Dollar General Operating Strategies Marketing Essay

1720 words (7 pages) Essay

1st Jan 1970 Marketing Reference this

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Dollar General targets customers in the low, medium, and fixed income segments. Its core base of customers has an annual income of $30,000 and 24% of its customers have salary lower than $20,000 per year. Dollar General operating strategies are designed to meet needs for basic consumable products for lower-income group customers.

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Dollar General is faced with a problem; as a company is where they should go next. We want to figure out where the best place is to invest Dollar General¿½s money, time, and energy to take this company to the next level. The fragmented and regionalized nature of the dollar store industry, especially in the extreme-value retail segment, provides significant growth opportunities and the ability to achieve economies of scale.

An analysis of the industry has shown that Dollar General has a significant opportunity to increase its market share either through organic growth which they have pursued in the past or less traditionally through acquisitions.

Internal factors such as restructuring many programs have affected Dollar General¿½s ability to leverage its growth. Also, improvements through technology have allowed their distribution network to operate more efficiently. Other structural changes have included eliminating the inventory pack-away policy while strategically closing underperforming stores and remodelling or relocation other ones.

The following is an analytical breakdown of the company; options of what the company could potential set their eyes on in the future, followed by recommendations on how to complete these options. These recommendations are also in line with Dollar General¿½s mission of serving customers.

Dollar General Overview

Dollar General (DG) operates as an extreme-value retailer in the dollar store segment of the retail industry. Some other categories that dollar stores fall under are close-out sales, limited items of grocery retail and single-price-point retailers. These retailers often operate in a small-box format offering a focused assortment of goods.

Much of DG¿½s growth during this period resulted from adding household and highly consumable products at everyday low prices (EDLP) in addition to their traditional offering of knick-knacks and ¿½treasure hunt¿½ items.

Dollar General is the largest player in the extreme-value retail segment with its competitor, Family Dollar, in second. Combined these two companies made up 40% of the overall dollar store segment in 2006 (Exhibit 1) Outside of these two companies the dollar store industry was highly fragmented with the top 15 dollar store chains making up only 61.2% of the entire industry in terms of sales. The remaining portion was comprised of over 1000 different

companies (Exhibit 2.).

Competitor Analysis

Dollar General competes directly with companies like Family Dollar and Freds. Currently they are ranked first in our small-box extreme-value industry. In 2006 they had 2.9B more profit then our next competitor and 1988 more stores. Family Dollar, like other small-box extreme-value retailers are trying to sell the same small discount retail store to the public. What puts them ahead is their low budgeting theory and constant fight for the best prices. Indirectly Dollar General also competes with all the other retailers and discount retailers in the nation. Other discount retailers include Wal-Mart, Target, and Kmart.

Roadmap ahead

Dollar General has a wide range of options to choose from when considering further growth options. These options should be based on geography, product mix, and demographics with the best options including:

? Continue with strategic remodeling and relocation of existing stores.

? Expanding into untapped markets, particularly the western US with the possibility of entering Canada and/or Mexico

? Increase presence in urban areas

? Reevaluate the product mix and add in-store services

Strengths

Over the last several years the company has seen a steady increase of its success. Sales have increased from $6.1B in 2002 to $9.169B in 2006. Within these years the average total sales growth was 9%. During this period they were one of only three companies to have outperformed Wal-Mart in both sales and profit growth. They have now have spread their operations to 35 different states; increased from 6113 to 8260 stores. Dollar General has the ability to go into communities with a population of 20,000 or less whereas Wal-Mart wouldn¿½t want to touch any area with a population of 50,000 or less. Strength of Dollar General is rooted down in our mission statement.

The average shopper at Dollar General will have completed their shopping, paid, and out the store within 10-20 minutes compared to 55 minutes customer spend going to Wal-Mart for the same goods. Dollar General is designed to be a cheap convenient way to get the products that fulfill a person’s daily needs. They focus their inventory on the fastest turning SKU¿½s in the top categories. To their most recent stores they have added coolers. This raised store traffic and also enabled them to carry the necessary items like milk, eggs, and meat to become an EBT-qualified retailer.

Weaknesses

Dollar General have some issues that are not only causing them problems now, but may also have significant affects long-term. One of these problems would be misplacing some of their stores in low potential areas. If the store is located an area that will not produce business it will have to be closed costing the company money. In 2006 ¿½Project Alpha¿½ took shape and over 200 stores were closed or relocated putting a major hit on the net income that was estimated at about $212 million dollars.

Opportunities and Options for DG

Expansion within the U.S. and urban areas

Over the last several years Dollar General has been expanding within the U.S. with stores openings. This plan was great for several years sending sales sky rocking and kept Wall Street happy. However, the problem with this was seen in 2006. Excessive expansion through opening new stores was landing some new Dollar General¿½s in low potential areas. This situation is a perfect example of how expansion through opening new stores my come back to bite if continued in the long run. Instead of this Dollar General could stick to post ¿½Project Alpha¿½ plan of being more strategic. Revive the image of Dollar General by pulling the reins back on the company and fixing problems within. Then grow strategically in the untapped market and urban areas of U.S. (see SWOT Analysis)

Dollar General recently expanded into Michigan, New York, and New Jersey. Each of these states still has many communities and neighborhoods that can support a Dollar General store. Therefore, continued growth in these states and other states throughout its existing territory should also be pursued. However, Dollar General should also look to the west coast for future growth by preparing to build new stores in California, Oregon, Washington, and Arizona.

Develop Merchandising Productivity

Keeping the thought of ¿½strategic not opportunistic¿½ as another option for Dollar General is focusing their time and efforts into making sure we have the right products in our stores. When looking at our recent same-store sales growth data we can see that there is some sort of problem going on in our stores. Simple surveys or extracting data from our cash registers will give us the information we are looking for. The pet section in our stores is a great example of this. Several years ago pet products were not in our stores and now they produce significant revenue.

Conclusion

Dollar General should put in place a growing strategy and really focusing on the image of the company. To take the company to the next level Dollar General should work on expansion through opening new stores and find out what is the right product mix. To accomplish this, first start by continuing ¿½Project Alpha.¿½ Dollar General needs to find the stores that they mistakenly put in low potential areas, relocate and continue to place stores in strategic rural areas and in paths of mass retailers. Keep in mind that the strongest attraction to the customer that Dollar General provides is its convenience. To solve the product mix problem look at our customers¿½ needs. Surveys need to be administered to examine what customers want from their discount stores. Research should be done to double check that there aren¿½t products missing. To prevent this Dollar General will need to build a great reputation and customers will be begging for the company to put a store near them. If all the stated above recommendations are performed, using GAAP estimated projections show Dollar General will profit from the strategy and continue its path towards organic growth (Exhibit 3).

SWOT Analysis

Dollar General has bargaining power

with its suppliers

Offers convenient shopping along

with hightly competitive prices

Customer service is the core of the company

Expanded product mix and addition of new stores.

Ability to be step into smaller communities

and be profitable.

Dollar General offers limited selection as compared to big-box retailers like

Wal-Mart.

Poor decisions based on opportunites

instead of strategy.

Misplacement of stores in low-revenew generating areas in recent years.

Eliminate remaing 5% of high velocity

SKUs that are out of stock at any given time.

Expand into regions with low or non-existent market share such as western US:

California, urban areas.

Expanding new store format

Improve product mix and expand new

store format Increased competition causing profit

squeeze

Aggressive expansion by rivals into

untapped markets

Fragmented nature of industry

Exhibits 1.

Source: Company reports 2006, MVI research.

Exhibits 2.

Source: Chain Store Guide 2005; DSN Retailing Today, July 25, 2005.

Exhibits 3.

Estimated projection does not account for the store closings per year:

Dollar General targets customers in the low, medium, and fixed income segments. Its core base of customers has an annual income of $30,000 and 24% of its customers have salary lower than $20,000 per year. Dollar General operating strategies are designed to meet needs for basic consumable products for lower-income group customers.

Dollar General is faced with a problem; as a company is where they should go next. We want to figure out where the best place is to invest Dollar General¿½s money, time, and energy to take this company to the next level. The fragmented and regionalized nature of the dollar store industry, especially in the extreme-value retail segment, provides significant growth opportunities and the ability to achieve economies of scale.

An analysis of the industry has shown that Dollar General has a significant opportunity to increase its market share either through organic growth which they have pursued in the past or less traditionally through acquisitions.

Internal factors such as restructuring many programs have affected Dollar General¿½s ability to leverage its growth. Also, improvements through technology have allowed their distribution network to operate more efficiently. Other structural changes have included eliminating the inventory pack-away policy while strategically closing underperforming stores and remodelling or relocation other ones.

The following is an analytical breakdown of the company; options of what the company could potential set their eyes on in the future, followed by recommendations on how to complete these options. These recommendations are also in line with Dollar General¿½s mission of serving customers.

Dollar General Overview

Dollar General (DG) operates as an extreme-value retailer in the dollar store segment of the retail industry. Some other categories that dollar stores fall under are close-out sales, limited items of grocery retail and single-price-point retailers. These retailers often operate in a small-box format offering a focused assortment of goods.

Much of DG¿½s growth during this period resulted from adding household and highly consumable products at everyday low prices (EDLP) in addition to their traditional offering of knick-knacks and ¿½treasure hunt¿½ items.

Dollar General is the largest player in the extreme-value retail segment with its competitor, Family Dollar, in second. Combined these two companies made up 40% of the overall dollar store segment in 2006 (Exhibit 1) Outside of these two companies the dollar store industry was highly fragmented with the top 15 dollar store chains making up only 61.2% of the entire industry in terms of sales. The remaining portion was comprised of over 1000 different

companies (Exhibit 2.).

Competitor Analysis

Dollar General competes directly with companies like Family Dollar and Freds. Currently they are ranked first in our small-box extreme-value industry. In 2006 they had 2.9B more profit then our next competitor and 1988 more stores. Family Dollar, like other small-box extreme-value retailers are trying to sell the same small discount retail store to the public. What puts them ahead is their low budgeting theory and constant fight for the best prices. Indirectly Dollar General also competes with all the other retailers and discount retailers in the nation. Other discount retailers include Wal-Mart, Target, and Kmart.

Roadmap ahead

Dollar General has a wide range of options to choose from when considering further growth options. These options should be based on geography, product mix, and demographics with the best options including:

? Continue with strategic remodeling and relocation of existing stores.

? Expanding into untapped markets, particularly the western US with the possibility of entering Canada and/or Mexico

? Increase presence in urban areas

? Reevaluate the product mix and add in-store services

Strengths

Over the last several years the company has seen a steady increase of its success. Sales have increased from $6.1B in 2002 to $9.169B in 2006. Within these years the average total sales growth was 9%. During this period they were one of only three companies to have outperformed Wal-Mart in both sales and profit growth. They have now have spread their operations to 35 different states; increased from 6113 to 8260 stores. Dollar General has the ability to go into communities with a population of 20,000 or less whereas Wal-Mart wouldn¿½t want to touch any area with a population of 50,000 or less. Strength of Dollar General is rooted down in our mission statement.

The average shopper at Dollar General will have completed their shopping, paid, and out the store within 10-20 minutes compared to 55 minutes customer spend going to Wal-Mart for the same goods. Dollar General is designed to be a cheap convenient way to get the products that fulfill a person’s daily needs. They focus their inventory on the fastest turning SKU¿½s in the top categories. To their most recent stores they have added coolers. This raised store traffic and also enabled them to carry the necessary items like milk, eggs, and meat to become an EBT-qualified retailer.

Weaknesses

Dollar General have some issues that are not only causing them problems now, but may also have significant affects long-term. One of these problems would be misplacing some of their stores in low potential areas. If the store is located an area that will not produce business it will have to be closed costing the company money. In 2006 ¿½Project Alpha¿½ took shape and over 200 stores were closed or relocated putting a major hit on the net income that was estimated at about $212 million dollars.

Opportunities and Options for DG

Expansion within the U.S. and urban areas

Over the last several years Dollar General has been expanding within the U.S. with stores openings. This plan was great for several years sending sales sky rocking and kept Wall Street happy. However, the problem with this was seen in 2006. Excessive expansion through opening new stores was landing some new Dollar General¿½s in low potential areas. This situation is a perfect example of how expansion through opening new stores my come back to bite if continued in the long run. Instead of this Dollar General could stick to post ¿½Project Alpha¿½ plan of being more strategic. Revive the image of Dollar General by pulling the reins back on the company and fixing problems within. Then grow strategically in the untapped market and urban areas of U.S. (see SWOT Analysis)

Dollar General recently expanded into Michigan, New York, and New Jersey. Each of these states still has many communities and neighborhoods that can support a Dollar General store. Therefore, continued growth in these states and other states throughout its existing territory should also be pursued. However, Dollar General should also look to the west coast for future growth by preparing to build new stores in California, Oregon, Washington, and Arizona.

Develop Merchandising Productivity

Keeping the thought of ¿½strategic not opportunistic¿½ as another option for Dollar General is focusing their time and efforts into making sure we have the right products in our stores. When looking at our recent same-store sales growth data we can see that there is some sort of problem going on in our stores. Simple surveys or extracting data from our cash registers will give us the information we are looking for. The pet section in our stores is a great example of this. Several years ago pet products were not in our stores and now they produce significant revenue.

Conclusion

Dollar General should put in place a growing strategy and really focusing on the image of the company. To take the company to the next level Dollar General should work on expansion through opening new stores and find out what is the right product mix. To accomplish this, first start by continuing ¿½Project Alpha.¿½ Dollar General needs to find the stores that they mistakenly put in low potential areas, relocate and continue to place stores in strategic rural areas and in paths of mass retailers. Keep in mind that the strongest attraction to the customer that Dollar General provides is its convenience. To solve the product mix problem look at our customers¿½ needs. Surveys need to be administered to examine what customers want from their discount stores. Research should be done to double check that there aren¿½t products missing. To prevent this Dollar General will need to build a great reputation and customers will be begging for the company to put a store near them. If all the stated above recommendations are performed, using GAAP estimated projections show Dollar General will profit from the strategy and continue its path towards organic growth (Exhibit 3).

SWOT Analysis

Dollar General has bargaining power

with its suppliers

Offers convenient shopping along

with hightly competitive prices

Customer service is the core of the company

Expanded product mix and addition of new stores.

Ability to be step into smaller communities

and be profitable.

Dollar General offers limited selection as compared to big-box retailers like

Wal-Mart.

Poor decisions based on opportunites

instead of strategy.

Misplacement of stores in low-revenew generating areas in recent years.

Eliminate remaing 5% of high velocity

SKUs that are out of stock at any given time.

Expand into regions with low or non-existent market share such as western US:

California, urban areas.

Expanding new store format

Improve product mix and expand new

store format Increased competition causing profit

squeeze

Aggressive expansion by rivals into

untapped markets

Fragmented nature of industry

Exhibits 1.

Source: Company reports 2006, MVI research.

Exhibits 2.

Source: Chain Store Guide 2005; DSN Retailing Today, July 25, 2005.

Exhibits 3.

Estimated projection does not account for the store closings per year:

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