Retailer Spotlight: 3 Reasons to Fear Dollar General

By Vince Tirelli,
3 November '22

What can grocers do now to win with customers?

With a spotlight on Dollar General, we look at things from a different angle, offering grocers aspiring to more effectively compete with Dollar General a close analysis of why DG is winning and what makes it vulnerable. It starts with the 3 reasons why grocery retailers should fear DG:

  • Reason #1 Dollar General clearly helps its Customers save money – Thanks to its ability to help its customers save money, specifically with its focus on base prices, which accounts for 50% of the Save Me Money preference driver from the Retailer Preference Index: Special Inflation Edition (Inflation RPI), Dollar General (DG) has made it to the seventh spot in the aforementioned Inflation RPI. Dollar General has thus surpassed all its closest competitors except for Aldi. Furthermore, if Dollar General can increase its positioning on Make It Better attributes, which largely relate to variety, it can significantly impact its long-term performance. And Dollar General is already working on a solution. It’s called DG Fresh.
  • Reason #2 If Dollar General gets its food offering right, it is positioned to conquer America – Dollar General has the sixth biggest five year compound annual growth rate (CAGR), eleventh largest market share, and tenth highest foot traffic growth in the US. Seventy-five percent of the population already lives within five miles of a Dollar General location, and DG is planning to open 1,100 more stores in 2022, over and above its current 18,000 locations. Eight hundred of these new stores are meant to be a larger 8,500 sq ft format with a wider assortment – its regular format averages 7000 sq ft, and includes more coolers, produce, and a wider health and beauty assortment. DG is also well positioned to compete across all segments — rural, urban, and suburban — with its four various formats: DG, DGX, DG Market and PopShelf. Based on a sample of 27 public US retailers, our data shows that with its current strategy, Dollar General is twice as profitable as the average US retailer. With an operating margin at 11% versus the 5% average, Dollar General is the second-most profitable retailer, meaning DG is well prepared to face a slowdown, which may be in the stars in a post inflation world. Given everyone is feeling inflationary pressure and more consumers across all income brackets are living paycheck to paycheck versus 2021, we expect DG to start attracting higher income brackets.
  • Reason #3 Dollar General will become the Health Destination – We believe the discounter will become the Health Destination for several reasons. The DG Fresh initiative consists of expanding Dollar General’s footprint of produce and coolers in their stores. It plans to have DG Fresh in 3,000 stores in 2022, with a vision to extend DG Fresh to more than half their stores. DG Fresh will focus on the top 20% produce SKUs that make up 80% of the volume and provide 80% of the produce categories carried by most food grocers. DG has recently invested a combined $480M in three new DG Fresh facilities, creating a potential of 1,100 jobs at full capacity, and ultimately helping DG to self-distribute frozen and refrigerated products across its supply chain. Perhaps the most exciting news in recent months is the retailer’s appointment of a Chief Medical Officer and health panel to help make Dollar General a « Health Destination ». Dollar General will offer a health assortment in 4,000 stores at prices 40% cheaper than in drugstores and envisions providing health care services like other big box retailers. Dollar General has even partnered with a nutritionist to provide Better-For-You recipes and is expanding its Good and Smart Private Brand. With its wide and exclusive footprint, it can bring Health to underserved areas and turn food and health deserts into oases.

The Retailer Spotlight: 3 Reasons to Fear Dollar General is included as part of The dunnhumby Quarterly: Inflation Edition, a new strategic analysis of the key grocery themes in times of economic uncertainty. This edition unites inflation-related insights from economic trends, Customer needs, competitive positioning of the 70 largest retailers in the U.S. grocery market, and the perspectives of our battle tested grocery industry consultants.