Dollar General prototype focuses on fast, fresh and fit

Dollar General will be rolling out a new prototype for all its stores in 2016 with attention on speedier checkouts and a greater focus on perishables and health & beauty.

On the company’s second-quarter conference call last week, CEO Todd Vasos said the prototype will strive for a more customer friendly shopping experience.

"The consumer will be able to and have faster, more convenient checkout, an attribute that is a high priority for our core consumer," said Mr. Vasos. "We have value engineered the design to be capital efficient and easier to operate for our store teams."

A second focus will be on expanding cooler penetration across store bases to emphasize perishables and help moms find quick meal solutions or fill-in items. Dollar General has found a basket with a perishable item is nearly 50 percent higher than the chain average. The CEO told analysts, "This is a big opportunity that we know how to capitalize on, as we have already increased the cooler count on average by just over 50 percent since 2008."

Dollar General coolers

Photo: Dollar General

According to Dollar General’s financial documents, consumables overall reached 75.7 percent of revenues last year, up from 63 percent in 2004.

Finally, Mr. Vasos, who replaced longtime CEO Rick Dreiling in June, noted that more consumers are coming to Dollar General for their health and beauty needs. Based on the company’s customer insights, offerings will be expanded across segments such as hair care, cough & cold, over-the-counter medicines, skin care and nail care. Mr. Vasos added, "We are well positioned to capitalize on this trend given our brand offerings and price relevancy. Our ongoing affordability initiative will be front and center with the new fresh approach."

Dollar General reported a solid second quarter with earnings rising 12.3 percent on a 2.8 percent comparable-store increase. Profits topped expectations but sales fell short, in part due to rainy conditions earlier in the quarter in Texas and Oklahoma.

On the investor call, the company said the chain continues to benefit from consumers trading down to Dollar General while its core low-income consumer, while bolstered by the better job market and low gas prices, remains somewhat cautious. Said Mr. Vasos, "It takes her a little longer to start spending because she has to feel confident that what she’s seen is sustainable in her budget."

BrainTrust

"I’m amazed at the lure of food for retailers of all types. I know food is a trip magnet, but it’s not very profitable. Still, given that Aldi seems to think it can expand with fresh and perishable offerings, it makes sense for Dollar General to go that way as well."

Paula Rosenblum

Co-founder, RSR Research


"Traditional supermarkets have in many cases become large convenience stores but are burdened with larger footprints and heavy inventories, while dollar stores are much more nimble on both counts."

Mark Heckman

Principal, Mark Heckman Consulting


Discussion Questions

Are quick fill-ups on perishables and health & beauty how Dollar General should be positioning itself for the future? How do you see dollar stores evolving and what channels will they potential take share from?

Poll

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Paula Rosenblum
Paula Rosenblum
8 years ago

I’m amazed at the lure of food for retailers of all types. I know food is a trip magnet, but it’s not very profitable.

Still, given that Aldi seems to think it can expand with fresh and perishable offerings, it makes sense for Dollar General to go that way as well. Family Dollar is already there (except for the speedier checkout).

I confess that I’ve popped into Family Dollar for “quick fill-ups” on paper goods. But I want the brand names. I think I’d be cautious to go too far into private label.

It’s funny … I wrote a piece in Forbes on Aldi, and I said that to me it was just like a dollar store. A couple of German readers went a bit over the top, telling me I didn’t understand that Aldi is completely different and it is going to change the way Americans buy groceries. Seems like we’re already there.

Ryan Mathews
Ryan Mathews
8 years ago

Differentiation and innovation are the keys to retail sustainability. Better to reinvent yourself before a crisis than to realize too late that you have been pursuing the wrong strategy.

Done correctly, the new Dollar General approach ought to work, at least in the short term. The “dollar” channel is choked with chains and independents whose value proposition seems to be, “cheap over choice,” i.e., all that matters is price.

By listening to its shoppers (who according to Mr. Vases appear to be all women — might want to check that assumption) Dollar General ought to be better positioned than its competitors to service what will be, over time, an expanding segment of the total customer base.

Mark Heckman
Mark Heckman
8 years ago

As Dollar General evolves through consumer research they will become increasingly relevant to the shopper and as a threat to traditional supermarkets. Traditional supermarkets have in many cases become large convenience stores but are burdened with larger footprints and heavy inventories, while dollar stores are much more nimble on both counts.

As a consequence, many traditional supermarket chains are designing and building smaller stores and in the process are preparing to collide with smaller fresh stores, dollar stores, convenience stores and other smaller specialty food formats.

For the dollar store channel, the key going forward is having the answer to the question: “At what point does a dollar store become a small-format supermarket and lose its price identity?”

As the dollar channel looks to attract new shoppers by adding perishables, meal solutions, etc., it will be challenged to remain priced as dollar stores are expected to be. Their continued success depends heavily upon finding a variety and pricing balance, improved store layout and shopper experience. The good news for Dollar General is that Mr. Vasos appears to understand those concepts very clearly.

Steve Montgomery
Steve Montgomery
8 years ago

The dollar store is becoming more like the local superette of old, minus the meat department. Customers of all economic strata are looking for ways to handle their fill-in grocery needs. Dollar General’s new positioning is providing one additional alternative to fill that need.

Food may not provide the margin but it does drive trips. Plus 50 percent bigger baskets, even at the lower margins food may have, should contribute nicely to the gross margin line.

Ed Rosenbaum
Ed Rosenbaum
8 years ago

The dollar stores appear to be setting up to challenge the traditional stores in the battle for the almighty dollar, either paper or plastic. Maybe it would be better to work on their overall image to the general buying public. Yes, faster checkout is important. But so is a clean store (who wants to buy perishables from a dirty store?). Also important is a staff willing to assist with a smile rather than a scowl. Clean up their image and better trained staff are going to be what puts the “dollar” business in a better position to lure in more customers with higher spending potential.

Anne Howe
Anne Howe
8 years ago

Dollar General can make an impact in health and beauty faster than it can in food, IMHO. Why try to compete with every other retail format by making food the trip driver? If shopper tracking shows an increase in HBA purchases on trips, why not focus on a differentiator to drive the shopper conversation?

Richard J. George, Ph.D.
Richard J. George, Ph.D.
8 years ago

Absolutely! In my recent research on the food attitudes and behaviors of Millennials (18 to 34), the findings indicated that 28 percent of this generation shopped for groceries in a dollar store within the past 30 days. The primary channel that dollar stores take share from is the regular full-service supermarket. Such formats often referred to as the “big middle” or more pejoratively as the “black hole” suffer from these value discounters on the one end and the upscale (fresh, organic, customer-focused) retailers on the other end.

Dollar stores promise and deliver on low price and the introduction of perishables; health and beauty products will take additional share from formats with no positive point of difference.

Regarding the demographic profile of dollar stores, I am reminded that some consumers need to save money on groceries. However, all consumers like to save money.

Camille P. Schuster, Ph.D.
Camille P. Schuster, Ph.D.
8 years ago

Quicker checkout times are always appreciated by consumers. Listening to what consumers are looking for while shopping is important. Those consumer needs have to be balanced with the capability and cost of fulfilling those needs. Health and beauty is a good first step because perishability is similar to other packaged products. Fresh food requires a different set of requirements for the supply chain and in-store monitoring. That may be more of a challenge.

If they are able to keep the treasure hunting idea of not knowing what products will be available on a given day and the price point, they keep their point of differentiation. If they lose the treasure hunt idea and change the price point, then they lose their identity and become another discount store without their point of differentiation.

Craig Sundstrom
Craig Sundstrom
8 years ago

H/B, fine; perishables, no. The typical dollar store I’ve seen is a cinderblock box with about 15 square inches of backroom space, no HVAC beyond an A/C unit on the roof, and one person at the checkout…how they would handle perishables—outside of dumping pre-pack in a cooler—is a mystery.

vic gallese
vic gallese
8 years ago

It is a good move, considering how slow C-Stores have been in answering this call.
The main question will be in execution: location of merchandise in-store and price.

Insult pricing will not capture the fill-in customer.

Michael Day
Michael Day
8 years ago

Dollar General is in good shape with this direction. A lot of their growth over the past 5-7 years has come at the expense of Walmart. Shoppers not wanting to deal with the big box hassles, etc., wanting convenience and to get in-and-out, get their shopping done fast, etc. Expanding their cooler penetration to emphasize perishables only adds to the customer attraction here (especially if they can at least come close to WM’s prices).

A really interesting thing here is their use of Market Basket Analysis to help drive strategy: “Dollar General has found a basket with a perishable item is nearly 50 percent higher than the chain average.” Not enough retailers yet understand how valuable this data can be, how much of an impact Market Basket Analysis can have on driving the right business decisions and growth.

Matt Talbot
Matt Talbot
8 years ago

I thin that as Dollar General becomes an established name for beauty/health products, shoppers will want to buy food at the same time, simply because of convenience. Clearly, data has proven that consumables account for the majority of Dollar General revenue.

Considering the data: “a basket with a perishable item is nearly 50 percent higher than the chain average,” Dollar General would be wise to emphasize their selection of perishables. However, there are concerns that tag along with the idea to make stories/aisles colder. Some shoppers may rush to leave the frigid air, and become less likely to shop further. Thus, Dollar General will have to find the happy medium between emphasizing perishables with cooler air, and not making shoppers uncomfortable because of the drop in temperature.