Dollar General’s Strategy, 5 Things to Watch
If you find yourself shopping at your local dollar store more and more you are not alone. In 2020 Dollar General recorded its 31st year of consecutive same store sales growth. After a slight decline in 2021 Dollar General’s same store sales are up again, increasing by 4.3% in 2022 with total revenue increasing by 10.6% to reach $37.8 billion. If you are curious about what is driving Dollar General’s impressive growth then consider these five elements of its strategy.
1. The right locations. Dollar General focuses on locating its stores in small rural communities which often have less than 20,000 citizens and it is often the retailer with the highest number of store openings each year. Dollar General held that title last year and with over 1,000 planned openings in 2023, it will have more new stores than any other retailer this year in the United States. With that number of new stores its no wonder that Dollar General has more than double the number of stores than Walmart and Target have combined.
Source: CNBC
But as dollar stores continue to proliferate across the United States, they have come under scrutiny. Citizens within small town as well as local governments say that dollar stores are a barrier to full service grocery stores locating there. "In cities, it is common to find dollar stores clustered by the dozen within certain neighborhoods. In rural towns, they typically locate near the only grocery store, and often succeed in wiping it out," said a report published by the Institute for Local Self-Reliance. "One might assume that the dollar chains are simply filling a need, providing basic retail options in cash-strapped communities. But the evidence shows something else. These stores aren’t merely a byproduct of economic distress, they are a cause of it."
2. The right store size. Dollar General stores are small, coming in at a little more than 7,000 square feet. That is much smaller than the average Walmart store that is a little more than 175,000 square feet. Dollar General has said in the past (2017) that it only costs $250,000 for it to open a new store. Locating stores away from high demand urban locations as well as having smaller stores also helps Dollar General to keep its real estate costs low.
3. New store concepts. In October of 2020 Dollar General announced it was opening a new store concept called Popshelf. At Popshelf you can find party supplies, home goods, inexpensive gifts, seasonal décor, arts and crafts and toys. These stores have merchandise starting at a higher price point than Dollar General stores. Shopping at a Popshelf you can find goods for $5 or less and by selling merchandise at a higher price point Popshelf brings in customers that make more money, between $50,000 and $125,000 a year while Dollar General’s customers make $40,000 a year or less. Popshelf customers are also younger.
You can also find a selection of Popshelf merchandise in a select number of larger Dollar General stores. Dollar General originally planned to open 1,000 Popshelf stores by 2025 but due to today’s challenging retail environment in the United States, Dollar General is unsure if it will meet that target. “The fact that we have such great value across a lot of these categories gives our customers at Popshelf an opportunity to really treat themselves at a time where they may have a difficult time doing that in other locations,” said Dollar General’s chief merchandising officer Emily Taylor.
The average Popshelf store is supposed to bring in sales between $1.7 million and $2 million each year. These stores are also expected to be more profitable than Dollar General stores. “We believe the product pops off the shelf and really brings itself to life without us really even having to do much with it,” said Tracey Herrmann, senior vice president of channel innovation at Dollar General.
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4. Groceries. Dollar General is rolling out a larger selection of grocery items to its stores. This includes the 65,000 cooler doors it installed in its stores last year. Perishable food has been doing particularly well at Dollar General, generating the fastest growing comparable sales growth in the first half of 2022. By the end of 2023 Dollar General plans to sell fresh produce in 5,000 stores with plans to extend this offering to 10,000 stores over time. “A key highlight here is that sales of consumable products rose while sales of non-essentials, like seasonal products, were weak. Basically, budgets got tight for the company's core customer, but they didn't give up on Dollar General; they simply shifted their spending at the store,” says The Motley Fool.
Selling groceries is a way for retailers to drive frequency of visits and its one of the reasons why Walmart went into groceries after its start as a general merchandiser. Target is also doubling down on its food and beverage category knowing that people still need to eat and if you can get customers in by having a selection of groceries then maybe they will stay a while longer and buy higher margin goods.
5. Value for money. For some time now the discount segment of the retail industry has preformed well. With 58% of Americans living paycheque to paycheque stores like Dollar General have become more appealing. One of Dollar General’s fastest growing categories is merchandise priced at $1.00, even though it sells goods that cost more than that. Customers are also buying more of Dollar General’s private brands as a way to save money. “We continue to see customers shift spending to more affordable options, including our private brands, which represent more than 20% of our total sales within consumables. Private brand growth, both in absolute dollars and penetration, was the highest in the fourth quarter [of 2022],” said Jeff Owen, Dollar General’s CEO.
With record levels of inflation Dollar General is also attracting a wealthier customer, one that makes over $100,000 per year. “Income brackets above our core customers [are] shopping with us, underscoring our belief that our value and convenience proposition resonates with a broad spectrum of customers,” said Owen.