Family Dollar Expands Ready-to-Eat Offerings

MATTHEWS, NC-Family Dollar Stores Inc. is in the process of resetting stores to expand its food strategy, which is designed to bring customers in more often. Coolers are now installed in 4,400 of the company’s more than 6,300 stores, and will be in 5,000 by year-end.

The strategy, which commenced in 2005, is now being expanded to a second stage, which includes more quick-preparation food and ready-to-eat meals. Those sections are now in about 2,000 stores, and Howard Levine, chairman and CEO of the locally based chain, told analysts during a conference call, “we’re encouraged by the early results.”

While food traditionally has lower margins than other merchandise, Levine said, “it has higher velocity and turnover.” The company’s “Treasure Hunt” merchandise sales, which include apparel and seasonal products, have higher mark-ups to offset low margins on food while also differentiating Family Dollar from its competitors.

The transition to new store schematics “creates temporary disruption among consumers,” Levine acknowledged. While that contributed to a softer-than-expected January and February, he believes it will improve financial performance in the long term.

As stores are re-merchandised, the company is slowing its new store growth. It opened 83 units and closed 16 in the second fiscal quarter of this year. It expects to open a total of 300 this year and close 45, which compares with the addition of about 350 new units in 2006.

Net income for the 14-week quarter ended March 3 was $90.5 million, up from $54.5 million for the second quarter of 2006, which included just 13 weeks. Results for the second quarter of 2006 included a non-recurring litigation charge of $45 million, associated with a jury trial having to do with store managers’ who had been classified as hourly rather than salaried workers.

Among the several initiatives now underway is a program to decrease store manager turnover. “We’re focusing a lot of resources on this, and it is significantly lower than historical levels, even in urban markets,” Levine said.

The company has five “concept renewal lab stores,” in which it is testing fixtures, layouts and other features. Some of the results are beginning to make their way into new and existing stores. In addition, a “store of the future” project, which integrates technology with operations, is being developed, and the technology is expected to be underway in 1,000 stores by year-end.