In April, a team of Yale University public-health professors published a 34-page study that explained how to end the pandemic in America. The researchers’ conclusion? Dollar General.
The Goodlettsville, Tenn.-based retailer is now the closest grocery store for millions of U.S. consumers; 75% of Americans live within 5 miles of a Dollar General. Adding COVID-19 vaccination clinics to Dollar General’s massive store footprint would get vaccines in the arms of the people most in need of them, thus giving America its best shot at ending the COVID-19 crisis, the researchers argued.
The Centers for Disease Control and Prevention (CDC) quickly agreed.
“We’re exploring a promising collaboration with Dollar General stores, which have locations within 10 or 15 miles of our rural communities in all but four states,” said Dr. Rochelle Walensky, director of the CDC, in a recent interview with the New Haven Register, in Connecticut.
So far, Dollar General hasn’t revealed that it’s joining the federal Retail Pharmacy Partnership Program, which includes Kroger, Walmart, Costco and a number of other food retailers. For Dollar General, which has more U.S. stores than Kroger, Walmart and Costco combined, retail health would be another new frontier, in addition to fresh grocery and e-commerce.
But the fact that Yale University and the CDC would select Dollar General as the ideal retailer for vaccine distribution, as opposed to Walmart or CVS, speaks to the company’s position of power in the food retail industry, a position that is set only to strengthen as it deploys several new strategic initiatives ideally suited for the post-pandemic economy of 2021 and beyond.
It’s no secret that the pandemic has turbo-charged growth at many food retailers. But perhaps no retailer has benefited more from pandemic-related consumer behavior trends than Dollar General.
Even before COVID, the retailer was already taking advantage of economic recessions, retail consolidation and a new fondness among consumers for frugality (and discounters) to amass impressive revenue and expansion over the past decade. Now, post-COVID, the company is planning to leverage momentum from the pandemic to keep aggressively opening stores, become even more of a grocery store than a dollar store, ramp up digital capabilities and hire tens of thousands of new workers to help drive all of that new growth.
In 2020, Dollar General opened more than 1,000 new stores, and remodeled another 1,670 locations. This year, Dollar General plans to open 1,050 new stores, remodel 1,750 stores and relocate 100 stores, representing 2,900 real estate projects in total. With a current (as of this writing) footprint of 17,266 stores, Dollar General is riding a wave of favorable socioeconomic conditions to a projected 18,316 locations by the end of 2021.
Historically, the more stores the company opens, the more profit and revenue it generates, and the more it can keep opening more stores. And Dollar General isn’t stopping at 18,000 or even 20,000 stores. During the company’s latest earnings report, Dollar General COO Jeff Owen said that the retailer is looking at a possible 34,000-plus store footprint. Much of the store base will remain rural, but the company has a new focus on the suburbs as a result of the pandemic-related exodus from urban areas.
“Through a combination of our growing relevance with customers, format innovation, an evolving retail landscape and leveraging new technologies, we estimate a total of approximately 17,000 new store opportunities available across our format types, which we believe represents a long runway for new unit growth,” Owen said.
Beyond opening new locations at a frenetic pace, Dollar General is also experimenting with more new formats. The company has its traditional store format (around 7,300 square feet), plus newer designs such as the DGX urban format (around 4,000 square feet) and the Dollar General Market format (around 16,000 square feet), all of which the company plans to keep growing. In March, however, the company said that it’s making “key changes to its development strategy,” including plans to build on the success of its Dollar General Plus Store, or DGP, format, and the introduction of two more formats, which the company began testing in 2020.
“Similar to our larger-footprint DGP concept, the first new format has selling space of approximately 8,500 square feet, which compares to about 7,300 square feet of selling space for our traditional store,” CEO Todd Vasos said. “Beginning later this year, this new format, along with our DGP concept, will become our base prototype for nearly all new stores, replacing both our traditional and higher cooler-count DGTP format, allowing for a more optimized assortment and room to accommodate future growth.”
According to Vasos, the company’s second new format is even larger, with approximately 9,500 square selling feet, and will be deployed opportunistically across new store relocation and remodel opportunities.
“Notably, on average, our DGP and new store formats are outperforming the chain on a comp-sales basis and have considerably higher sales volumes compared to both the traditional and DGTP store, which bodes well for the future as we look to increase their unit counts in the years ahead,” Vasos said.
For the fourth quarter ended Jan. 29, Dollar General reported that same-store sales increased by 12.7% on a year-over-year basis and operating profit was up 21% to $872 million; revenue increased 17.6% to $8.4 billion. For fiscal 2020, Dollar General’s same-store sales were up 16.3% and its operating profit grew 54% to $3.6 billion; revenue increased 21.6% to $33.7 billion. The retailer did forecast, as have others in the industry, such as Albertsons Cos. and Grocery Outlet, that it expects a same-store sales decline of 4% to 6% in fiscal 2021. However, on a two-year stack basis, the company projects that it will see comps increase 10% to 12% when compared with the company’s performance in 2019.
Vasos said that the company is seeing increased market share in highly consumable product sales, as well as new subsets of customers.
“These new customers continue to skew younger, higher-income and more ethnically diverse, underscoring the broadening appeal of our value and convenience proposition,” Vasos noted. “We continue to be encouraged by the retention rates of new customers, and we are working to drive even higher levels of engagement with more personalized marketing and continued execution of our key initiatives.”
The larger market share and new customers can most likely be attributed to the retailer’s other key initiative for growth: fresh food.
The New Corner Store
Since 2019, Dollar General has been expanding the availability of fresh food at its stores as grocery chains consolidate and close locations, and more consumers seek a nearby one-stop shop for healthy perishables and essentials. That year, the retailer launched its DG Fresh initiative aimed at adding fresh and frozen food products to store assortments and enhancing distribution of those cold-chain consumables.
At the end of 2020, around 1,100 Dollar General locations offered perishable grocery, including many of its Dollar General Market stores. The company plans to add produce to approximately 700 more stores in 2021, bringing the total number of stores that carry produce to more than 1,800.
“DG Fresh continues to be the largest contributor to the gross-margin benefit we are realizing from higher initial markups on inventory purchases, and we expect this benefit to grow as we continue to scale this transformational initiative,” Vasos said.
Another important goal of DG Fresh is to increase sales in the fresh food categories, he added.
“We are pleased with the success we are seeing on this front, driven by higher overall in-stock levels and the introduction of new products in select stores being serviced by DG Fresh,” Vasos observed.
In 2021, Dollar General plans to further accelerate the rollout of additional fresh offerings, including both national and private brands, as the retailer looks to further optimize its assortment while increasing its relevance with customers.
“We believe DG Fresh provides a potential path forward to expanding our produce offering to more than 10,000 stores over time as we look to further capitalize on our extensive self-distribution capabilities,” Vasos said.
In total, Dollar General’s replenishment network is now distributing to more than 16,000 stores from 10 facilities. Dollar General plans to open two new DG Fresh distribution facilities this year, and add tens of thousands more cooler doors to stores.
“Our cooler expansion program continues to be our most impactful merchandising initiative,” Vasos said. “During 2020, we added more than 62,000 cooler doors across our store base. In total, we expect to install more than 65,000 cooler doors in 2021 as we continue to build on our multiyear track record for growth in cooler doors and associated sales.”
At its traditional stores that have been remodeled with 22 coolers, the company typically sees a 4% to 5% rise in same-store sales. At its larger stores, where there’s room for 34 higher-capacity coolers, there’s a 10% to 15% rise in same-store sales.
In addition to the margin benefits associated with DG Fresh and the retailer’s Non-Consumables Initiative, the company continues to pursue additional opportunities to enhance gross margin, including improvements in private-brand sales, global sourcing and supply chain efficiencies.
“Our plans for 2021 include further expansion of our private fleet, which accounted for more than 20% of our outbound fleet at the end of 2020,” Vasos said. “Reducing stem miles is also an important contributor to these efforts, and the recent opening of our Walton, Ky., dry distribution center is expected to drive additional efficiencies as we move ahead.” The company’s private fleet program has grown from 80 tractors at the end of fiscal 2017 to more than 700 tractors and more than 550 drivers in spring 2021.
Dollar General recently embarked on a hiring spree to support all of these initiatives.
In April, the company said that it’s planning to hire up to 20,000 new employees this spring to support efforts across its store, distribution, transportation and corporate operations. The company also revealed an employee training partnership with Waterloo, Ontario-based Axonify to enhance business learning and development for its more than 157,000 front-line, supply chain and corporate employees.
For the time being, the retailer says that it’s seeing increased labor productivity as a result of its Fast Track initiative, an in-store replenishment program that optimizes operations at the warehouse to speed up shelf stocking and decrease out-of-stocks. The second component of Fast Track is self-checkout, which was available in more than 1,600 Dollar General stores at the end of 2020. The company is on track to have self-checkout in the majority of its stores by the end of 2022.
More New Territory
As a mature retailer in growth mode, Dollar General is laying the groundwork for future initiatives the company believes “will unlock additional growth opportunities as we move forward,” in Vasos’ words.
One of those future initiatives is the expansion of digital, an area where Dollar General has lagged. The retailer’s strategy has been to build a digital ecosystem tailored to provide its core customers with a more convenient, frictionless and personalized shopping experience. How’s that going so far?
“We made significant progress in 2020, highlighted by the accelerated rollout of DG Pickup, our BOPIS offering, to more than 17,000 stores,” Vasos said. “During the year, we also saw continued growth in customer engagement across our digital ecosystem, including our digital coupon offering, shopping list feature, cart calculator shopping and budgeting tool, e-commerce site, DG Go! mobile checkout, and our mobile app, which ended the year with nearly 4 million monthly active users.”
Looking ahead, Dollar General plans to focus on offering an even more personalized digital offering, with the goal of driving higher levels of customer engagement and loyalty. The company also intends to expand its FedEx package pickup and dropoff service, now available in 8,500-plus stores, to more than 9,500 stores by year-end.
“We operate in one of the most attractive sectors in retail,” Vasos noted. “And in an environment where customers continue to seek safe and convenient experiences, we believe our unique store footprint, further enhanced through our multiyear initiatives, provides a distinct competitive advantage and positions us well for continued success. We feel very good about the underlying business, and I’m excited about the opportunities that lie ahead.”