Holding Review: Dollarama

Last updated on February 23, 2024

Dollarama was founded by third-generation retailer and Canadian entrepreneur, Larry Rossy. It all started in 1992 with one store, in Matane, Quebec and quickly grew over the next two decades to become a household name and shopping destination for Canadians from coast to coast. Dollarama today is a recognized Canadian value retailer with well over 1,000 locations, led by Neil Rossy, fourth-generation retailer, and member of Dollarama’s founding management team.

Dollarama aims to provide customers with a consistent shopping experience and compelling value, offering a broad assortment of general merchandise, consumables, and seasonal items. All stores are corporately owned and operated and are conveniently located in metropolitan areas, mid-sized cities, and small towns. Products are available in individual or multiple units at low, fixed price points.

Company Value Proposition?

As the largest Canadian discount retailer in terms of number of stores, Dollarama has proven resiliency, increasing profitability, and positive same-store sales growth every year since 2009. Given that the United States has double the dollar store saturation that Canada has, Dollarama has lots of room for expansion.

Dollarama’s margin accretive product mix and historical new store success will allow it to maintain the highest margins in its peer group. Dollarama owns ~90% of the Canadian Dollar and Variety Store market share. This has created substantial brand awareness and a customer reach moat, as the next closest competitor is DLTR, with ~7% market share.??

Investment Thesis?

Qube purchased Dollarama because of its strong market share and high operating margins. Dollarama is expected to open 60-70 stores per year for the next 10 years and is now beginning to break into the Central American market. The company is positioned to outperform other dollar stores and retailers, given its well established and highly profitable sales mix.?

Qube Risk Profile: Lower

An investment into Dollarama is low risk because of their low-priced products, commanding market share and customer reach across Canada. Given Dollarama's diversified product mix, there's virtually no macroeconomic scenario that would keep customers away from the dollar store. Discounted goods will always be in demand, hence the low risk.

Recent Material Events?

Dollarama proposed a $2.5M settlement in their class action lawsuit over products with eco fees. Dollarama did not properly display the price of products subject to eco fees and charged a total price or eco fee higher than displayed. This settlement allows for individuals to receive up to a $15 gift card if they bought eligible products within the 2019-2023 period.

Current Portfolio Recommendation?

Continue to hold Dollarama in Kaleo because of its large market share and strong product mix.