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NEW YORK –-- Even as dollar stores have seen more success in recent years due to the economic recession, they are also facing more competition from formats such as Walmart's Neighborhood Market stores. As a result, chains like Family Dollar have added food, national brands, and now "sin items" such as cigarettes, wine and beer, according to Forbes.
These items, in addition to generating higher profit margins than food, are "always a great traffic driver," said Michael Keara, equity analyst for investment firm Morningstar.
Family Dollar added cigarettes to approximately 6,000 of its more than 7,3000 stores over the summer to expand merchandise that generates the most frequent purchases. The North Carolina-based chain accomplished this through a partnership with McLane, the largest distributor of tobacco products in the U.S., according to the report.
"We know our customer over indexes in tobacco use," Bryn Winburn, public relations manager for Family Dollar, told Forbes. "Our goal is to be relevant to our customer and meet her needs every day… Our target customer is the one that previously had to purchase those products elsewhere."
The company now carries all major cigarette brands at what Winburn stated are competitive prices. Its average shopper is a female head of household in her mid-40s who earns less than $40,000 a year, which matches a common profile of the everyday U.S. smoker, according to the report.
"Tobacco has obviously gotten a lot of great traction," stated Family Dollar CEO Howard Levine during a recent earnings call.
President Michael Bloom added that the company is "very pleased with the attachment rate on tobacco purchases."
Dollar General, based out of Goodlettsville, Tenn., which does not offer cigarettes, tested liquor sales at a limited number of stores starting in 2010. Since then, it has expanded beer and wine sales to 4,100 of its 10,374 stores.
"We want to be able to provide [our customers] with the products they expect to find at a general retailer, grocery or convenience store," Dan MacDonald, senior director of corporate communications for Dollar General, told the news outlet. "As Dollar General expands into a greater volume and variety of food and beverage offerings, we are implementing cooler expansions in many stores."
More dollar stores may also add "sin items" in the future, according to the Forbes report.
"Any time you’re selling liquor or tobacco, it’s another reason to go into the store," said Keara, noting that such items are "addictive repeat purchases."
For the complete Forbes story, click here.