Beruflich Dokumente
Kultur Dokumente
COMPANY REPORT
Prepared for:
Business 202I
Cluster Faculty
Submitted by:
Team 3
Michelle Belna
Trudi Fisher
Kevin Maxwell
Tommy Pauley
Lori Titkemeier
Table of Contents
Executive Summary
The purpose of this report is to determine whether Dollar General (DG) has the right
strategy to maintain a sustainable competitive advantage within its industry. Also, the
report will discuss how small firms, such as DG, are able to compete with larger firms,
such as Wal-Mart. In this report, recommendations are also given to guide DG in
obtaining a sustainable competitive advantage in the discount retail industry.
The first step to understanding a company is to examine its industry. There are four main
areas to consider when analyzing an industry. These include:
• competitors
• customers
• merchandise
• location
The way that these four factors interrelate determine how well a business will do in the
particular industry.
• store growth
• product expansion
• technological advancements
DG has a current competitive advantage within its industry. DG maintains this advantage
through a unique cost-efficient approach. This low-cost structure is apparent through low
inventories, low advertising costs, and location of stores in rural areas. Though profitable
in the short-run, its current advantage is not sustainable. It is not sustainable due to:
When examining competitive advantage, it is also important to consider the market and
take into account the existing competition against larger firms.
Small firms often find it difficult to compete with larger firms. Though there are some
disadvantages DG will never be able to overcome due to its size, small firms have
advantages over their larger counterparts.
Disadvantages Advantages
• low purchasing power • convenience
• smaller pool of resources to • absence of long lines
allocate • customer service
• less extensive market reach
In order for a small firm, such as DG, to compete with larger firms, there are many
options available.
There are several ways that DG can improve profitability and success. Several of which
include:
Conclusion
DG’s overall business strategy is growth, but the company currently does not have a
sustainable competitive advantage in the discount retail industry. In order for DG to
obtain an advantage and compete with larger firms, it must continue to make
technological advances, differentiate itself within the market, and consider the
recommendations listed above.
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Introduction
For almost 50 years, Dollar General (DG) has been a top competitor in the discount retail
industry. The company has grown considerably since it was first established by J. L.
Turner in 1955. This Fortune 500® company opened its first store in Springfield,
Kentucky and is now headquartered in Goodlettsville, Tennessee.i
The purpose of this report is to determine whether DG has the right strategy to maintain a
sustainable competitive advantage within its industry. Also, the report will discuss how
small firms, such as DG, are able to compete with larger firms, such as Wal-Mart.
In order to achieve this goal, this report will take an in-depth look at DG’s overall
business strategy in comparison with its leading competitors. The first step to
understanding a company is to examine its industry.
To understand an industry, aspects such as who the competition is, who the target
customers are, what products the industry provides, and where the industry is located
must be considered.
Competitors
There are several different types of stores within the discount retail industry, and for
comparison’s sake, the industry is further broken into many segments. DG is in the
market segment known as the dollar store category. It currently leads this segment in
market value, above competitors such as Family Dollar, Dollar Tree, and Fred’s.ii See
Appendix H for specific competitor information and Appendix G for product price
comparisons. As a result, competitors such as Wal-Mart are in the same industry but not
the same peer group.iii Comparisons will be made throughout this report to Wal-Mart and
other big firms because they tend draw some of the same customers.
Customers
Retail merchandise stores attract many different types of people. For example, Wal-Mart
targets all income level households, whereas dollar stores such as DG serve “need-to”
shoppers.iv More specifically, the target customers of DG are normally in towns with less
than 20,000 people and have the following characteristicsv:
DG serves a narrow market range and offers low prices. The company can be classified
as having a focused cost leadership strategy according to Porter’s Generic Strategies
Model (see Appendix B).
Merchandise
Stores within the discount retail industry offer a wide variety of products at low prices.
Discount stores offer brand names but place an emphasis on brands unique to their own
stores for a lesser price. Trends toward perishable items are becoming more apparent in
the market as well. This is demonstrated by the growth of “super-stores” in the
industry.vii In a more broad sense concerning merchandise, Standard and Poor’s says,
“Retailers – whether discounter or department store – that provide an attractive array of
quality goods at reasonably low prices are likely to see the strongest sales and earnings
improvements.”viii Finally, location is vital to the success of every business.
Location
Store Growth
DG’s current business strategy is growth. In 2004, DG plans to open 675 new stores as
well as new distribution center. Twenty additional Dollar General Markets (“super-
centers”) will be opened in 2004 after the success of two pilot stores in 2003.xiv Although
these super-centers are still being tested for profitability, results are promising thus far.
Stores including coolers have average purchase amounts of $13.00 compared to the
average of $8.50 in stores without coolers.xv (For further statistics and company
information, see Appendix K.) However, relying solely on building new stores does not
always contribute to company growth financially.
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Product Expansion
DG currently carries a variety of products, including; health and beauty aids, packaged
food products, home cleaning supplies, housewares, stationery, seasonal goods, basic
clothing, and domestics. These are grouped into four broad categories: highly
consumable, hardware and seasonal, basic clothing, and home products. Of these
divisions, the highest gross profit rate is in the hardware and seasonal category, and the
lowest gross profit rate is found in the highly consumables area. These two categories
had sales percentages of 16.8 percent and 61.2 percent respectively, based on 2003
figures.xvi
Technological Advancements
DG has a current competitive advantage within its industry that is maintains through a
unique cost-efficient approach. This low-cost structure is apparent through low
inventories, low advertising costs, and location of stores in rural areas.xxii Though
profitable in the short-run, DG’s current advantage is not sustainable.
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Low-Cost Structure
Several attributes are essential in allowing DG to outperform its competitors. The first of
these components is DG’s ability to maintain low levels of inventory at the store. This
allows DG to minimize storage costs and to better manage store inventory. Another way
in which DG reduces expenses is by limiting advertising costs. According to Dale Limes,
V.P. of Lee Wayne Corporation, the average company spends 3 percent of gross annual
sales and advertising.xxiii In 2003, DG spent $5.4 million on advertising expenses which
worked out to be less than 1 percent of gross sales. The last contributing factor in the
low-cost structure is the location of DG stores in rural areas. By situating stores in rural
areas, DG can take advantage of the lower lease rates and the lower costs of living in
general.xxiv
Sustainability
There are several factors that prohibit DG from maintaining a sustainable competitive
advantage within the industry. Some of these include: rivals’ similar competitive
strategies, low barriers of entry into the market, and the absence of a differentiation
strategy.
Rivals’ Similar Competitive Strategies. Companies in DG’s peer group are closely
aligning themselves with competitive strategies similar to those of DG. For example, in
light of DG’s profitable success with low advertising expenses, Family Dollar has
drastically reduced advertising expenses in the past seven years. Family Dollar went
from 14 circulars in 1997 to just 1 in 2003.xxv
Low Barriers of Entry. Because of the nature of a dollar store, which has few costs, it
is fairly easy to start a new store. According to Dan Margles of Allied Systems Industries
(ASI):
According to Franchise Direct’s website, “Allied Systems Industries (ASI) is the nation's
largest developer of independently-owned Dollar Stores.”xxvii
Other barriers to entry include patents, cost advantages, advertising and marketing, and
research and development expenditures.xxviii There is a lack of these barriers in the dollar
store segment of the discount retail industry, making the industry susceptible to new
entrants. The threat of new entrants is part of Porter’s Five Forces Model. See Appendix
A for more details about this model.
Dollar General 9
Along with struggling to find a niche within the market, DG also struggles to compete
with larger firms. Though DG has some methods that appear to be advantageous to the
company, there are some disadvantages it will never be able to overcome due to its size.
DG’s overall culture focuses on convenience. Its stores are located in smaller areas so
customers don’t have to travel far to reach the store. DG stores are smaller in size,
making it easier for customers to find what they are looking for instead of having to
search for what they want.xxix There is also the benefit of not having to wait in long lines.
They offer a variety of products at low prices so most of the shopping can be done in one
simple stop.xxx In the 2004 10-k report, DG stated:
The Company believes that its target customers prefer the convenience of a small,
neighborhood store. As the discount store industry continues to move toward
larger, “super-center” type stores, which are often built outside of towns, the
Company believes that DG’s convenient discount store format will continue to
attract customers and provide the Company with a competitive advantage.xxxi
In addition to the convenience factor, smaller firms generally have exceptional customer
service to ensure the return of customers. Smaller firms have the opportunity to be more
personable with their customers due to the nature of their shopping environment.
However, through “secret shopper” observations, a team of researchers found DG to be
lacking in this category. Wal-Mart, on the other hand, goes against the norm of large
firms and provides superior service to customers. This creates a more personal shopping
experience that is common to most small firms.
The main disadvantage of a small firm when competing with a larger firm is its lack of
purchasing power. Firms such as DG are unable to drive down prices from suppliers as
Wal-Mart does. In an NPR interview with Charles Fishman of Fast Company Magazine,
he says:
The best news is Wal-Mart’s going to buy your product, and the worst news is
Wal-Mart’s going to buy your product. Because you instantly need to supply
Dollar General 10
enormous quantities … which often lead companies into a position where they
can’t pay attention to their existing customers. And over time, Wal-Mart insists
that the prices you charge it go down.xxxii
Along with purchasing power, larger firms have a bigger pool of resources to allocate in
order to expand and invest more freely.xxxiii Larger firms, such as Wal-Mart, have also
extensively penetrated the U.S. market, allowing customers to be loyal shoppers no
matter where they are in the country.xxxiv See Appendix J for distribution of stores.
DG has many opportunities for advancement within the discount retail industry. Though
it does not have a sustainable competitive advantage, there are several ways it will be
able to keep ahead of the competition in years to come. Some of these include
repositioning itself in the market, expanding internationally, enhancing customer service,
and promoting its 50th Anniversary.
Repositioning
DG’s current marketing strategy involves the sale of an existing product in an existing
market, also known as market penetration. The company is focusing on growing within
the U.S. market in order to increase sales. In the future, the best marketing strategy to
implement is market development. This includes offering an existing product in a new
market. International growth will benefit DG in the long run and help them compete with
larger firms.
International Expansion
Dollar General should focus on an international market that is similar to the one in the
United States. One option for international expansion is to open stores in Canada.
Statistics show that discount stores are on the rise in Canada, and Canadians are
becoming more price-aware in their shopping. Wal-Marts in Canada have experienced a
22 percent increase in customers in the past eight years, and 82 percent of Canadians say
that they have shopped at a dollar store in the past year.xxxv This data proves that there is
an interest for discount retail, and DG has a great opportunity to benefit from this interest
if it takes the initiative to expand internationally. For more international opportunities,
see Appendix D.
Customer Service
50th Anniversary
The year 2005 marks the 50th Anniversary for DG, and this milestone event will be a
perfect marketing opportunity for DG to separate itself from its competitors. DG should
spend a substantial amount of time and effort planning and advertising its 50th
Anniversary. DG must make customers aware of the fact that it is a company that has
practiced good business ethics while surviving in the industry for 50 years.
Since DG has been in the industry for 50 years, it has created a good relationship with its
suppliers. Despite low purchasing power, DG can use the 50th Anniversary as leverage to
get suppliers to put it on an equal playing field with Wal-Mart for one year. If DG can
stress the importance of their 50th Anniversary, it is possible that suppliers might lower
their prices for DG for a limited time to match the prices that they offer larger
accounts.xxxviii There is a point in time when suppliers may deem it acceptable to treat
their “B” accounts (DG) like their “A” accounts (Wal-Mart).
Although DG has had success without much promotional advertising, it can also use its
50th Anniversary as an opportunity to engage in co-op advertising. Co-op advertising is
when a wholesaler and a retailer establish a partnership to advertise a particular product.
For example, if DG placed a 50th Anniversary ad in local newspapers that contained a
picture of a Proctor & Gamble product, P&G would contribute money to DG to cover the
advertising costs. In some cases, the wholesaler will pay for the majority, if not the
entirety, of an ad that promotes its product. Co-op advertising is a win-win situation for
both the wholesaler and the retailer as both parties receive recognition in the process.
DG would be foolish if it did not capitalize on marketing its 50th Anniversary. This 50th
Anniversary event would be a good opportunity to attract new customers as well.
Customers will want to associate themselves with a company that has 50 years of history
and is still going strong. Although the anniversary event would only affect short-term
profits, it would help DG establish a niche of long-time customer commitment that would
direct them towards obtaining a sustainable competitive advantage.
Conclusion
DG’s overall business strategy is growth, but the company currently does not have a
sustainable competitive advantage in the discount retail industry. In order for DG to
obtain an advantage and compete with larger firms, it must continue to make
technological advances, differentiate itself within the market, and consider the
recommendations listed above.
i
Dollar General Company Information, “History,” <http://www.dollargeneral.com/
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xxix
Paul Smith, “Anything For a Buck: Fauquier Shoppers Love the Wonderful, Wacky
World of Dollar Stores,” <http://www.citizenet.com/news/articles/061203/ biz-
tech1.shtml> (March 27, 2004).
xxx
Ibid
xxxi
Dollar General Corporation, Form 10-k.
xxxii
Charles Fishman, interview by Scott Simon, Weekend Edition Saturday, NPR,
December 27, 2003.
xxxiii
“Barriers to Entry,” <http://www.tutor2u.net/economics/content/topics/monopoly/
barriers_to_entry.htm> (12 April 2004).
xxxiv
Store Wars, “Nationwide Distribution of Wal-Mart Stores,” <http://www.pbs.org/itvs/
storewars/us_stores.html> (12 April 2004).
xxxv
“Discount Retail on the Rise,” Millward Brown Goldfarb, <http://www.goldfarb
consultants.com/CTZ/ctzsampleOct03.pdf> (7 April 2004).
xxxvi
Wal-Mart Company Information, “Ten Foot Rule,” The Wal-Mart Culture <http://
www.walmartstores.com> (10 April 2004).
xxxvii
Dollar General Corporation, Annual Filing, January 30, 2003, <http://phx.corporate-
ir.net/phoenix.zhtml?c=112150&p=irol-AnnualReports> (5 April 2004).
xxxviii
Personal Interview with Dale Limes.
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Dollar General 18