Dollar General takes greater slice of shrinking pie

Jun 05, 2014

What is a retailer to do when consumers are cutting back but its success depends on continued growth? For Dollar General, it means an increased focus on category management, planogram changes to highlight value purchases, a greater commitment to private label, and optimizing SKU assortment to either expand or cut back units based on customer demand.

In Dollar General’s earnings conference call earlier this week, CEO Rick Dreiling said, "As you look at the Nielsen numbers, they would actually tell you that the pie is contracting a little bit. And it’s hard to believe that people are eating less or using less detergent, but apparently they are at the end of the day. In fact, we actually have market research that talks about how people are trying to stretch one meal into two by adding more starch to the product."

Overall sales for Dollar General grew nearly seven percent over the last quarter with same-store sales increasing 1.5 despite the inclement weather that gripped the country for much of the period. The company reported customer traffic numbers and the average ring at its stores increased for the 25th straight quarter.

"Today, more than ever, given the economic environment that has lingered for quite some time, affordability has now become the focus of our core customer. What affordability means to our customer today is a tradeoff between price and quality that best fits their budget," said Mr. Dreiling. "At times, she is showing a greater willingness to compromise on quality or functionality to get a lower price point to stretch her money. We will never lose sight of our core customer and the trust that she places in us to help her stretch her household budget."

Dollar General, according to its CEO, made changes to 49 planograms to provide more affordable items across 90 percent of its departments. One example is its opening price point Smart & Simple private brand.

"Our customer recognizes that the brand is just as the name indicates and does not expect the product to be national brand equivalent like our portfolio of other private brands including Clover Valley, DG health and DG home," said Mr. Dreiling. "Smart & Simple allows us to further expand our product offerings and offer a good product at an opening price point that delivers affordability. This year alone, we will add approximately 40 new Smart & Simple products primarily across food, paper and home cleaning, including items from liquid dish soap to macaroni and cheese."

Is affordability more important to retail success today than it has been in the past? Are the steps currently being taken by Dollar General to achieve a competitive advantage sustainable in light of market realities?

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12 Comments on "Dollar General takes greater slice of shrinking pie"

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Dr. Stephen Needel

Maybe not to all retail success, but shoppers at dollar stores are certainly looking to pay a lot less, so for them, maybe affordability is a key. The steps DG is taking sound good to me; give their shoppers the products they want at a price they can afford.

Tom Redd

Affordability has always been a key to successful retail. Too many times we focus on today and forget the past of retail. Many retailers – in the earliest years – adjusted their mix and prices and store layouts to make sure the right items – in price and promo – met the eyes of the right shoppers at the right time. These elements of retail will never change and no metrics, reports, or studies that we consume like candy nowadays needs to prove that.

Retail is about the right offering, to the right audience, at the right price, and in what I call the “right light.” That “light” being across a specific channel, in a certain promo, etc. No omni needed for success when the right “light” or context is used.

Think reality like DG does, and do well in retail.

PS: Last night I officially became a grandpa. So my tradition will carry on…yes, you cannot get rid of a Redd in retail!


Tony Orlando
I have to deal with Dollar General next door to me, and it is really tough. They only have 2-3 employees working and their pricing is down and dirty. We have been working on our center store and are trying to adjust to match or beat their deals, which will hurt profits, no doubt. Consumers want food for next to nothing and, unless efforts are made to compete, we will continue to lose sales as Dollar General has a huge built-in advantage. The perishable part of my store pays the bills (barely), and I figure that we will sacrifice margins to gain the confidence of our shoppers. This, to me anyway, is important for our future as bargain shopping is here to stay and I would rather make 18-20% or even less than mark it down even further as a clearance item. Aldi’s is expanding right down the road, and 2 super centers are across the street from them in a very poor area, plus 2 Save-a-Lot stores in our area. In total, our county has added 7 Dollar Generals in under 2 years, all near supermarkets, which makes it real hard to build profits. All the gurus and consultants… Read more »
Frank Riso

Depending on your demographics, affordability is most important to the Dollar General shopper. I do think that since Dollar General is aware of the trends and under Rick’s leadership they will continue to serve their customers with the products they want and need, at good pricing.

Chris Petersen, PhD.

There is a “context” of how consumers shop. Consumers do not always need, nor can they always afford top brand quality for everything they purchase. Likewise, core customers of Dollar General don’t always shop at DG.

Shoppers are always making tradeoffs in price vs. quality within the context of the product itself, and how they will use it. Sometimes we only need or can afford something that is “good enough.” Good enough is better than nothing at all.

Dollar General has been genius in recognizing that best practices of category management and assortment strategies apply regardless of the brands or price points. DG’s growth and stats show that there is profit in being able to effectively merchandise the context of selling “good enough.”

Richard J. George, Ph.D.

The recession that began in 2008 has changed today’s customers forever. While the extent of the change is not that experienced by the generation that suffered through the “Great Depression,” nonetheless the impact is real and lasting. At first glance, the consensus was that Americans were suffering from “frugal fatigue” and spending habits would return to pre-recession levels. In fact, the opposite has occurred. Consumers are more savvy now than ever and have redefined value.

Into this space have entered (and expanded) the extreme value retailers, like the dollar stores, Aldi, and Sav-a-Lot. The “Smart & Simple” line provides Dollar General with a point of differentiation from these competitors which allows it to think like a brand and act like a retailer.

Ian Percy

“Growth” is overrated. That may still be a Wall Street obsession but it’s a dangerous one, I think. Concepts like “sustainability” and “profitability” are not synonymous with “growth” and over the long haul make for much better goals. Remember weed killer is nothing more than excessive fertilizer.

While I do wonder who the purchasing manager is at DG sometimes (who actually buys some of that stuff?), they have a good strategy as has been pointed out. Stretchy cords, cleaning cloths, pens, oven mitts, and my favorite “Eat More” candy bars form the iconic DG inventory, IMHO. I just count on them being there.

And…congrats to Tom on his first grandchild!

Steve Montgomery

The entire dollar store business model is built on two criteria – affordability and convenience. As many of their target customers have lost unemployment income, etc. the issue of affordability becomes even more paramount.

Dollar General’s efforts may help with its core customer, but those who are on the fringe might find them a less attractive alternative as the selection gets further away from brand names. Everyone wants value, but the definition varies by customer. Their target customers might be attracted to cheap, but those whom they were successful in attracting during the recession might find Walmart and Target a better place to shop.

Carol Spieckerman

I love the way Dollar General is executing against “affordability” and using it as a filter for multiple initiatives. Word choice matters, and affordability is something that can be tied to data (unlike terms like “value” which are quite subjective). I also like the improvements that Dollar General has made to its website.

Dollar General’s biggest opportunity lies in leveraging its massive physical scale and either expanding its online-unique offerings and building out a compelling site-to-store business, or partnering with digital platforms/brands that would relish the opportunity to tap into thousands of physical facilitation points.

Dave Wendland

To gain a competitive advantage and truly attract retail shoppers, I believe Dollar General must embody a mantra first taught to me by one of direct mail’s leading gurus from the 80s — “Repetition Builds Reputation!” In other words, if DG believes that assortments can be narrowed and value consistently delivered to its patrons, than the experience must be dependable and repeatable. That will then become the foundation for DG’s reputation.

Craig Sundstrom

“…people are trying to stretch one meal into two by adding more starch to the product.”

And there, in 16 words, we apparently have a profile of the typical dollar store customer; in years past, I would have thought – or at least hoped – that this would be a vanishing demographic, but it seems it is not. They should continue to do well (DG that is, not so much their customers).

William Passodelis
3 years 3 months ago

Walmart made price the key and the recession solidified that as truth for millions of Americans. I think that that reality will be maintained going forward for many consumers.

Mr. Orlando’s comments and observations are right on. Dollar General is positioned at the lower end and is able to fully take advantage of that. They are also fairly aggressive. They also seem to have very good and effective management, very astute and focused on their customer. They really know who their customer is and they also seem to know how to reach up towards what remains of the middle class to capture some of that market as well.


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