CHARLOTTE, N.C. - Family Dollar Stores Inc. plans to offer more groceries in its stores and begin accepting food stamps, a move aimed at making the North Carolina-based discount chain a lower-priced competitor to convenience stores.
Through adding more perishable food to the traditional dollar store product mix, Avondale Partners analyst Patrick McKeever said Friday the strategy may grab customers who are looking for quick shopping stops between larger grocery trips.
That convenience is a way to set Family Dollar apart from "big box" stores like Wal-Mart, which also compete for low-income customers, McKeever said.
"A consumer goes to Wal-Mart to buy food in a stocking-up trip," McKeever said. "They are not going there to just buy milk, a bag of potato chips and orange juice."
Family Dollar, based in Matthews southeast of Charlotte, has 6,100 stores in 44 states.
Howard Levine, Family Dollar's chief executive, said the idea is to offer low-cost items in a convenient shopping environment.
"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 told The Charlotte Observer.
The move to add more groceries has been two years in the making.
In order to accept food stamps, Family Dollar must sell milk. That means refrigerated cooler cases must be installed - something Family Dollar has done in 3,800 of its stores so far.
"Extending the product mix with a limited assortment of refrigerated goods and dairy items should drive incremental sales volume for the dollar store segment," said Edward Jones retail analyst Stephanie Hoff in a research note.
In fiscal 2007, which began late last month, the company says it will increase its food assortment in 1,300 stores and accept food stamps in 750 stores. It will also install coolers for perishable goods at an additional 1,000 stores.
The company also plans to increase its clothing assortment and experiment with new store layouts.
The addition of food stamps should further boost food sales because many of the company's customers can afford to buy groceries only by using food cards, Family Dollar spokesman Kiley Rawlins said.
"By not accepting food stamps, that's a whole transaction we've been missing," she said.
The news comes on the heels of the company posting a better-than-expected 33 percent jump in quarterly profit Thursday.
Net income rose to $38.8 million, or 26 cents per share, in the fiscal fourth quarter that ended August 26, from $29.2 million, or 18 cents per share, in the year-ago period. Sales rose 10.3 percent to almost $1.6 billion.
Family Dollar shares closed up 73 cents, or 2.56 percent, to $29.24 Friday on the New York Stock Exchange. That was just off the stock's 52-week high of $29.90 set Sept. 20.