- Discount chains such as Lidl or Dollar General have more flexibility to deal with supply chain issues.
- These stores stock fewer items and sell more private label products.
- This means fewer products to keep in stock and more flexibility to switch manufacturers.
The global supply chain network is on its knees and retailers around the world are scrambling to keep shelves stocked as the holiday shopping season approaches.
Experts say empty shelves and long lead times should be a guaranteed part of our winter shopping this year. However, some stores, namely discount chains, might be less vulnerable to pressure due to their unique business models.
Aldis, Lidls, Dollar Generals, Dollar Trees, and to some extent Costcos around the world stock a large amount of own-branded products and have a limited number of Product Storage Units, or SKUs, in their stores. This approach cuts costs and streamlines supply chains.
At the heart of the dollar store or discount chain grocery business model, trading costs are kept as low as possible in order to keep prices low for the buyer. This means that these stores have far fewer types of products than you would find in your typical Walmart supermarket, for example.
In normal times, buying less in bulk gives these stores more bargaining power with suppliers, but this setup also has its advantages during the ongoing supply chain crisis: these stores have a smaller assortment. items to fear being in stock and probably fewer suppliers to manage, something the CEO of Lidl in the UK and Ireland reported in a recent interview.
By not being a store of everything, discount chains have more flexibility in exchanging items. Dollar General has spoken of this advantage in recent earnings calls. As prices have risen over the past two quarters, the retailer has said it has an opportunity to cut items most affected by inflation.
And just as shoppers don’t care if the assortment changes, they wouldn’t be shocked to see bare shelves, said Dave Marcotte, longtime retail and supply chain expert. at Kantar Consulting, in a recent conversation with Insider.
“Shoppers don’t go to dollar stores to have an experience… They don’t expect to see full shelves, and when they come in and see two to three feet of holes in the shelves, it doesn’t affect them. “, did he declare. said, adding: “If they don’t match what they’re looking for, that’s okay too.”
Marcotte said shoppers usually make dollar or discount stores their first port of call, if the item they want is there and they can get it cheaply, fine. . Buyers depend on these stores for discounts rather than a large assortment.
Then there is the private label aspect. Discount chains stock large quantities of private label products, as does Costco through its Kirkland line, which gives them greater flexibility to switch manufacturers without the consumer noticing.
“Buyers don’t know who the real manufacturer is,” Marcotte said. “The actual workmanship behind it can be anything as long as the quality is there… they don’t feel like they’re being traded.”
While private label manufacturers still face the same supply chain challenges, discount retailers have more flexibility to shop by selling fewer national brands.
However, it is not all easy. Dollar stores in particular are among the largest importers of goods from Asia, as is Costco, making these stores particularly vulnerable to current freight supply chain issues.
Plus, discount stores have less room to raise prices without the consumer noticing, which Dollar Tree was forced to do last month.