How might COVID-19 impact dollar store sales, according to social mentions and sentiment?
Understand how social sentiment tracked by LikeFolio seeks to measure shifts in consumer behavior and sentiment for the discount retail industry
Learn how a few companies are experiencing an increased demand in sales because of the shift in consumer demand for discount stores during the COVID-19 pandemic
In the wake of COVID-19, consumers are being more frugal. According to LikeFolio analysis of consumer discussions on Twitter, mentions of “spending less money”, “shopping less”, and “trying to be more frugal” are up 8% in the last quarter versus the prior year (see figure 1).
FIGURE 1: CONSUMER DEMAND FOR FRUGALITY. Social mentions of "spending less money", "shopping less", and "trying to be more frugal" are up 8% in the last quarter versus the previous year. Source: LikeFolio.
A working study at Columbia Business School revealed how U.S. households are spending stimulus checks. Low- and middle-income level households are spending their checks primarily on nondurable goods like food, pharmacies, supermarkets, with few expenditures on durable goods like appliances and electronics.
The combination of frugality alongside demand for nondurable goods channels demand into a specific market sector: discount retailers.
Americans shopping for groceries at discount stores isn’t a new phenomenon. Consumers shopping at dollar stores (with enhanced offerings) has been increasing steadily since 2017. However, the number of consumers talking about shopping for groceries and other food items at dollar stores has risen to unprecedented new highs since March 2020, according to LikeFolio data (see figure 2).
FIGURE 2: DOLLAR STORE GROCERY SHOPPING SOCIAL MENTIONS SINCE 2016. Dollar
store grocery shopping social mentions surged in April 2020 with widespread
shortages at traditional grocery stores and many consumers temporarily
unemployed. Source: LikeFolio.
Smartphone location data from Sense360 confirms consumer visits to dollar stores are up significantly on the weekends (+20% year-over-year) and also during weekdays (between 5% and 15%), according to an article from Food Navigator USA.
Traditional grocery outlets have suffered from supply chain problems since the start of quarantine efforts in the United States, and the resulting shortages have given rise to an increased demand for essential items. With many consumers currently unemployed (30 million Americans filed initial claims for unemployment benefits since March), many companies providing low-cost alternatives have received a two-fold boost in patronage.
According to LikeFolio data, this shift in consumer behavior has prompted a noteworthy influx of consumer demand to discount retailers providing grocery items for purchase:
However, discount retailers without grocery options, like Five Below, Inc. (FIVE), exhibit a different trajectory. Below, we’ll look at how each name stacks up.
Grocery Outlet Bargain Market made its trading debut in June 2019 at $31. As of December 28, 2019, the chain operated 347 stores with the value proposition of a basket size 40%-70% lower than conventional retailers.
LikeFolio data reveals a continued uptick in consumer demand for GO amidst COVID-19 lockdown and prepping. Purchase Intent Mentions over the last 90 days are +78% higher than the prior year (see figure 3).
FIGURE 3: SOCIAL MENTIONS OF PURCHASES AT GROCERY OUTLET SINCE 2015. Social mentions of consumers shopping at Grocery Outlet on Twitter accelerated in early 2020 during COVID-19 related lockdown, building on significant growth established in 2019. Source: LikeFolio.
Grocery Outlet’s president confirmed a coronavirus-related surge in demand on the company’s earnings call at the end of March, specifically commenting on two key indicators supporting potential future growth:
1. The company is observing an increase in traffic and basket size.
2. New customers are entering the market. A growing number of consumers are signing up for item alerts.
Grocery Outlet’s most recent 20Q1 earnings report (May 12, 2020) confirmed continued growth in consumer demand: sales grew by more than 25%.
It'll be interesting to watch if new customers continue shopping at the discount retailer, as an increasing number of workers indicate coronavirus implications have impacted their personal finances (more than half of Gallup survey respondents).
On March 31, Dollar Tree withdrew its 2020 guidance due to uncertainty stemming from the nationwide quarantine in the United States. The company also announced that both the Dollar Tree and Family Dollar brands recorded same-store sales growth in the ongoing quarter (ending 5/2/2020). Household consumables and food were mentioned as areas of strength for both banners.
LikeFolio Purchase Intent data corroborates the business update provided by DLTR’s management team. The 90-day moving average of Purchase Intent Mentions is pacing +103% on a year-over-year basis (see figure 4).
FIGURE 4: DOLLAR TREE SOCIAL PURCHASE INTENT MENTIONS SINCE 2016. Dollar Tree’s Consumer Purchase Intent Mentions are up 103% from 2019. Source: LikeFolio.
However, this uptick in consumer demand for Dollar Tree is not reflected in the stock value: the stock is currently trading ~-25% lower year-over-year and -20% year-to-date. So, what’s going on?
On its last earnings report in March, Dollar Tree did not meet investor expectations for revenue and guidance. In addition, uncertainty remains about the supply chain/margins for it’s shifting product mix.
However, LikeFolio data suggests something may be going on in that the market potentially doesn’t know about yet: frugal consumers are hunting deals, and they’re turning to Dollar Tree.
Dollar Tree will report earnings for 20Q1 on May 28.
Purchase Intent data for Dollar General (DG), one of Dollar Tree’s largest competitors in the discount retail space, shows an even more impressive uptick in social mentions stemming from the coronavirus (see figure 5).
FIGURE 5: DOLLAR GENERAL SOCIAL PURCHASE INTENT MENTIONS SINCE 2016. The 90-day Moving Average of Twitter mentions of consumers shopping at Dollar General are charted in green above revealed significant year-over-year growth. Source: LikeFolio.
In early 2020, Dollar General’s Purchase Intent Mentions paced 178% higher than the previous year. This is an extremely positive indicator for long-term growth potential, especially as the company has established a commanding physical presence in the United States vs. peers, with 16,000 established stores (opening 1,000 stores per year over the past three years).
The strategic positioning of these stores not only appeals to the value shopper but also meets the need of rural consumers.
Around 75% of Dollar General stores are in towns with 20,000 people or less, making DG the town favorite grocer, general store, and big box retailer. Although DG’s year-over-year social demand growth has outpaced that of DLTR, the price of Dollar General stock has gained +40% in the past year and +11% year-to-date.
Dollar General will report earnings for 20Q1 on May 28.
While GO, DLTR, and DG are exhibiting increasing demand for groceries and essential Items, other discount retailers, like Five Below (FIVE), are not.
Even though FIVE is a discount retailer, the company is sitting in a much different boat than its peers. Why? Five Below closed all stores in response to the coronavirus pandemic and did not attempt to label itself “essential,”, even though the company does sell some food and drink items.
Purchase Intent data for Five Below highlights the relative weakness of discount retailers not selling essential items during the COVID-19 lockdown (the company continued to conduct business via online orders).
FIGURE 6: FIVE BELOW SOCIAL PURCHASE INTENT MENTIONS SINCE 2016. Five Below’s Consumer Purchase Intent Mentions are up 5% from the previous year. Source: LikeFolio.
FIVE’s +5% year-over-year gain in purchase intent looks particularly weak compared to other discount retailers, and mention volume is currently trending lower:
Five Below’s recent comparative weakness stems directly from its lack of groceries. LikeFolio will monitor purchase intent as stores continue to reopen to confirm if bargain hunters will return to Five Below, or if consumers will continue to favor discount stores with a consistent selection of essential grocery items.
Purchase Intent Mentions for Dollar Tree, Dollar General, and Grocery Outlet have been rising steadily since 2017 (see figure 7).
FIGURE 7: DISCOUNT RETAIL PURCHASE INTENT COMPARISON. Dollar Tree, Dollar General and Grocery Outlet are exhibiting a stark difference in demand trajectory verses Five Below. Source: LikeFolio.
The accessibility of essential items alongside a perceived “bargain” value proposition were the main drivers of a previously unforeseen influx of demand.
As an increasing number of workers indicate the coronavirus has impacted their personal finances (more than half of Gallup survey respondents), it'll be necessary to monitor if new customers continue shopping at discount retailers amidst economic strain.
As frugal consumers hunt for deals, retailers providing convenient one-stop offerings including grocery products are ideally positioned for retention. Those retailers without grocery offerings may not experience the same retained demand.
When looking at the impact of how COVID-19 has impacted these discount retailers, here’s a summary of how the social mentions, tracked by LikeFolio, are trending:
Supply chain issues for traditional grocers will slowly resolve in the months to come, but the full economic impact of the lockdown remains to be seen. With unemployment at record levels in the United States, discount retailers and value-oriented brands stand to win. Due to order picking and delivery costs, digital grocery orders are less profitable than traditional in-store shopping trips.
Discount retailers provide a smaller, convenient in-store offering (verses Target or Walmart), while simultaneously providing thrifty consumer savings. Retailers providing grocery options are attracting the highest levels of demand and stand to potentially retain consumers for the long haul.
Andy Swan is not a representative of TD Ameritrade. TD Ameritrade and LikeFolio are separate and unaffiliated companies. The views and opinions expressed in this article are are solely those of the author.
Social and consumer sentiment data should not be used alone when making investment decisions. Please consult other sources of information and consider your individual financial position and goals before making an independent investment decision.
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