matthews, N.C.-based chain. Its grocery programs, among other initiatives, helped to improve sales for the fourth quarter and full fiscal year 2006.

    Among the food-related plans for the year ahead are:
    -- Expanding its cooler program to an additional 1,000 stores,
    -- Increasing its food assortment in approximately 1,300 stores, and
    -- Accepting food stamps in approximately 750 stores by the end of the year.

    The announcements came during a conference call during which Family Dollar officials said profits were $38.8 million in the fourth quarter ending Aug. 26, an increase of 33 percent over the same period last year. Sales rose 10.3 percent to almost $1.6 billion. The earnings, at 26 cents per share, beat Wall Street expectations of 23 cents, according to a Thomson poll of 19 analysts. The company attributed the increases to sales of food, apparel and electronics, including prepaid cellular phones and services.

    Although its customers have little disposable income, Family Dollar wants them spending a bigger share of that income at its stores. The strategy seems to be working. Family Dollar isn't seeing more customers, but its profits are going up because its shoppers are spending more per trip, the Charlotte Observer reported.

    Family Dollar officials said the upcoming changes are part of a plan that began two years ago to sell more groceries in its stores. While food generally has low profit margins compared with such products as apparel and house decorations, people buy food more often and it gets them in the door to explore other products, such as prepaid phones and clothing, said Stephanie Hoff, a retail analyst with Edward Jones.

    "What they're doing is to think a little out of the box as far as what dollar stores have traditionally sold," Hoff told the Charlotte Observer. "They're offering products that they think will be valuable, and obviously that's been wildly successful."

    Family Dollar spokeswoman Kiley Rawlins said accepting food stamps will increase food sales even more because many of the company's customers can only afford to buy groceries using the food cards, the newspaper said. "By not accepting food stamps, that's a whole transaction we've been missing," she said.

    Family Dollar is working to set itself apart from other companies, such as Wal-Mart, that are capturing a growing share of spending among low-income consumers.

    Levine said the company tries to choose neighborhood locations that are easy for customers to get to. "We want to create a shopping environment that allows our customers easy access where they can park right in front of the store and get in and out, yet still enjoy a competitive pricing environment," he said. "Customers have fixed on that, and that niche is one we've been able to grow up."

    The chain said it will also, in line with its ongoing Urban Initiative, continue to focus on driving better returns in existing Urban Initiative markets, begin to test price optimization and experiment with new store layouts.

    Family Dollar aims to open approximately 400 stores in fiscal 2007. It currently operates more than 6,100 stores in 44 states, ranging northwest to Idaho, northeast to Maine, southeast to Florida, and southwest to Arizona.

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