Dollarama has raised the price of many items in recent months: the Montreal retailer has finally followed its competitors, who have raised their prices amid high inflation, according to a report by an analyst at Desjardins Capital Markets.
The Montreal retailer’s prices have increased by an average of 6% since last November, estimates Chris Li, who followed a sample of around 280 items sold in stores.
Mr. Li believes the retailer is in catch-up mode, as the company let competitors go first. “Dollarama has been more active [dernièrement] in order to catch up with the price increases of competitors at the start of the year,” he says.
Within the sample of 280 products, Mr. Li listed 97 items whose prices have increased since April. At the time, the analyst had only identified 25. These adjustments would have been made while inflation reached a high not seen since January 1983. The consumer price index (CPI) in Canada rose 7.7% annually in May, according to Statistics Canada data.
A Dollarama spokeswoman said by email that the company has a policy of not commenting on financial analyst reports.
Last June, its CEO, Neil Rossy, reiterated that the company’s strategy was to let competitors make the first move when rising transportation and labor costs forced the whole retailers to revise their prices. “Our job is to make sure that our value relative to the market remains what it always has been or improves. »
Excluding groceries, Mr. Li estimates that items at Dollarama are 40% to 50% cheaper than at Walmart or Amazon. However, he notes that the gap for food is narrowing. In February, it was 6.3% cheaper there; the gap narrowed to 2.4% in July.
A “rational” market
In light of this data, the analyst believes that competition between retailers remains “rational”, which means that the large chains manage to pass on the increase in costs to their customers by raising prices and that they do not are not forced to erode their margins to attract customers to the store.
The analyst recognizes that the exercise he is doing has its limits. “Our comparison is not perfect, because several products are not perfectly identical. We have done our best to find comparable products with similar characteristics (perceived quality, size, brand, etc.). »
The catch-up exercise at Dollarama bodes well for comparable sales, a metric that is used to measure growth without taking into account store openings and acquisitions. The analyst thinks Dollarama could exceed its forecast for comparable sales growth of 4% to 5% in fiscal 2023 (ending at the end of January).
“We expect sales to be on a roll with strong footfall as consumers seek bargains in a high inflation environment, which will be offset by higher spending due to wage pressure. »
Introducing $5 Items
The Desjardins Capital Markets review was also an opportunity to take stock of the introduction of items at a price of $5. The new price range had been announced in March; the first $5 items hit the shelves at Dollarama in June.
It was the first time Dollarama introduced a new price range since the $4 maximum threshold in 2015.
“The supply of $5 products is still very limited, and it is too early to draw conclusions,” comments the analyst. We only found a few items in the range between $4.25 and $5, mostly in the health and cosmetics segment, like shampoo and body soap. »