When the economy struggles, many people don’t give up on things like luxury purchases and eating. Instead, they trade down to something that costs less.
“If you look at incomes under $100,000, we’re actually doing quite well there, which suggests that we’re getting some benefit from trade down, from things like full-service dining, casual dining, et cetera, McDonald’s CEO Chris Kempczinski shared during the chain’s second-quarter 2023 earnings call.
Consumers, McDonald’s CFO Ian Borden noted, also trade down within the restaurant.
“I would say the first one is that we are seeing some consumers who are kind of trading down from those more premium or higher-priced items in the menu to more core and value,” he added.
Dollar General shows sales growth
While many retailers have struggled, Dollar General closed the year by posting some strong numbers.
- Fourth-quarter net sales increased 5.9% to $10.9 billion.
- Fiscal year net sales increased 5.2% to $42.7 billion.
- Fourth-quarter same-store sales increased 4.3%.
- Fiscal year same-store sales increased 3%.
Source: Dollar General Q4 earnings report
The company also shared its full-year numbers.
“Fiscal 2025 net sales increased 5.2% to $42.7 billion compared to $40.6 billion in fiscal 2024. The net sales increase was driven by growth in same-store sales and positive sales contributions from new stores, partially offset by the impact of store closures. Same-store sales increased 3.0% compared to fiscal 2024, according to the earnings release.
Dollar General sees customers struggling
“Their financial situation has worsened over the last year, as they have been negatively impacted by ongoing inflation,” CEO Todd Vasos said during the chain’s fourth-quarter 2024 earnings call. “Many of our customers report that only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities.”
A struggling economy drives customers to Dollar General.
“Some of these negative dynamics will naturally correct as confidence and the economy pick back up,” GlobalData Managing Director Neil Saunders told CBS News in response to Vasos’ comments. “The unfortunate thing here is that this does not look like it will happen anytime soon.”
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During Dollar General’s most recent earnings call, Vasos, who has since retired as CEO, shared key news that speaks to the overall state of the economy.
“Customers across all income brackets continue to stress the importance of finding value as they shop, and we are meeting this need as we continue to grow penetration with households of all income levels,” he said.
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Dollar General expands its customer base
“If consumers are ‘trading down’ their meal sizes as well as their entire meal-out experiences, they’re likely doing the same on other fronts,” Motley Fool analyst James Brumley wrote.
That trend is reflected in Dollar General’s customer mix.
“Namely, they may be comparing prices on a variety of goods and finding Dollar General and Dollar Tree offer meaningfully better bargains than their nearby grocery store or even Walmart,” he added.
Attracting a broader customer base has been a key part of Dollar General’s turnaround plan, since its stock suffered a 32% drop after the retailer reported its second-quarter 2024 earnings and lowered its full-year financial outlook.
“The company’s struggles are largely tied to a weaker low-income consumer base and a tougher competitive landscape, which have made its growth path uncertain,” Investing.com reported at the time.
Vasos also talked about attracting customers “across all income bands,” during Dollar General’s first-quarter earnings call.
“While our core customer remains financially constrained, we have seen increased trade-in activity from both middle- and higher-income customers,” he said.
He noted that the chain has seen more spending on discretionary items and larger spending from new customers per visit.
“We believe these behaviors suggest that we are continuing to attract higher-income customers who are looking to maximize value while still shopping for items they want and need,” he added.
Related: Walmart makes in-store move to challenge Target
