The key to being extreme is all in the limits.
It's a willingness to test boundaries and push beyond expectations. If you're a surfer, you focus on the next wave and then, just at the right moment, drop-in for an exhilarating ride. If you skateboard the halfpipe, you point your board toward the sky, grasp an edge, twist and, for a split second, soar a little higher than most. Whatever your sport, make it extreme and you'll attract a lot of attention. So it's no surprise that the concept of extreme-value retailing seems to be doing just that. It's pushing the limits and targeting a unique customer -- families with annual incomes of $35,000 or less.
It's a model that emerged with dollar stores -- Family Dollar and Dollar General; today, it's a model that's attracting new attention. Analysts say because of the cost efficiency of these retailers, the return on investment is extremely high, cash flow is plentiful and growth has been rapid. In fact, one Wall Street analyst predicts that the extreme-value sector will reach total sales of $19.4 billion this year.
When you look at the growth of the two major extreme-price players, it's no surprise food retailers are beginning to build parallel models. In 1997 Family Dollar had sales of $2 billion with 2,970 stores. For 2001, those sales grew to $3.7 billion with 4,303 units. Dollar General experienced similar growth, generating $2.6 billion in 1997 with 3,360 stores and earning $5.3 billion for the fiscal year ended February with 5,540 units.
The extreme-value format seems to be one of convenience and easy access. The format is small and often located in low-rent real estate vacated by tenants that have gone out of business. Shoppers will find stores concentrated in both rural and urban markets. All offer a bare-bones, no-frills, rock-bottom-pricing strategy targeted to those on low and fixed incomes as well as ethnic shoppers. The product mix may be selective, but given their success this demographic is choosing value over selection. These retailers are focused on a narrow niche and are squeezing nickels and dimes out of the Wal-Marts of the world. It's interesting to note that those stores neighboring a Wal-Mart continue to thrive.
What extreme-value retailers represent in general merchandise, price-impact retailers represent in food. Price-impact retailing also is on the rise in food retailing. Last year A&P introduced its Food Basics format from Canada, and Eagle Food Centers opened its Foodco. More notably, the food wholesalers have been rolling out various versions of the format. As part of diversification away from conventional grocery retailing, Fleming has its Food4Less, Rainbow and Yes!Less banners. Nash Finch has Buy n Save, a limited-assortment format, and Wholesale Food Outlet, a price-impact format targeted to Hispanics. Supervalu is investing heavily in its Save-A-Lot (see Page 12).
While these price-impact formats have concentrated on merchandising food, Supervalu is about to up the ante by testing a new hybrid that combines general merchandise from its acquisition of an extreme-value retailer, Deal$ -- Nothing Over a Dollar. The format will be a mini-supercenter. Ironically, as Supervalu begins testing this concept, Dollar General has begun testing perishable foods. Let the extreme-retailing competition begin and let's see who is going to soar just a little higher!
