Dollar General (NYSE:DG) is underperforming at its current stock price. Investors, particularly institutional investors, remain concerned of weak Family Dollar performance after the Dollar Tree acquisition. They see ‘unachievable long-term goals’ with increasing competition and investment needs resulting in thinner margins. Yet there is a different perspective. Commercial real estate investors may have some takeaways by understanding DG’s strategies aiming at a bigger future. Dollar General larger than walmart
Investing in employees as a competitive advantage
The company is expected to invest more than 1.5 million training hours in employees in 2017 to promote education and development throughout the year. That will include increasing pay for managers and new training programs. “Stores that have experienced the new training and pay bumps have produced lower employee turnover and higher sales”, said CEO Todd Vasos. These changes are important for increasing customer service score and attracting candidates to support its aggressive growing plan of opening over 1,000 new stores in 2017.
Strategic price reduction
Started last August, Dollar General followed other retailers, Kroger, Trader Joe’s and Walmart, to cut prices on hundreds of items. Instead of getting into direct price war with large players, Vasos believes these price reductions are meaningful and recognizable. “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 stock keeping units (SKUs) across 2200 stores representing nearly 17 percent of our store base,” he said.
Curious who legitimately has the lowest prices? Kantar Retail recently conducted their Opening Price Point Study, spanning three types of purchase categories: food, non-food and toiletries. The result: Dollar General and Walmart both win over other retailers when it comes to low prices.
Winning millennials with various store concepts and enriched offerings
Major retailers have been heavily investing on winning over younger shoppers and millennials to win their brand loyalty at an early age. Dollar General is not to be left behind. In 2016 Dollar General purchased 41 former Walmart Express locations across 11 states and relocated 40 DG stores into those sites by Oct. It took over those larger footprints, fresh food aisles, and in 37 of them, gas stations to compete with expanded offerings. Known as Dollar General Plus, its current 160 locations offer fresh food assortment and more healthy options which millennial shoppers seek. Not just going larger, the company is also testing market with small store concept DGX (3,400 square feet) to serve busy, metropolitan shoppers with everyday low prices on the essentials they need in a convenient, easy-to-shop format.
Dollar General starts to look like Walmart, but not really
Dollar General has followed some of Walmart’s proven strategies and become more like the retail giant in terms of store formats and product assortments. But beyond that, these two major players in the discount grocery store category have completely different strategies for domination, each based on their own unique advantages.
Walmart has a supply chain system optimized for its supercenters, which also works well with its neighborhood market concept, but not so well with independent sites with small store sizes. Interestingly, even after the closure of all the Walmart Express stores (15,000 square feet), Walmart continues to test the smaller store concepts. Early this year it opened two convenience store locations (2,500 square feet) within its supercenter sites on the outskirts of the metropolitan areas of Dallas/Fort Worth and Rogers, Arkansas. Walmart has all the advantages as long as it keeps everything within the Walmart ecosystem which is heavily relying economies of scale. That also means it may not be as feasible as it looks to dominate the market with smaller stores.
Dollar General has the flexibility to either expand or downsize the store to make it accurately adapted to subject market. The aggressive moves to acquire, relocate and open new stores allow the company reach to target customers in a very short time, which gives Dollar General great first-mover advantage, even though it requires a massive initial investment.
It’s essential to have flexibility when looking for new growth opportunities and taking over customer segments, and it looks like Dollar General is acing it.