Consumer News: There’s growing evidence that consumers are feeling more financial pressure

Dollar General CEO says financially strained consumers are watching every penny

By Mark Huffman of ConsumerAffairs

• Dollar General CEO Todd Vasos says persistent inflation and volatile fuel prices are squeezing the companys low-income customers.

• Shoppers are visiting stores more often but purchasing fewer items during each trip, a pattern associated with financial distress.

• Consumers earning more than $100,000 are also shopping at Dollar General more regularly as they look for lower prices.

Dollar General CEO Todd Vasos is offering a sobering assessment of the American consumer: Low-income households remain under intense financial pressure, while a growing number of higher earners are also searching for bargains.

Speaking during the discount retailers second-quarter earnings call, Vasos said Dollar Generals core customers are still employed and have seen some income gains. But those gains are being swallowed up by persistent inflation and volatile gasoline prices.

The consumer obviously is strained, Vasos told analysts. He said gasoline prices approaching or exceeding $4 a gallon put additional pressure on household budgets, particularly among Dollar Generals lower-income shoppers.

The strain is showing up in how people shop. Customers are coming to Dollar General more frequently but spending less on each visit, Vasos said.

Instead of making large trips to stock up on food and household supplies, consumers are buying only what they need for the next few days. Vasos said customers are watching every penny because they are uncertain about what the following week may bring.

That behavior can be a sign that households are managing their purchases around paychecks, government benefits or the remaining money in their bank accounts. Smaller, more frequent purchases may help families control immediate spending, but they can also prevent them from taking advantage of lower unit prices on larger packages.

Financial pressure spreads to higher earners

Dollar Generals observations are not limited to its traditional low-income customers.

Vasos said the company continues to attract middle- and upper-middle-income shoppers, including households earning at least $100,000 a year. Those customers initially visited Dollar General only occasionally, but they are now shopping there on a more regular basis.

They are also buying more than groceries and household necessities. The company said higher-income customers are purchasing seasonal merchandise, toys, home products and other discretionary goods.

The trend suggests that concerns about the cost of living have spread beyond the lowest income groups. Even consumers with relatively high salaries appear to be comparing prices more carefully and shifting some purchases to discount stores.

Dollar Generals more than 2,000 products priced at $1 or less have become especially important. Its Value Valley assortment, consisting of more than 600 rotating $1 products, posted comparable-sales growth of more than 16% during the quarter. The company plans to expand its $1 offerings during the fall and holiday shopping seasons.

A warning signand a business opportunity

The consumer pressure has been good for Dollar Generals sales. The retailer reported that second-quarter net sales increased 5.2% from a year earlier to $11.3 billion. Same-store sales rose 3.5%, including a 2% increase in customer traffic and a 1.5% increase in the average transaction.

Net income climbed nearly 34% to $550.3 million. The company raised its full-year forecast and now expects net sales to grow between 4% and 4.3%.

The results present a contradiction: Dollar General is performing well partly because many of its customers are not.

Its sales provide only one view of the economy, since the chain disproportionately serves rural communities and households with modest incomes. Still, its extensive customer base and more than 21,000 stores give the company a close-up view of day-to-day consumer behavior.

The picture described by Vasos is not one of collapsing demand. People are still working and spending. But they are becoming more cautious, buying in smaller quantities and increasingly choosing stores and products based on price.