Velveeta revives as young and poor shop dollar stores for groceries

Thu Feb 5, 2015 6:55am EST
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By Anjali Athavaley

NEW YORK (Reuters) - Anielle Troyan, a call center worker in New York, shops at discount retailers such as Family Dollar for items like soap and detergent as well as groceries like Kraft macaroni and cheese and small-sized condiments.

It's "expensive to cook for one," she said. "I'm 25, I'm poor, I'm usually going to buy what's cheapest."

Customers like Troyan are one reason why Kraft Foods Group Inc KRFT.O reversed course after considering stopping the sale of single-serve packages of Velveeta cheese sauce, which wasn't moving in traditional grocery stores. After another look at the numbers, Kraft found that shoppers on tight budgets at dollar stores were gobbling up Velveeta sauce in the affordable small size, and the food got a new lease on life.

The fall and rise of Velveeta shows how companies such as Kraft, General Mills Inc (GIS.N: Quote) and Campbell Soup Co (CPB.N: Quote) are following shoppers into dollar stores, which carry a host of private label and brand name products, typically priced between $1 and $10. As an improving U.S. economy still leaves some middle class customers tumbling towards the poverty line, food companies are searching for growth where lower income consumers shop.

"We're in the business of feeding all American families, and that's where consumers are going," said Tom Lopez, vice president of growth channels at Kraft.

Packaged food sales were flat in 2014 as people increasingly avoided the brands typically found in the center aisles of grocery stores in favor of the fresher food found on the perimeter. But in other types of stores, such as dollar, drug and club, sales are growing faster than grocery store sales, prompting companies to expand distribution.

Dollar stores flourished during the recession and remain in the spotlight: Family Dollar shareholders in January approved the sale of the company to Dollar Tree Inc (DLTR.O: Quote) for about $8.5 billion in cash and stock and rejected a $9.1 billion all-cash offer from Dollar General, citing antitrust concerns.

An aging population is also driving the push by packaged food companies into dollar stores. General Mills says it’s seeing more baby boomers at dollar stores looking for smaller quantities, so it expanded its snack offerings there to include the Fiber One brand. Sales in dollar and drug stores rose 8 percent last year, company officials said.   Continued...

Price tags and a stack of Kraft Foods Inc. "Velveeta Slices" and "Singles" can be seen in a supermarket in New York April 29, 2008. REUTERS/Lucas Jackson