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Dollar Tree Market experiments with grocery sales

Updated: March 30, 2010 - 6:08 am

Posted: March 26, 2010

By Philip Newswanger

Dollar Tree Inc. has unveiled a new store, Dollar Tree Market, that sells groceries as well as baked goods.

The concept portends a trend toward traditional neighborhood grocery stores that are smaller than the average supermarket, but larger than Dollar Tree's typical store size.

Dollar Tree is testing the concept with this Chesapeake store.

If the store succeeds, property owners may be lining up at Dollar Tree's door with contracts.

The store, which opened March 22 in a former Circuit City electronics site at 4107 Portsmouth Blvd., is 23,000 square feet, according to an article in The Virginian-Pilot.

The store is double the size of the average Dollar Tree store and will carry a variety of products, from meat and fruit to housewares and baked goods prepared on site.

This is the latest in a string of experiments for Dollar Tree, which has made a name for itself - as well as profits - as the No. 1 retailer selling goods for a dollar, though it sells many products for more than a dollar.

In 2006, Dollar Tree installed freezers and refrigerators in 240 of its stores and began selling cold food. Company officials said then that in those stores sales had grown by an average of 5 to 6 percent compared with a 1 percent increase in sales for stores open at least a year.

"They have been in the food business for a long time," said Bob King, a real estate broker with Harvey Lindsay Commercial Real Estate.

"Family Dollar and Dollar General - they are all offering food," said King, who specializes in leasing retail.

King, who owns Dollar Tree stock, said, "You don't need wide aisles to succeed. I don't think you need a 100,000-square-foot store, let alone a 50,000-square-foot food store. You tailor the food store to your neighborhood.

"If it turns back to a neighborhood market, I think a lot of people would cheer that on," King said. "The trend is in place, and Dollar Tree wants to get in the game. I think it's fortunate they are a local company."

Landlords and Realtors would cheer on Dollar Tree's expansion of a new store, King said.

"The Dollar Tree Market is a natural progression for a company that has increased its food offering of nonperishable items in recent years," said Chris Rouzie with Thalhimer, a member of the Cushman & Wakefield Alliance.

"The grocery business provides relatively low margins, but the additional traffic should help drive sales of their general merchandise," said Rouzie, who specializes in leasing and selling retail space primarily on the Peninsula.

"Dollar Tree will have to be selective in how they grow the concept because grocery-anchored shopping centers have grocery restrictions in their lease.

"However, as grocery stores relocate or close during this economic downturn, there should be plenty of opportunities to consider," Rouzie said.

"I think it's a good thing they are willing to test new concepts and at the same time not wait too long to pull the plug if it does not work," said Ed Kimple, another real estate broker specializing in leasing and selling retail space for Thalhimer, primarily on the Southside. "It would seem this concept could use some of the same purchasing and distribution channels that they currently utilize so well."

Brokers could benefit if Dollar Tree grows this brand, Kimple said.

"However, in our market they do most of the real estate in house - they don't use brokers," Kimple said. "It would certainly be good for the local shopping center owners if they grow the concept."

Neither Rouzie nor Kimple own Dollar Tree stock, though Kimple said he wished he did.

Dollar Tree stock has risen to a high of $60 from a low of $40 over the past 52 weeks. nib