Dollar General Case analysis

Question 2
Can you suggest what job Dollar General is doing for its customers?
Selected
Answer: Dollar General was founded in 1939 and has been traditionally
a family owned business. Since its inception Dollar General has
maintained its company policy ‘To serve Others: provide
customers a better life, shareholders a chance for superior
return, and employees respect and opportunity’.
Most of Dollar General’s customer are from low, middle and
fixed income bracket. About 86% of their customers are women
and 41% of customers earn less than $30,000 or less. Dollar
General primarily operates in areas that are under-serviced rural
and in urban neighborhoods in second-tier locations.

Dollar General offers basic consumable products to meet the

basic needs of consumers at low price, in a convenient
environment, and make shopping for everyday items hassle free
and simplistic. This can be evident from the fact that 30% of
merchandise is priced at $1 or less, Dollar General operates on a
small store format that are conveniently located in communities
that have population of 20,000 or less, are with in 5 miles of
such communities, rent stores on short term leases, advertising
costs are kept to minimal to support its low-cost business
model. The stores are small and convenient for customers to
look for products. Another advantage of its size is: customers at
dollar General on an average take 10-20 minutes to buy goods
worth $9.9.

Dollar General serves a niche market offers low prices by

managing and implementing company wide low-cost strategy.
Stocking minimum inventory, hiring adequate number of staff,
keeping real estate costs low, and achieving organic growth
through expansion, and keeping the overheads low has given
Dollar General a focused cost leadership strategy in its industry
because of.

Dollar General has kept pace with technological reforms by

installing auto-replenish inventory system coherent with its
Point-Of-Sale system. They have now started accepting Credit
and Debit cards and are one of the few retailers to have obtained
Electronic Benefit Transfer (EBT) qualification from U.S
government. Card readers have also been introduced to make
shopping easier and faster.
 Feedback: Good points
Question
3
Who do you think Dollar General's real competitors are?
Selected
Answer:
DG can be classified as Extreme Value Retailer in the U.S
dollar-store market. There are however, several Price Point
retailers, Close Out retailers and Limited Assortment grocery
retailers that can be classified in to the dollar store market. But
these do not operate on the scale limited to Everyday Low
Prices (ELDP) retailers. Dollar General and Family Dollar are
the biggest competitors in the extreme-value dollar market.
There are however, 23,000 such stores in extreme value
retailers who can be called direct competitors of Dollar
General. About 15 companies in this segment have acquired
61% of the market. This shows that the market is highly
fragmented.

Mass retailers such as Wal- Mart, Target, Costco do not come

under the same category as DG but they do pose possible
business threats. However, they are driven by different mission
and different business concept.

DG is a smaller store in terms of size, inventory selection,

selling space, bargaining power, and customer base. Hence Dg
has located several of its store next to Wal-Mart to serve the
basic needs of consumers by offering added convenience and
low price.

Lastly, DG is a national player unlike Wal-Mart and Aldi. DG

is also regionally segmented and does not operate in all 50
states like Wal-Mart. If DG plans to expand its operation
internationally it will be placed at the same competition stature
Wal-Mart and Aldi are.

Feedback: Explain the basis on which Dollar General competes with each of these
stores.
Question
4
Do you think Wal-Mart can respond to Dollar General's everyday low pricing?
Selected
Answer: Wal-Mart being highly successful Extreme-Value Mass
Retailer is capable of formulating a strategy to combat Dollar
General’s everyday low pricing. There are factors that have
kept and may keep Wal-Mart from giving Dollar General a
tough competition on numerous sale points. The factors, I my
view, are accrued of structural build-up of the retail industry.

Dollar General Overview and Approach

Dollar General has maintained its leadership position within its

industry by adopting a unique cost-efficient corporate
approach in every possible operation and management. This
strategy is evident from Dollar General’s store-size, store
location in sub-urban areas with population of 20,000 or less,
low expenditure on real estate by leasing space for short term,
low inventories, less than 1% of sales spent on advertising, and
minimum number of staff employed. This strategy has help
Dollar General since decades but now needs to under-go
several management, operational, and structural changes by
focusing on long-term rather than short term gains to please
Wall Street investors.

The extreme value retail market has a high Threat of Entry of

new competitors and low barriers to entry. The cost of setting
up a store are not high and several barriers like patents,
research and development costs, marketing, advertising do not
pose a threat to new entrants in the industry. The industry is
flooded with discounters as there are not more than 23,000
stores operating nation wide. Moreover, the industry is highly
fragmented and regionalized. Dollar General too operates
mainly is southeaster, southwestern, and midwestern region.

Wal-Mart v/s Dollar General

Wal-Mart on the other hand is a mass retailer with a higher

turnover operating on a much larger scale and region than
Dollar General. Wal-Mart stores are located in communities
that have a population of 50,000 or more, operate on a selling
space of 100,000 square feet and 75,000 Store-Keeping Units.
This compared to 6900 square feet and 4900 Store Keeping
Units operating structure of stores owned by Dollar General.
Wal-Mart’s target customers are

Dollar General’s mission is to provide customers with a

focused assortment of fairly priced, consumable merchandise
in a convenient, small store format. To serve their mission
Dollar General focused on even-dollar price points of $0.50
and $1.50, and it core competency were convenience and
price. Dollar General also provides faster customer service and
small waiting times for its customers. Whereas Wal-Mart
offers a high selection base to its customers, large variety of
 brands, all available sizes, all at low prices. Wal-Mart also
commands a high bargaining power from its suppliers because
of the quantities its can stock and are setup is all 50 state of
America.

Wal-Mart can respond to Dollar General’s low pricing,

according to me, in two possible ways:
<!--[if !supportLists]-->- <!--[endif]-->By setting up stores
that operate and deliver identical values like Dollar
General in an environment that resembles Dollar
General’s convenience and price. This strategy can
allow Wal-Mart to enter market catering to low income
consumers while maintaining their current stature and
strategy of existing store’s selection, price, and value.
To add to that, this strategy will also allow Wal-Mart
keep its current strategy intact of serving mass
customers and providing everything they need under
one roof. Setting up new stores that are smaller in size
but offer larger variety of products to choose from can
enhance their profitability.

<!--[if !supportLists]-->- <!--[endif]-->Wal-Mart can also

provide the goods at a discount to equal Dollar General
if not beat them. Since have Wal-Mart has the
advantage of being a superstore, they can offer lower
price to customers at price points similar or lower than
Dollar General. It also seems easier for Wal-Mart to
offer higher discounts by taking advantage of its
bargaining power; thus pushing competition away.

Feedback: Thorough response

Question
5
How would you rank Dollar General's potential expansion options?
Selected
Answer: Dollar General is currently faced with the dilemma of growth
through expansion of stores or look within its business to
identify the deviations that have made some stores unprofitable
and get erect an operating system that can handle the changing
and diversified needs of the customers and the business.

The company’s performance has seen a downward slope in the

past couple of years. Their Gross Margins have been high
whereas their Selling and Administrations costs have also been
high. Since 2000 company has being witnessing a gradual
decline in sales and same store sales. Dollar General has also
not been able to meet its goal of opening 800 stores in 2007.
Several such facts lead to the conclusion that Dollar General,
in spite of high growth, has not been able to achieve its
targeted growth due to its operational and management
inefficiencies, inadequate technological advancement, limited
expansion in new categories, and limited product mix offered.

Growth Options available to Dollar General

Each available option will be ranked as high, low, and

moderate. High implies highly favorable to Dollar General,
low will be least favorable, and moderate implies an option
that may not have adverse effects on the outcomes.

Demographic

Pursue Urban Consumer:

This option, in my view, is a low key option as Dollar
General’s entire business concept revolves around offering
basic consumer goods with convenient shopping at low price
to low-income earners who reside in suburban areas. Pursuing
urban consumers would require DG to re-establish its policies,
operations, management, and understanding of consumer
market.

Pursue More Affluent Consumer:

This option is a low key option for Dollar General at this point
since the Extreme value retail is fragmented and there is still
unsaturated, hence there is possible room for expansion for DG
within its category. DG should focus on its current niche but
should give them more options with the same convenience and
low price.

Geographic Growth

Expand into Western U.S: This option would be highly

favorable to Dollar General, since there may be possible
markets in the western U.S that would highly suit DG’s culture
and its operating structure. Also DG may be able to make loyal
customers in the western part as well and making it a bigger
player in the retail segment.

International Expansion: this a moderate option for DG to

 adopt at this juncture since the European market would be
dominated by players like Aldi and unless DG can back
themselves with the operational and managerial expertise to
survive competition from local companies, it would be lethal
to enter into international markets. DG, can however, eye
certain markets that are conducive to their kind of business
structure and can sustain the needs of the market.

In-fill existing U.S presence: This would be a high-key option

for DG since they U.S market can sustain upto 40,000 such
retail stores, DG would be better of expanding its presence in
the U.S market to achieve maximum growth before its reaches
the saturation point.

Industry roll-up: This option is also a high-key option for DG

since the industry is fragmented and region based. One of the
best options for growth would be to consolidate and buy out
some of the stores in the retail industry. This would give them
the ideal location and also enable them to serve the customers
better.

Product Growth

All the options in the product growth are, in my view, are high
key and should be implemented by DG. DG should consider
revising its Product Mix offered to consumers to make it more
compatible with today’s consumer’s needs. They may also
consider offering an increased variety of products to offer a
bigger selection.

As seen since last couple of years, DG has started offering

advanced in-store services to their employees which in turn is
passed to the consumers. However, more services can be
added to attract consumers

DG has already adapted the new store concept which is called

Dollar General Markets. They larger than the regular DG store
and are assembled as a slightly larger-box grocery store.

Feedback: Elaborate on the resources and capabilities that would facilitat or hinder
Dollar General's pursuit of these expansion options.