December 4, 2014 3:51 pm
Updated: December 4, 2014 4:31 pm

Are groceries coming to a dollar store near you?

Dollarama is seeing higher sales, benefiting from the introduction of higher priced items.

Deborah Baic/The Canadian Press

Could the country’s largest dollar store operator, Dollarama, be preparing to roll out grocery aisles across its 917 stores (and counting)?

No. At least, that’s according to Dollarama’s public comments.

“We have no intentions of changing our product mix,” Neil Rossy, the discount chain’s head of merchandising, said Thursday on a conference call with analysts.

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Experts and others who follow the company closely could be excused for questioning as much. Last week, Montreal-based Dollarama applied to join United Grocers Inc. (UGI), a group that buys food in bulk for grocery stores like Metro, Longo’s and Overwaitea banners.

“We joined UGI basically for one reason alone: To take advantage of the greater buying power of the group,” Rossy said.

As most Dollarama shoppers can attest, the discount stores offer a wide selection of inexpensive snacks made by national brands. Some locations also sell a small selection of food items like cans of soup.

The added scale of joining the purchasing group will help the chain save on those products, which helps pad its bottom line, and perhaps allow Dollarama to pass some of those savings on.

Still, pressure to offer a more diverse food selection may be building.

Dollar Tree looms

Dollar Tree, a U.S.-based chain, has designs of quintupling its Canadian network over the next few years. The chain has expanded to about 200 stores north of the border, and has ambitions to hit 1,000 over the long term.

“Dollar Tree has accelerated its new store openings over the past two years,” analysts at Canaccord Genuity said in recent research note.

Dollar Tree’s U.S. locations are known for selling an assortment of supermarket items, such as frozen and packaged foods.

Room to grow

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Dollarama is pursuing its own growth agenda, opening 54 stores year to date. Store management has indicated it expects to open between 70 and 80 locations annually across the country for the next several years, eventually hitting 1,200 stores.

Is there sufficient demand from Canadian shoppers for more no-frills dollar bazaars selling inexpensive household products, kitchen accessories, seasonal decorations and other inexpensive goods?

Yes. Industrial Alliance Securities, a financial research firm in Montreal, estimated earlier this year there’s capacity for 2,400 such stores – read: plenty of room to grow.

MORE: Dollar stores in expansion mode as more Canadians feel cash pinch

That was evidenced again on Thursday when Dollarama reported sales growth at established stores of 5.9 per cent. The rate is amongst the fastest among all Canadian retailers, and shows consumers are making return trips — and making bigger purchases when they do.

“We believe there remains ample runway for the company to open new stores,” Canaccord’s analysts said.

Whether food sales provide a greater contribution to that growth in the future isn’t clear yet, other than saving Dollarama some money.

“We joined for that reason, and only that reason,” Rossy said. “If there are other benefits over time, they’ll be icing on the cake.”

© 2014 Shaw Media

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