4 Reasons Why Dollar General Is Opening Nearly 1,000 Stores In 2019
By Tricia McKinnon
In a constantly evolving retail environment discount retailers continue to find success. There are more than 30,000 dollar stores in the US which is more stores than the number of stores that Walmart and McDonald’s have combined. Dollar General opened 900 stores in 2018 and plans to open 975 stores in 2019. The company has had an impressive 29 year sales growth streak. Even Walmart has had two years of comparable sales declines in the past decade.
With 900 store openings in 2018 Dollar General opened more stores than any other retailer in the US. Coming in second was Dollar Tree at 276. With over 15,000 stores Dollar General has more stores under a single banner than any retailer in the US. It passed Macy’s for the first time in sales when it generated $25.6 billion in sales in 2018. Dollar stores represent the only category within retail in the US where the total number of stores grew in 2018. Given that the category only represents 4% of retail sales, there is more room to grow. This is how Dollar General continues to thrive within the retail sector.
1. Focus on markets that are others are ignoring. From the outset Dollar General has located its stores in lower income cities and rural towns. Most of its stores are situated within areas with a population of less than 20,000 people. It has also focused on “food deserts”, markets where consumers are many miles away from a grocery store or a big box chain such has Walmart. Over time dollar stores have gained a greater share of the grocery market with Dollar General and Dollar Tree generating grocery sales in 2018 of $24 billion which is more than Whole Food’s sales in 2018 of $15 billion. David Perdue, Dollar General's previous CEO has said that Dollar General “offered 7-Eleven convenience at Walmart prices.”
2. Capitalize on changing shopping habits. Although consumer confidence in the US is at a high the great rescission hangover continues. Many people who became thriftier during the great recession still have those habits today. Additionally, despite the economic recovery wages have not increased by the same amount. Todd Vasos, the CEO of Dollar General has said: “while the economy is doing very well, our core customer continues to struggle because, normally, her expenses outstripped her wage growth.” “Even in a good economy, she is still looking for value and convenience.” With prices at dollar stores 20% to 40% lower than prices of similar items in grocery and drug stores, dollar stores have capitalized on a new class of budget shoppers. For example, 21% of dollar store customers come from households that make over $100,000 in income per year. Dollar General is now focusing on middle income households to extend its growth streak into the future.
3. Find the right store size. Dollar General does not have to worry about repurposing excess space because it already has smaller stores. The average Dollar General store is 7,500 sq. ft. Having a smaller store footprint enables the retailer to have less in-store staff which allows the company to minimize labour costs. Most of its stores are located in suburban and rural areas making them cheaper to operate. While its stores are not fancy, it changes its merchandise frequently creating a habit that lures customers back in store. Off-price stores like T.J. Maxx have also found creating a treasure hunt atmosphere to be a powerful driver of traffic.
4. Invest in private label brands. Dollar General has invested in private label brands to keep prices low and margins high. In 2018 the company had approximately 40 private label products and approximately 22% to 24% of Dollar General’s revenue was generated from private label products in 2018. Having private label brands also enabled the company to offer products in the non-standard sizes that are a staple within it stores.