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Dollar General is decades into an ambitious campaign to redefine what a typical dollar store can be, highlighted by aggressive store expansion, an emphasis on grocery, and a new Popshelf concept.
Founded in 1939 in Goodlettesville, Tennessee, the value-focused company has long been a powerhouse in its sector. And Dollar General still adheres to its roots, offering most of its merchandise for less than $10, attracting a consumer base of low-to-middle income shoppers focused on savings.
Like many retailers, the company has seen major sales success during the coronavirus pandemic. In an April 7 analyst note sent to Insider, Zacks Equity Research extolled Dollar General's "impressive" same-store sales growth, a trend the retailer has enjoyed for 31 straight years.
Dollar General last reported a 12.7% boost to same-store sales in the fourth quarter of 2020. Overall, the year saw same-store sales spike by 16.3%.
But the smaller size of its stores and the relentless pace of its expansion is a key difference between Dollar General and its big-box competitors. And the introduction of several other key initiatives sets the Tennessee-based retailer apart from dollar-store rivals like Dollar Tree.
"Dollar General really perfected the model of the highly-efficient, small format general store," Carol Spieckerman, president of Spieckerman Retail, told Insider.
Spieckerman said that the company "flew under the radar" for years as it opened thousands of stores. In recent years, competitors have been forced to pay attention, because of the company's success attracting shoppers for quick "fill-in" convenience runs.
This does not tell the whole story, however. Over the last two decades, Dollar General has transformed itself into a unique force in retail, one that experiments with aspirational concepts and grocery, enjoys the flexibility of a smaller store, and has witnessed unprecedented expansion.
A focus on fresh grocery
Within the retail world, grocery is thought of as a category with razor-thin margins. But Dollar General has been able to incorporate perishables into its stores at a rapid pace.
Its DG Fresh initiative, launched in January 2019, aimed to help Dollar General distribute its own refrigerated and frozen consumables in stores. DG Fresh does not yet include fresh produce, but it's widely seen as a move that could unlock fresh vegetables and fruits in more stores.
Around 1,100 Dollar General locations currently offer up fresh groceries in the form of refrigerated items, as of the end of 2020. The company plans to add 700 stores to that list in 2021. Dollar General also plans to add 65,000 new cooler doors to its stores, as well as two new DG Fresh distribution facilities.
"The whole initiative is about wringing better margins and profitability out of fresh, so that it doesn't become a complete loss leader," Spieckerman said.
Meanwhile, on the non-consumable front, Dollar General is also expanding. In addition to its ongoing Non-Consumables Initiative, which seeks to introduce more home decor and party items to stores, the company has also launched a brand: Popshelf. The concept targets a younger, more affluent consumer base than typical Dollar General stores.
Speaking to Insider in October 2020, Dollar General's Chief Merchandising Officer Emily Taylor said Popshelf would stock non-consumable categories like home decor, housewares, party supplies, and seasonal items.
"We embarked on a lot of customer research to determine if there was an opportunity," Taylor told Insider. "What we found is this combination of low price point with these discretionary categories."
Doubling down on the initiative, the company recently announced its intent to open up 30 new Popshelf stores by the end of 2021.
A growing footprint
One of the most remarkable facets of Dollar General's strategy in recent years has been the aggressive growth of its store footprint.
In 1994, there were approximately 1,800 Dollar General stores in existence. As of the end of January, there are now 17,177 locations. In 2020 alone, the retailer launched over 1,000 new stores, and remodeled another 1,670 locations. This year, Dollar General intends to open 1,050 new stores and complete 1,750 store remodeling projects.
In February, Dollar General CEO Todd Vasos spoke to Insider about his company's expansion strategy. Specifically, the company has looked to fulfill retail needs in underserved rural communities.
"We do know that the grocers have moved out years and years ago in these areas," Vasos said. "We started to look years ago into expanding into small towns, and we knew there was that niche to fill."
According to Spieckerman, this aggressive expansion is "counter-intuitive" in today's retail space.
"You see a lot of these other retailers paring down their fleets, ruthlessly evaluating productivity of individual stores," she said. "And here you've got Dollar General looking at the map and doing the math and saying, 'We can open thousands more stores.'"
'The likely pullback'
Dollar General — and other dollar stores — normally thrive during uncertain economic times. And the retailer's soaring sales during the pandemic seem to bolster analysts' theory that Americans are spending their income and stimulus checks at Dollar General in search of deals.
But it's precisely that success that has given analysts at Zacks pause about what's to come in the retailer's future.
"Investors remain concerned about the likely pullback in demand in the near term, thanks to vaccine rollout and reopening of the economy," Zacks analysts wrote.
Zacks noted that Dollar General's shares have underperformed in the past three months, and that the firm is projecting a same-store sales decline of 4% to 6% in 2021.
The equity research firm also highlighted some major concerns, especially around Dollar General missing the "sea change" in retail "with the focus gradually shifting to online shopping." Zacks singled out Dollar General's main competitors as Walmart, Target, Dollar Tree, Fred's, and 99 Cents Only. Spieckerman added Aldi to the list, given the grocer's reputation for fresh foods and low-cost opening price point.
"Some of these competitors boast superior financial, distribution, and marketing resources," Zacks analysts wrote. "We believe that unhealthy price competition to gain market share and attract footfall might weigh on the company's profit margins."
Spieckerman also noted that Dollar General is unusual in the retail space, in that it has not prioritized e-commerce. Given the chain's dollar store origins, she said that there could be a financial reason for Dollar General neglecting digital.
"Some people say it just doesn't work with a dollar store model," she said. "But if they're going to stick to their guns and not go after e-commerce, they certainly could partner with some digitally native brands."
Either way, in Spieckerman's view, Dollar General is no longer a brand that is "under the radar" in the retail world.
"They're getting really bold and giving themselves permission to move in a lot of new directions," she said. "I think that's pretty scary for their competitors, particularly as they expand."
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