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Dollar General's (DG) Pricing Strategy, Business Model Bode Well

Zacks Equity Research
·4-min read

Better pricing, private label offerings, effective inventory management, and merchandise initiatives have helped Dollar General Corporation DG in carving out a niche in the retail space. The company’s everyday low-price model is anticipated to draw customers, who have been seeking both value and convenience amid the pandemic. We believe that store expansion initiatives, continued restructuring and the improvement of distribution centers are likely to drive revenues.

This Goodlettsville, TN-based company has been focusing on both consumables and non-consumables categories to drive traffic. The company has been offering better-for-you products at affordable prices.

Let’s Introspect

Dollar General, which is among the gainers amid the pandemic, has been deploying resources to enhance omni-channel capacities and adopt strategies to provide seamless shopping experience. The company’s initiatives such as DG Fresh, DG Go and “popshelf” coupled with real estate growth strategy position it well to gain market share by targeting low-to-middle income group consumers.

Management had earlier introduced two transformational strategic initiatives — DG Fresh, designed to enable self-distribution of fresh and frozen products, and Fast Track, an in-store labor productivity and customer convenience initiative. The company completed the initial rollout of DG Fresh across the entire chain and are now delivering to more than 17,500 stores from 12 facilities.

We also note that the non-consumable initiative offering was available in more than 8,800 stores at the end of the second quarter of fiscal 2021. The company plans to expand the offering to a total of more than 11,000 stores by year-end.

Markedly, the company has been expanding its cooler facilities to enhance the sale of perishable items. During the first half of fiscal 2021, the company installed about 34,000 cooler doors across its store base, and plans to install roughly 65,000 cooler doors in fiscal 2021. The company has been expanding DG GO! mobile checkout, which was available in approximately 4,300 stores at the end of the second quarter. The company’s DG Pickup initiative, which is buy online and pickup in store, is available across entire stores.

Store Expansion Well Underway

Dollar General, which shares space with Dollar Tree DLTR, Costco COST and Target TGT, has been making prudent investments relating to store infrastructure, store openings, expansions, remodels and relocations to drive revenues. Management incurred capital expenditures of $518 million in the 26-week period ended Jul 30, 2021, and plans to spend $1.1-$1.2 billion in fiscal 2021.

During the second quarter of fiscal 2021, Dollar General completed 772 real estate projects, including 270 new openings, 477 remodels and 25 relocations. As of July this year, it operated more than 17,600 stores. For fiscal 2021, the company remains on track to carry out 2,900 real estate projects. This includes 1,050 openings, 1,750 remodels and 100 relocations.

The company also targets establishing stores with a selling space of approximately 8,500 square feet. It expects the 8,500 square foot box, along with existing Dollar General Plus format of a similar size, to become base prototypes for the majority of new stores going forward. The company anticipates having nearly 2,000 stores in this format by the end of the fiscal year.

In latest developments, management shared plans about its expansion into Idaho, which highlights the retailer’s strong foothold into the 47th state. Construction of the store, which is slated to open at N. Old Highway 95 in Athol (Kootenai County) by spring next year, is already in progress. This store strengthens the company’s Pacific Northwest footprint.

Wrapping Up

In the current scenario, people have been shopping at discount stores for essentials and other discretionary purchases. Quite obviously, Dollar General has emerged as a viable option for them. Its differentiated product range resonates well with customers’ spending habits. The company is also making every effort to boost guests’ experience via unique store concepts, affordable and convenient assortment, and other innovations.


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