Family Dollar (FDO) is the smallest Dividend Aristocrat discount retailer, behind giants Wal-Mart (WMT) and Target (TGT). Family Dollar has a market cap of ‘just’ $9 billion and operates relatively small (compared to super-centers) discount retail stores in the US. When I last wrote about Family Dollar, I analyzed the company’s pending acquisition by Dollar Tree (DLTR).

The Dollar Tree acquisition of Family Dollar is expected to occur in the first quarter of 2015. This article will be slightly different than previous Dividend Aristocrats In Focus articles due to the pending acquisition. I will still look into Family Dollar’s operations and competitive advantage. Instead of analyzing the company’s future growth prospects, I will analyze its fit with Dollar Tree.

Business Overview

Unlike most Dividend Aristocrats, Family Dollar operates in only one main segment. The company does divide its operations into 4 sales categories.  The percent of revenue each category generated for the company in its full fiscal 2014 is shown below:

The Consumables category makes up the majority of Family Dollar’s sales. This is intuitive as shoppers tend to go to Family Dollar looking for low prices on every day goods.

Family Dollar operates 8,042 stores across the United States. The company has 58.11 million selling square feet and generated $10.49 billion in its fiscal 2015. The average family dollar is between 7,500 and 9,500 total square feet and has about 7,200 selling square feet.

Competitive Advantage

Family Dollar’s competitive advantage comes from a mix of convenience, brand recognition, and low prices. With 8,042 stores across the United States many potential customers find themselves close to a Family Dollar store. Family Dollar targets consumers who live 3 to 5 miles from their stores. The average Family Dollar Store has 7,200 square feet of selling space. The Family Dollar convenience strategy is similar to corner stores’ Walgreen’s store have 11,000 square feet of selling space on average. Family Dollar’s stores are just 65% as large as Walgreen’s. Family Dollar’s retail niche is shoppers looking for convenience and low prices close to home.