Five-Dollarama? Cost-conscious retailer plans to start selling some items for up to $5

A Canadian retail chain that made its name by selling things for a dollar is raising some of its prices to $5.

In its quarterly results on Wednesday, famously cost-conscious Montreal-based retailer Dollarama showed it is not immune to the inflationary pressures that every part of the economy is feeling right now by revealing it soon plans to sell items that cost up to $5.

At present, the most expensive items the chain sells cost $4, and most cost less than that.

"This will enable the corporation to maintain and enhance its broad product assortment and compelling value," the company said.

For low-income Canadians like Amber Cannon of Calgary, Dollarama is more than just a discount store; it's a grocery store, too.

Cannon, who has celiac disease and receives disability benefits, says she relies on Dollarama for a range of products, including any gluten-free items that are available.

As prices continue to rise in discount stores and elsewhere, Cannon says she's worried for those in similar or worse financial circumstances than her.

"I'm concerned that more and more people will go without meals," she said, adding that she's had to forgo meals to make ends meet.

Meaghon Reid, executive director of anti-poverty group Vibrant Communities Calgary, says her organization estimates that at least one in 10 Calgarians live in poverty.

And for them, even a $1 increase in prices could have a devastating impact.

"To a person living in poverty, it can spell the difference between a meal that night, the difference between making your rent that month, the difference between being able to even transport your child to school," she said.

Dollarama to pay out higher dividend as profits rise

The company, which has 1,421 stores across Canada, said that while the Omicron variant of the novel coronavirus hit its business hard over the busy holiday shopping season, on the whole it fared comparatively well — with sales of $1.22 billion, up from $1.1 billion this time last year, and a quarterly profit of $220 million, up from $173 million a year ago.

This was achieved "while navigating the ebb and flow of the pandemic's impacts on retailers and consumer shopping patterns and in the context of supply chain and inflationary pressures," Neil Rossy, Dollarama's president and CEO, said in a statement.

In the coming months, the company says it expects to benefit from a positive sales environment compared with the same period last year. However, it cautioned that supply chain and other inflationary pressures are expected to be felt more this year.

While the company benefited from opening 24 new stores during the quarter, existing stores also saw higher sales, with same-store sales growth clocking in at 5.7 per cent across the chain.

The company says its total volume of transactions rose by more than 10 per cent in the quarter, even as the average customer bill shrank by four per cent. That suggests customers were shopping more frequently but buying less with each store visit.

The strong financial performance gave the chain the confidence to hike its dividend to shareholders by 10 per cent. Starting now, it will pay out 5.53 cents per share, up from 5.03 cents per share previously.

Not the first time chain has increased price cap

This certainly isn't the first time Dollarama has increased its price cap on the products it sells.

While the chain once did sell goods for $1 or less, that all changed in 2009, when it added products at price points of $1.25, $1.50 and $2.

Doug Stephens, the founder of consulting agency Retail Prophet, says the recent news is part of a trend where dollar stores are offering a larger range of products and even venturing into clothing and small appliances.

"The question on the minds of dollar store executives is how do you continue to grow if you're putting a cap on your top price?" he said.

The move from Dollarama is a response to consumers increasingly looking for cheaper products, Stephens said, adding there still aren't many players competing on price with dollar stores.

"They still are remarkably cheap," Stephens said.

However, the expansion of dollar stores into more product categories also reflects how income and wealth polarization are forcing more Canadians to rely on dollar stores for their consumer needs.

"That has given dollar stores the license now to move into higher-priced categories of goods," he said.