Dollar General(NYSE:DG) is becoming a serious competitor in the discount retail and grocery store market segments that Walmart has dominated for years and the Tennessee-based company is showing no signs of slowing down. 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 for 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 scores and attracting candidates to support their aggressive growth plan of opening over 1,000 new stores in 2017.
Strategic price reduction
Starting last August, Dollar General followed retailers, Kroger, Trader Joe’sand Walmart, by cutting 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 reduced prices by an 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.
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 are investing heavily in millennials to win their brand loyalty at an early age. Dollar General is no exception. In 2016, they purchased 41 former Walmart Express locations across 11 states and relocated 40 DG stores into those sites by October. It took over those larger footprints, including 37 gas stations, to compete with expanded offerings. Known as Dollar General Plus, its current 160 locations offer a larger fresh food assortment containing more healthy options which appeal to millennial shoppers. The company is also testing the market with a small store concept called 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 feels more like the retail giant in terms of store format and product assortment. 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 stores. 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’s advantages rely on keeping everything within the Walmart ecosystem and utilizing economies of scale. That means it may not be as feasible to dominate the market with smaller stores.
Dollar General has the flexibility to easily expand or downsize their stores to seamlessly adapt to different markets. The aggressive moves to acquire, relocate and open new stores allow the company to target customers in a very short time, giving the company a great first-mover advantage. 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.