Does Dollar Tree Still Own Family Dollar in 2024?
In 2024, the answer is still a resounding yes. Dollar Tree continues to operate Family Dollar after acquiring the struggling discount chain in 2015 for $8.5 billion.
The blockbuster deal united two of the largest dollar-focused retailers under one umbrella entity. Together, Dollar Tree and Family Dollar make up over 16,000 locations across North America.
But why did Dollar Tree originally set its sight on Family Dollar? And how has the merger performed years later? Let‘s revisit the strategic rationale.
The Dollar Tree-Family Dollar Merger: A Winning Power Play
Dollar Tree has centered its business model around selling every product for $1 or less. This purity of mission helps the brand maintain extreme cost discipline and lean operations.
Family Dollar, meanwhile, had a wider assortment with price points up to $10. Though still discounted, the company struggled with declining same-store sales and increasing costs.
According to Dollar Tree CEO Rick Dreiling, acquiring Family Dollar would allow the company to:
- Expand its brick-and-mortar footprint rapidly
- Grow market share in the broader value retail space
- Increase purchasing scale and leverage over vendors
- Tap into Family Dollar’s customer base
- Introduce Dollar Tree’s profitable $1 price point into Family Dollar stores
The table below shows key metrics for both companies at the time of merger:
| Metric | Dollar Tree | Family Dollar |
|---|---|---|
| Total Stores | 5,367 | 8,206 |
| Sales Per Store | $1.5M | $1.1M |
| Same-Store Sales Growth | 2.0% | -1.8% |
| Operating Margin | 9.5% | 6.6% |
Although smaller in store count, Dollar Tree clearly held stronger financials. Family Dollar gave them an opening to rapidly expand by acquiring real estate and customers.
Fast forward to 2023 – did the strategy pay off?
Analyzing the Merger‘s Performance
Integrating two huge chains is an immense challenge. By many measures, Dollar Tree and Family Dollar are still working to capture the full potential from their blockbuster M&A.
According to recent financial filings, the combined company now has over 16,300 stores and delivered $28.5 billion in sales last year.
However, annual comparable same-store sales growth has been modest at best:
- 2016: 1.7%
- 2017: 2.9%
- 2018: 2.3%
- 2019: 2.2%
- 2020: 5.1%
- 2021: 2.8%
These figures indicate that store traffic and average ticket size have not accelerated significantly since merging entities. Family Dollar, in particular, is struggling to gain market share against ascendant discount rivals like Dollar General.
Efforts to renovate stores, expand private brands, and optimize merchandising have shown intermittent promise but execution has been inconsistent.
Clearly, Dollar Tree leadership envisioned achieving much faster growth by now. There are still valuable synergies left on the table.
What’s Next for Dollar Tree and Family Dollar?
In 2022, activist investor Mantle Ridge acquired a $1.8 billion stake in Dollar Tree and placed three board members. The hedge fund sees untapped potential after subpar post-merger results.
Mantle Ridge is now pushing for more extreme price differentiation between both banners. Among the changes:
- Dollar Tree to reinforce focus on products strictly priced at $1 with lean operation model
- Family Dollar to accelerate plans to add $1 price point merchandise in-store while also expanding into higher price points up to $5 across more categories
Essentially this would more clearly delineate the two chains to prevent self-cannibalization. Longer term, I believe Mantle Ridge envisions ultimately divesting Family Dollar if performance does not improve.
So while Dollar Tree still owns Family Dollar in an operational sense, the discount retailer seems to be on tighter leash to justify its existence within the portfolio.
2023 and beyond will prove pivotal in determining whether this powerhouse dollar store merger ultimately lives up to its potential. But until demonstrated otherwise, the enterprise continues working toward full integration.
