Dollarama's CEO highlights competition with grocery retailers while reporting strong Q2 earnings growth
Dollarama Inc.’s food selection has grown well beyond traditional checkout items like candy and gum, yet CEO Neil Rossy maintains that the company is “not in the grocery business,” despite keeping an eye on the sector.
According to BNN Bloomberg, Rossy explained on a Wednesday call with analysts that food is “just one small part” of Dollarama’s merchandise, while acknowledging competition from other retailers.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there,” Rossy said when asked about Dollarama's food offerings and competitors in the space.
Over the past decade, Dollarama has expanded its food section to include staples like bread, cereal, rice, and pasta, often priced lower or on par with supermarkets. As consumers search for deals, this expansion has aligned with demand.
However, competition in the discount segment has increased, with Loblaw Cos. Ltd., Canada’s largest grocery chain, testing new ultra-discount No Name stores in Windsor, St. Catharines, and Brockville, Ontario.
These stores are positioned as 20 percent cheaper than other discount retailers, including No Frills, and achieve lower prices through smaller store footprints, limited chilled products, and an extensive offering of No Name merchandise.
Rossy dismissed suggestions that Dollarama is trying to compete with supermarkets but acknowledged that grocers are on his radar. “All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he noted.
Rossy declined to specify how much of Dollarama’s sales overlap with Loblaw or the food category in general. He emphasized that the variety of products Dollarama offers is its true strength, rather than just grocery items.
“What makes Dollarama, Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” Rossy said.
Dollarama’s broad selection of products contributed to its second-quarter profit of $285.9m, up from $245.8m in the same period last year, as sales rose 7.4 percent. The retailer reported $1.56bn in sales for the 13-week period ending July 28, compared to $1.46bn the previous year.
Comparable store sales, a key metric for retailers, increased by 4.7 percent. Although the average transaction size fell by 2.2 percent, traffic rose by 7 percent, as noted by RBC analyst Irene Nattel.
Nattel informed investors that these results indicate “solid demand as cautious consumers focus on core consumables and everyday essentials.” Analysts attribute this behaviour to slow reductions in interest rates and high prices for key goods, which continue to weigh on household budgets.
Canadians have increasingly sought deals, switched to more affordable brands, and cut back on luxuries during challenging economic times.
Rossy observed, “When people feel squeezed, they tend to shy away from discretionary, focus on the basics. When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
Dollarama is not only drawing in the average Canadian seeking savings but also wealthier customers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama... When times are tougher, they’ll consider the extra five minutes to go to the store next door,” Rossy added.
