Dollar Tree-Family Dollar: Threat to Convenience Stores?

Combo claims "leading discount retailer" title with 13,000-store network

Published in CSP Daily News

Dollar Tree Family Dollar (CSP Daily News / Convenience Stores)

CHESAPEAKE, Va. & MATTHEWS, N.C. -- Calling it a "transformational opportunity," Dollar Tree Inc. CEO Bob Sasser announced an $8.5-billion merger agreement under which Dollar Tree will acquire Family Dollar Stores Inc.

Chesapeake, Va.-based Dollar Tree currently operates 5,080 stores in 48 states and five Canadian provinces. Matthews, N.C.-based Family Dollar currently operates more than 8,200 stores in 46 states. When the deal closes, Dollar Tree will become a leading discount retailer in North America, with more than 13,000 stores in 48 states and five Canadian provinces, sales of more than $18 billion, and more than 145,000 employees.

As reported in a 21st Century Smoke/CSP Daily News Flash, the combined company will operate under both retail brands.

Sasser also said that the team-up will "provide consumers greater value, convenience and choice," which begs the question: Is the massive store network a threat--or any more of a threat--to a convenience store channel that has mostly kept the dollar store channel at arm's length, regarding it as a marginal competitor, an orange to the c-store apple?

"Throughout our history, we have strived continuously to evolve and improve our business," Sasser said. "This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression, and importantly, positions Dollar Tree for accelerated growth. … The acquisition of Family Dollar is consistent with our vision to be the leader in value retailing."

Howard R. Levine, chairman and CEO of Family Dollar, who will remain with the company and report directly to Sasser, said, "For more than 54 years, Family Dollar has provided value and convenience to customers. Dollar Tree also has a rich history of providing great value to customers, and together, as one company, we can provide more customers with even greater value and convenience."

The rationale for the deal, according to Sasser, is that the two chains offer complementary across fixed- and multi-price point business models and leverages complementary merchandise expertise.

Dollar Tree is a leading national operator of fixed-price point stores, selling everything for $1 or less, and Family Dollar is a leading national operator of multi-price point stores providing value-conscious consumers with a selection of competitively priced merchandise in convenient neighborhood stores. Dollar Tree's assortment consists of a balance between consumable merchandise and variety/seasonal merchandise. Family Dollar's assortment consists primarily of consumable merchandise and home products.

"By offering both fixed-price and multi-price point formats and an even broader, more compelling merchandise assortment, we will be able to provide even greater value and choice to a wider array of customers," said Sasser.

He continued, "This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint. We plan to leverage best practices across both organizations to deliver significant synergies, while we accelerate and augment Family Dollar's recently introduced strategic initiatives. Combined, our growth potential is enhanced with improved opportunities to increase the productivity of the stores and to open more stores across multiple banners."

In recent years, Family Dollar has added beer, wine and tobacco, has enhanced its food and grocery offering, and offers Redbox DVD rental kiosks chain-wide. Meanwhile, rival chain Dollar General has also added tobacco and beer and enhanced its food and grocery offering, and it is testing gasoline.

Keywords: 
grocery, M&A