Listen to the Story
Dollar General is the largest discount retailer in the United States by the number of stores, with 18,190 stores located in 47 states as of February 25, 2022, with the greatest concentration of stores in the southern, southwestern, midwestern, and eastern United States.
Dollar General offers a broad selection of merchandise, including consumable products such as food, paper, and cleaning products, health and beauty products, pet supplies, and non-consumable products such as seasonal merchandise, home decor, domestic, and basic apparel.
Dollar General’s merchandise includes national brands from leading manufacturers and its own private brand selections with prices at substantial discounts to national brands. Dollar General offers customers these national and private brand products at everyday low prices (typically $10 or less) in Dollar General’s convenient small-box locations. Dollar General has a EDLP business model.
Convenient store formats, locations, and a broad selection of high-quality products at compelling values have driven Dollar General’s substantial growth and financial success over the years. Dollar General is mindful that most of its customers are value-conscious, and many have low and/or fixed incomes.
As Dollar General works to provide everyday low prices and meet its customers’ affordability needs, it remains focused on enhancing its margins through effective category management, inventory shrink reduction initiatives, private brands penetration, distribution and transportation efficiencies, global sourcing, and pricing and markdown optimization.
Business Model of Dollar General
Dollar General’s long history of profitable growth is founded on a commitment to a relatively simple business model: providing a broad base of customers with their basic everyday and household needs, supplemented with a variety of general merchandise items at everyday low prices in conveniently located, small-box stores. From 1990 through 2020, Dollar General achieved 31 consecutive years of positive same-store sales growth.
Dollar General’s long-term operating priorities are: 1) driving profitable sales growth, 2) capturing growth opportunities, 3) enhancing position as a low-cost operator, and 4) investing in diverse teams through development, empowerment, and inclusion.
Dollar General’s key performance indicators (“KPIs”) include same-store sales, average sales per square foot, and inventory turnover.
- Same-store sales are calculated based on stores that were open for at least 13 full fiscal months and remain open at the end of the reporting period.
- Average sales per square foot are calculated based on total sales for the preceding 12 months as of the ending date of the reporting period divided by the average selling square footage during the period.
- Inventory turnover is calculated based on the total cost of goods sold for the preceding four quarters divided by the average inventory balance as of the ending date of the reporting period, including the end of the fiscal year, the beginning of the fiscal year, and the end of each of the three interim fiscal quarters.
How does Walmart make money: Business Model & Supply Chain Strategy
Compelling Value and Convenience Proposition
Dollar General delivers highly competitive prices in convenient locations and an easy “in and out” shopping format, creating a compelling shopping experience that distinguishes Dollar General from other discount retailers as well as convenience, drug, grocery, online, and mass merchant retailers. Dollar General has a EDLP business model.
Dollar General’s slogan is “Save time. Save money. Every day!”. Dollar General’s ability to effectively deliver both value and convenience allows it to succeed in small markets with limited shopping alternatives and in larger and more competitive markets. Dollar General’s value and convenience proposition is evidenced by the following attributes of its business model:
- Everyday Low Prices on Quality Merchandise: Dollar General offers everyday low prices on quality merchandise is supported by its low-cost operating structure and strategy to maintain a limited number of items per merchandise category, which helps Dollar General maintain strong purchasing power.
- Convenient Locations: Dollar General’s stores are conveniently located in a variety of rural, suburban, and urban communities. Dollar General seeks to locate its stores close to customers, which helps drive customer loyalty and trip frequency.
- Time-Saving Shopping Experience: Dollar General strives to provide customers with a highly convenient, easy-to-navigate shopping experience. Dollar General’s small-box stores make it easier to get in and out quickly, and its digital tools and offerings help drive even greater convenience and additional access points.
Dollar General’s Merchandise
Dollar General offers a focused assortment of everyday necessities, which helps to drive frequent customer visits and key items in a broad range of general merchandise categories. Dollar General’s product assortment allows its customers to address most of their basic shopping needs in one trip.
Dollar General offers a wide selection of nationally advertised brands from leading manufacturers. Additionally, Dollar General’s private brand products provide options to purchase products of comparable quality to national brands and opening price point items, each at substantial discounts to the national brands.
Costco’s business model of Customer Exclusivity
- Consumables are Dollar General’s largest merchandise category and include paper and cleaning products; packaged food; perishables; snacks; health and beauty; pet; and tobacco products.
- Seasonal products include holiday items, toys, batteries, small electronics, greeting cards, stationery, prepaid phones and accessories, gardening supplies, hardware, and automotive and home office supplies.
- Home products include kitchen supplies, cookware, small appliances, light bulbs, storage containers, frames, candles, craft supplies, and kitchen, bed, and bath soft goods.
- Apparel includes casual everyday apparel for infants, toddlers, girls, boys, women, and men, as well as socks, underwear, disposable diapers, shoes, and accessories.
The percentage of net sales of each of the four categories of merchandise for the fiscal years indicated below was as follows:
The net sales increase in 2021 was primarily due to sales from new stores, partially offset by a decrease in same-store sales of 2.8% compared to 2020 as well as the impact of store closures. In 2021, Dollar General’s 16,954 same stores accounted for sales of $32.4 billion.
The decrease in same-store sales reflects a decline in customer traffic partially offset by an increase in average transaction amount, driven by higher average item retail prices. Same-store sales decreased in each product category, with the largest percentage decrease in the apparel category.
Historically, Dollar General’s sales in the consumables category, which tend to have lower gross margins, have been the key drivers of net sales and customer traffic. In contrast, sales in the non-consumables categories, which tend to have higher gross margins, have contributed to more profitable sales growth and an increase in the average transaction amount.
Post-pandemic Dollar General saw a significant increase in demand in many non-consumable products, including home, seasonal, and apparel, resulting in an overall significant mix shift into non-consumable categories during those periods.
Dollar General’s Supply Chain
Dollar General purchases merchandise from a wide variety of suppliers and maintains direct buying relationships with many producers of national brand merchandise. Despite its broad offering, Dollar General maintains only a limited number of items per category, allowing it to keep Dollar General’s average costs low.
Dollar General’s two largest suppliers accounted for approximately 9% and 8% of its purchases in 2021. Dollar General’s private brands come from a wide variety of suppliers. COVID-19 disrupted Dollar General’s supply chain, sometimes making obtaining certain products in sufficient quantities more difficult to meet customer demand and increasing distribution and transportation costs.
Before 2020, Dollar General had generally obtained sufficient quantities of core merchandise. When it becomes necessary to secure alternative sources, Dollar General may experience increased merchandise costs and supply chain lead time and expenses, a temporary reduction in in-store inventory levels, and reduced product selection or quality.
Trader Joe’s Business Model of “Less is More”
Distribution and Transportation
Distribution centers currently support Dollar General’s stores for refrigerated and non-refrigerated merchandise located strategically throughout its geographic footprint. Dollar General leases additional temporary warehouse space as necessary to support its distribution needs.
In addition to the traditional distribution centers, Dollar General now operates multiple temperature-controlled distribution facilities in support of “DG Fresh,” Dollar General’s strategic, multi-phased shift to self-distribution of frozen and refrigerated goods, such as dairy, deli, and frozen products.
Dollar General regularly analyzes and rebalances the network to ensure that it remains efficient and provides the service levels its stores require. Most of Dollar General’s merchandise flows through the distribution centers and is delivered to the stores by its private fleet and by third-party trucking firms utilizing Dollar General’s trailers.
In the second quarter of fiscal 2021, Dollar General completed the rollout of the “DG Fresh” initiative, a self-distribution model for frozen and refrigerated products designed to reduce product costs, enhance item assortment, improve the in-stock position, and enhance sales.
The Dollar General Store
The typical Dollar General store is operated by a store manager, one or more assistant store managers, and three or more sales associates. Dollar General stores generally feature a low-cost, no-frills building with limited maintenance capital, low operating costs, and a focused merchandise offering within a broad range of categories, allowing it to deliver low retail prices while generating strong cash flows and capital investment returns.
Dollar General stores currently average approximately 7,400 square feet of selling space, and about 75% of stores are located in towns of 20,000 or fewer people. Beginning in 2021, the primary new store format averages approximately 8,500 square feet of selling space. The larger formats allow for expanded high-capacity-cooler counts, an extended queue line, and a broader product assortment.
Additionally, in 2020, Dollar General introduced pOpshelf. This unique retail concept incorporates certain lessons learned from the non-consumables initiative in a differentiated format focused on categories such as seasonal and home décor, health and beauty, home cleaning supplies, and party and entertainment goods. At the end of fiscal 2021, Dollar General operated 55 standalone pOpshelf locations and 25 pOpshelf store-within-a-store concepts within existing Dollar GeneralMarket stores.