Can Dollar General afford to price it out with Walmart?
Dollar General reported lower than expected sales in the most recent quarter, sending its share prices sharply lower in trading yesterday. Among the factors affecting its performance was food deflation, price competition from Walmart and other retail rivals as well as cuts to the government’s Supplemental Nutrition Assistance Program (SNAP) for low income Americans.
Speaking on yesterday’s second quarter earnings call with analysts, Dollar General CEO Todd Vasos said deflation had hit key categories such as milk (down eight percent) and eggs (down 50 percent). While Dollar General had succeeded in gaining market share in the most recent quarter, Mr. Vasos said the chain was taking aggressive steps to address price cuts made by Walmart and others.
“Our focus is on the consumables categories to drive traffic in units. For example, we have taken retail price reduction on average of 10 percent on about 450 of our best selling SKUs across 2200 stores representing nearly 17 percent of our store base,” he said (via SeekingAlpha).
“We are being strategic as we look to proactively address our pricing actions across our store base,” Mr. Vasos added. “These targeted price investments are in high household penetration, fast turning categories. At the same time, we are investing to communicating these price breaks to our consumers through incremental store signage, ad circulars, digital coupons, email and digital media.”
Earlier this year, Dollar General announced plans to add 1,900 new locations to its store count over this and the next fiscal year. More recently it announced it was relocating 40 stores to real estate that previously housed Walmart Express locations.
- Dollar General’s (DG) CEO Todd Vasos on Q2 2016 Results (Earnings Call Transcript) – SeekingAlpha
- Food stamp cuts, lower food prices weigh on dollar stores – Reuters/CNBC
- Dollar General grows where Walmart closes – RetailWire
- Dollar General invests in major expansion – RetailWire
- Millennials with money go shopping in dollar stores – RetailWire
DISCUSSION QUESTIONS: Can Dollar General afford to be in an intensified price competition with Walmart? Where do you see opportunities for Dollar General to grow its business?