Forget Wal-Mart. What's your dollar store strategy?

While big national players would appear to have an edge, some regional players also find a place in dollar stores. "They're a growing presence in our market areas and we have introduced some sizes that are more suited to dollar stores and reflect the space provided," says Daryl Thomas, chief marketing officer of regional snack marketer Herr's Foods Inc., Philadelphia. "They're certainly not going to have a traditional-sized snack foods section, so you have to look at their needs and adapt your product line. But they do realize there are regional preferences, and when they open a new store, they want to fit in and connect with that market."

In some cases, older national brands that have relatively little presence in the supermarkets and supercenters are finding a new lease on life in the dollar channel. Dollar stores, particularly Dollar General, have proven to be a strong channel for National Beverage Co.'s Faygo and Shasta brands, says Stan Sheridan, president of the Faygo unit. He says the combination of a recognized brand name and a competitive price have been keys for his business in the channel.

In many categories, dollar stores may offer only one of the major national brands alongside a smaller national value brand, regional player and/or private label , making the decisions based on who can give them the best deal or service, Bishop says.

"I think dollar stores believe consumers are less brand sensitive. So [for items] such as pickles and non-dairy creamers, they may only carry the Clover Valley line," he says. "Even though they carry the national brand of Pepsi, they also are carrying the Clover Valley [private label] line of soda products as a flanker."

While the dollar channel is getting more important to the food and beverage industry, the industry is becoming more important to the dollar channel, too, Wade says. What motivated Dollar General's move into household and personal care products about 10 years ago was the need to bring customers through the door more often for products they needed regularly , something the chain's original mix of apparel and hard goods wasn't accomplishing.

The strategy succeeded in kindling the growth of dollar stores, Wade says, and is in turn leading Dollar General in particular to now look at adding more perishable items, such as milk, cold cuts and produce, to further increase shopping trips.

Expansion into food also is helping dollar stores generate a bigger ring per customer, Bishop says, and making them a more formidable competitor for Wal-Mart supercenters.

"With the expansion into food, what the dollar store offers is price and convenience," he says. "Wal-Mart offers price, but it's hard to have convenience in a 200,000-square-foot store. People shop dollar stores because they have certain needs in mind during that trip, and that's what they're going to fill. Dollar stores don't generally have large transaction sizes. Prior to [adding large food sections], the average transaction size was $9.50. Now, with the market concept, they've been able to essentially double it."

An aging population plays into dollar stores' strengths, adds Wade. Retirees on fixed incomes will be value-conscious, but they won't necessarily want to trudge through massive supercenters to get the best deals. "With a dollar store, you pull into the parking lot and you're about 20 feet away, in a lot of cases," he says. With a supercenter, shoppers need to walk five times more just to get to the front door."

"People who are going to dollar stores will continue to go to dollar stores," Bishop sums. "As dollar stores expand what they offer, [those same] people will buy more of their products there, and the stores will begin to take business away from supermarkets and supercenters."