No. of Recommendations: 9
The shift to consumables seems like they want to become a convenience store, a little closer to home and a little quicker in and out. It's a less profitable line of business, but I guess if they are pursuing that change, it's because they have been losing more profitable non-consumable market share.
Actually, no. The major dollar store chains have (somewhat counterintuitively) seen moving to a higher mix of consumables as a strategic goal for a long time, despite the lower margins. They have been allocating more and more square footage to it. The goal there is increasing footfall and frequency of visits: a larger fraction of the population visits, and those who visit do so more often. A lower margin on some stuff is a good deal if it means (a) you're selling to that person more often, and (b) they buy some higher margin stuff as well some of the time. Like a loss leader, but without the loss. Within that, there will be cyclical variation as well. Sometimes the pop sells better, sometimes the bottle openers.
That strategic goal obviously has to be taken in the context of the other metrics, which are pretty uniformly in the wrong direction at the moment. During years that the consumables strategy is working you should see top line doing fairly well even as gross margin fades a little bit, and that is not the situation right now. But it would really have to be evaluated over a cycle to get a reliable answer.
Jim
