Dollar Tree is switching to a premium range. / Photo: Shutterstock
Raising prices as high as $1.25 was just the beginning for Dollar Tree.
The discounter is making a major effort to expand its price range, switching to $3, $4 and even $5 items, as it sees tremendous opportunity in higher prices — particularly in groceries and beverages.
Chesapeake, Va.-based Dollar Tree announced its plans at its annual investor conference last week, reporting that it had successfully transitioned its entire lineup from $1 to $1.25 more than a year ago (a move the company dubbed BTD or Breaking the Dollar) has paved the way for further price increases.
“The hard part is done,” Dollar Tree CEO Rick Dreiling told investors Wednesday, according to a transcript from financial services site Sentieo. “The jump to $1.25 was painful, but it’s over now and it’s time we capitalized on it.”
It doesn’t take an economist to understand that a retailer can make more money by charging more for their products. But Dollar Tree executives said the move to multiple price points goes beyond that, allowing the company to sell a broader range of goods, including national brands, proteins and larger pack sizes. Additionally, the retailer said its research shows Dollar Tree shoppers are purchasing these items elsewhere. So why not try to get some of those sales?
The transition to multiple price points has been in the works since 2019, when Dollar Tree tested an initial selection of its “Dollar Tree Plus” offerings. This test expanded to 2,500 locations by the end of last year and is expected to be available in 4,300 of Dollar Tree’s more than 8,000 stores by the end of 2023.
While the initial product mix was heavily weighted towards seasonal, discretionary items, Dollar Tree now sees the potential to gain more market share in the grocery space with the new price range.
The hard part is done. The jump to $1.25 was painful, but it’s done now and it’s time we capitalized on it. — Rick Dreiling, CEO of Dollar Tree
The retailer tested selling branded bread, which shipped directly to the store and retails for $3. Plans are to expand the rollout to additional $400 Tree locations by the end of the year after reporting “high double-digit sales” for the item. As bread sales increase, there will be different brands and vendors, as well as multiple price ranges, depending on the region, Dollar Tree said.
In May, Dollar Tree began selling branded ice cream at $5 a case in 1,400 stores and plans to offer the ice cream at 2,800 locations by the end of the fiscal year.
Richard McNeely, Dollar Tree’s chief merchandising officer, said at the conference that ice cream sales have had “very positive initial results,” adding, “It’s now on track to be the most productive freezer door we have.” .”
Ice cream also becomes a hit for Dollar Tree, with a 7-pound bag costing $2.
“We were about to lose the ice program at $1.25,” McNeely said, noting that Dollar Tree ice cream was sold in 5-pound bags. “It was a custom order. The seller did not want to make the item. They increased the price and we had nowhere to go. Incidentally, ice cream is in the top 50 every week. It’s a key item for us, the customer loves it and now it works for $2.”
Even as the company moves to multiple prices, Dollar Tree said its “opening price point” will remain its core range and that it is eyeing 300 to 400 items that could be discounted to $1.
The retailer said it now brings in data and analytics consultants to determine the best pricing range — something it didn’t need when everything in the store was $1 or $1.25.
“The most exciting thing is the grocery market, a $500 billion market, and we’re less than 1%,” noted McNeely. “And $52 billion is available to us for $2 and under. And from $2.01 to $5 there is another huge market untapped for us. So that’s where we’re going first. And that is our future.”
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