Discount Store Industry Analysis: A Retail Sector That’s Adapting AND Thriving

Developments in the discount store channel continue to make this one of the most exciting retail sectors to watch. 

In the following, we’ll update you on the channel’s sales and growth rates, explain how European discount strategies are shaping the U.S. market, and take a closer look at the initiatives shaping the channel’s future.

“Discounters are capitalizing on gains made over the past few years, with more and more shoppers coming to their formats due to being inflation-pressured,” says retail consultant Jack O’Leary, head of consulting, North America, for Flywheel Digital.

Before we dive into the details, let’s clarify what a discount store is.

What is a Discount Store? Two Major Types

Although the discount store channel includes a variety of store formats, O’Leary says two types dominate the market:

1. Food discount stores. Stores like these tend to offer a comprehensive grocery assortment at highly competitive prices, often with a robust private label presence. Big names like Aldi and Lidl, which both originated in Germany, are prime examples.

2. Dollar stores (or discount variety stores). The traditional American discount store model, commonly known as a dollar store, focuses on general merchandise and single price points. Well-known examples include aptly named retailers such as Dollar Tree, Dollar General, and Family Dollar.

Importantly, O’Leary points out that the lines between these subcategories are “increasingly blurring,” especially as U.S.-based discount variety stores modify their price points and augment their offerings with more food options. (More on that below.)

Global Discount Store Growth and Regional Dominance

Discount store retail is a significant global player, with the U.S. leading as the largest market at $128 billion in 2023 sales. 

However, Europe surpasses all other regions with an impressive $331.5 billion in 2023 and a projected compound annual growth rate (CAGR) of 4.8% through 2028.

Europe also tops the chart in discount grocery sales, with 20.9% in 2023 going to discounters.

How the European-Style Model Is Influencing U.S. Discount Retail Stores 

According to O’Leary, the maturity and success of the European-based discount store has prompted U.S. dollar stores to adopt what could be considered more European-style strategies. 

On top of that, the growing number of cost-conscious shoppers focused on grocery staples has also led to changes in dollar store formats.

Here are a few examples of how dollar stores are changing:

• Coolers for beverages, dairy products, and other items have become more common.
• A growing number of dollar stores are also selling fresh produce.
• Single price points are morphing into higher price point ranges. (Dollar General, for instance, has added 300+ items in 2024 that range from $1.50 to $7.) 

Meanwhile, grocery-focused discount chains with European roots like Aldi and Lidl continue to build more stores in the U.S. 

3 Strategic Initiatives to Watch

Looking to the foreseeable future, O’Leary points to three strategic initiatives that will likely drive the direction of the discount channel.

1. Catering to More Shoppers Through New Store Formats 

In a push to meet the needs of more shoppers, O’Leary says more and more discounters are introducing new store formats. 

For example, Netto Express, part of the Denmark-based Salling Group, is targeting urban shoppers by offering more convenient meal options. 

Similarly, Aldi Nord’s Aldi Urban banner in Poland is a smaller format store intended to get “closer in proximity to more consumers and service things like convenience needs at low prices,” says O’Leary.

2. Expanding Customer Services via Partnerships

Discount stores continue to leverage third-party partnerships to enhance offerings, in particular e-commerce services. 

Take Biedronka in Poland, for instance, who is partnering with Lola Market for rapid delivery services. Through personal shoppers, Lola Market handles the picking, packing, and order delivery.

A similar example in the U.S. is Aldi’s collaboration with DoorDash for nationwide grocery delivery. 

“The idea here is for these discounters to take something that’s very hard to do – e-commerce grocery delivery – and bring in a partner to help handle it for them,” says O’Leary.

3. Investing in Technology for the Sake of Customers AND Operations

Strategic investment in technology is also a crucial focus for discounters. 

Dollar Tree-owned Family Dollar, for example, is improving the interface of its app and in the process hopes to develop a comprehensive e-commerce experience. “There’s personalization capabilities going in here, more loyalty, and also eventually the opportunity to serve advertisements to consumers in the application,” says O’Leary.

But tech investments aren’t just for the customer. Dollar General is streamlining its logistics by partnering with Shelf Engine to roll out automated AI ordering technology for produce. O’Leary says the retailer plans to implement this across thousands of stores to improve operational efficiency. 

How Will These Developments Play Out? 

With dogged inflation driving more shoppers to discount formats, O’Leary says, “Discounters are not only capitalizing on gains made during recent years but are also investing heavily to secure future success.”

Innovative store formats, strategic partnerships, cutting-edge technology – initiatives like these offer a helpful glimpse of how this channel is responding to consumer pressure AND internal demands for more efficiency. 

Stay tuned to see how these developments evolve as inflation cools and discounters step back to evaluate the success of their strategies.

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