Furniture, electronics, kitchen gadgets. People looking for bargains have always shopped Big Lots for that kind of merchandise -- now and then.
But now and then isn't often enough for the Columbus-based discounter. So the chain has added groceries -- to attract new customers and encourage longtime shoppers to visit more frequently.
"Five years ago, I wouldn't have predicted everyone getting into food," said Chris Boring, principal of Boulevard Strategies, a Columbus-based retail-consulting firm. "It's pretty low (profit) margin."
But everyone seems to be doing it. From Wal-Mart and Target to stores like Family Dollar and Dollar General, discount retailers of all sizes have expanded their grocery aisles.
"What we, along with others, like about the category is that grocery and consumables bring repeat business on a more-frequent basis than furniture or seasonal items," said Tim Johnson, CFO and senior vice president of Big Lots. "We like the foot traffic of what consumables bring."
The biggest retailer of them all, Wal-Mart, long has known the advantage that groceries bring. In the 1980s, when the retailer first began opening locations that included groceries and other services, it found that sales volumes at those locations averaged $1 million a week, five times the sales at its regular stores.
Seeing such growth in sales, other retailers have begun looking at groceries, too. Even a retailer as unlikely as Bed, Bath & Beyond has been testing specialty foods, said Matt Wilson, who covers retail for SBC Advertising.
"It's a good complement to their dominant single-serve coffee and SodaStream business, food-storage units, food scales, etc.," Wilson said. "It's the 'Beyond' of their brand. ... Customers get it."
Target also has been remodeling its stores in the past few years, increasing its grocery offerings by almost 50 percent. One reason, Boring said, is that online sales aren't yet diluting that category.
The advantage that brick-and-mortar stores have also can extend to their location. Some discount stores -- particularly dollar stores -- are in so-called "food desert" areas, poorer neighborhoods where convenience stores are really the only other alternative for buying food.
"Most convenience stores are notorious for having high prices," Boring said. "Dollar stores have locations that are more local to neighborhoods but also have low prices. So, someone shopping at, say, Target or Walmart might stop in a dollar store and pick up groceries to last the rest of the week until their regular grocery trip -- and they don't have to worry about exorbitant prices."
That's especially important to those on government food assistance, Johnson said.
To serve those consumers, Big Lots is aware that "there are certain categories you have to cover," Johnson said. "Things like bread, eggs, dairy-related." That's why a retailer that gets into groceries has to decide, sooner or later, whether to install coolers and freezers.
Big Lots has been studying that issue carefully in the past year or so. But such a move comes with risks.
"It is more difficult to execute from an operational standpoint," Johnson said. Dealing with food means that store managers have to be "very disciplined about controls." That means watching for expiration dates and moving old merchandise off shelves.
"The last thing we want is for our customers to find out-of-date stock on our shelves."
That's important, Wilson said, because discount stores don't necessarily have a reputation for offering food. "You have to double your effort to tell customers they can rely on products in this category."
Just making sure that the same food is in stock all the time is something that presents a special challenge to discounters, particularly those known for ever-changing array of merchandise.
To answer that concern, Big Lots has joined other retailers in introducing a "house" brand, in this case, Fresh Finds. It's a good way to help the retailer differentiate itself from the competition, Boring said, as is a move to carry smaller packages of food items.
"That appeals to smaller households and those who are budget-conscious," Boring said.
With so many reasons to go into consumables, it probably is no surprise that it has become the fastest-growing segment of the "value" retail industry over the past decade.
But the expiration date on that growth might be near.
As stores add grocery items, which by their nature have low profit margins, retail chains are expected to face increased difficulty making money.
And, with the pinch of the recession still present in many households, consumers still have a tendency to stick with the "must-have" grocery items. And that is likely to keep them headed toward the traditional grocery store and not the discounters, where they face the temptation of discretionary items.
"Food is a tough business to be in if you are relying on an impulse purchase from core customers who rely on you for something else," Wilson said. "Are you going to buy 2 percent milk at JCPenney? Probably not. In the end, (retailers) have to ask the hard question about adding food to their lineup: Is it just a push to increase sales by adding another category, or is it really a category customers give you permission to own?"
Distributed by MCT Information Services
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