How Dollar General is driving profitable growth

Date : 07 December 2020

Stewart Samuel

Program Director - Canada

We look at Dollar General’s third quarter performance and the progress it’s making against its four strategic priorities.

Third quarter key numbers

  • Net sales increased 17.3% to $8.2bn
  • Same-store sales increased 12.1%
  • Operating profit increased 57.3% to $773.1m

Attracting younger, higher income and more ethnically diverse consumers

While the pandemic continued to have a positive impact on the retailer’s sales growth, driven by consumables, seasonal, home products and clothing categories, new stores also made a significant contribution. It has seen similar trends to other retailers, with shoppers consolidating their trips, driving up the average basket size and traffic declining, to limit social contact. It continues to attract new customers, including younger, higher income and more ethnically diverse consumers.

Cautious financial outlook

Although the business is encouraged by its sales performance with comp sales accelerating since the end of the quarter, it is maintaining a cautious financial outlook. A high degree of uncertainty remains in terms of the duration of the pandemic and it is also seeing higher transportation and distribution costs. Gross margin rates will also be pressured by the expansion and opening of additional distribution centres. Beyond responding to the pandemic, Dollar General has also been able to make progress with its four operating priorities.

Source: Dollar General

1. Drive profitable sales growth

Dollar General continues to push ahead with cooler door expansion, with the business set to add more than 60,000 this year. It has also made progress with its private brands, rebranding, repositioning and expanding selected ranges. During the quarter it also completed the initial roll-out of its FedEx customer package pickup and drop-off service, currently available in half of its stores. The retailer also has several projects underway to enhance its gross margins, including its NCI (Non-Consumables Initiative), DG Fresh (its multi-phase shift to self-distribution of frozen and chilled items), private brand expansion and global sourcing activities.

2. Capture growth opportunities

The business remains on-track to complete over 2,700 store projects this year, including 1,000 new openings, 1,670 remodels and 110 relocations. It is planning to increase its level of activity next year, with 2,900 projects, including 1,050 planned new stores. Recently it opened the first two stores under its new concept, Popshelf, and added fresh produce to a further 140 stores, bringing the total up to more than 1,000.

It also continues to make progress with its digital initiatives with DG Pickup available in almost all stores at the end of the quarter, compared to only 2,500 stores at the end of Q2. It is also rolling out DG GO! self-scanning to additional stores. Both these programmes enhance its convenience proposition.

3. Leverage and reinforce low-cost operating position

Dollar General’s underlying principles are focused on keeping the business simple but moving quickly to capture growth opportunities. Its Fast Track programme is central to this. Building on the progress with shelf-ready packaging, the second element of this is self-checkout. This has been extended to 900 stores, with plans in place for further expansion.

4. Invest in its diverse teams through development, empowerment, and inclusion

Dollar General’s investments in its teams is delivering positive results, including lower store manager turnover, record staffing levels, healthy applicant flows and a robust internal promotion pipeline. Recognising the efforts of its teams this year, it plans to award a total of up to $75m in appreciation bonuses to eligible frontline employees in Q4, bringing its full-year investment in employee appreciation bonuses to approximately $173m.

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