Down to Business: Food fueling growth of dollar stores
Here’s a statistic to chew on: Nearly three-quarters of the sales at Dollar General stores come from food and other consumables.
The stores, mostly housed in about 7,300 square feet of cramped space in older retail plazas, last year rang up sales of $14.8 billion at 9,900 locations. This year, the company expects to open 625 stores — the same as in 2011 — which means close to two stores a day.
With that kind of growth, it’s no wonder the chain, based near Nashville, was among the players in the “nontraditional grocery” category that food-retailing consultant Willard Bishop warned in June would give supermarkets a run for their money.
According to the report, the category’s subset of “dollar” stores saw “swift sales growth” in 2011 of 11.8 percent, versus the traditional grocers’ 4.4 percent. The dollar format includes retailers such as Dollar Tree, where everything in the store is priced at $1, and merchants like Dollar General and Family Dollar that sell in a $1-to-$10 price range.
A look at Dollar General’s 2011 annual report shows that food and consumables (paper towels, laundry detergent, toothpaste) accounted for 73 percent of sales, compared to 71 percent two years earlier. Seasonal products (decorations, toys, hardware, automotive) followed at 14 percent of sales last year, with home products and apparel at 7 percent and 6 percent, respectively. Sales in the latter three categories have drifted lower since 2009.
With a product mix that includes national as well as private brands, Dollar General’s appeal is its pricing, not its ambiance. The chain touts convenience and everyday necessities, so that I could pop into the Latham store off Route 9 for DG Health mouthwash and Honey Nut Cheerios and complete the transaction in just a couple of minutes.
But the stores are tight on square footage (one initiative raised the height of shelving units by a few inches to gain more selling space) and the aisles are only wide enough for one shopping cart. Yet most customers are women — 83 percent, in fact — “and a woman shopper will not enter an aisle if she is going to be bumped or pushed or touched. She will skip that aisle,” CEO Richard Dreiling told analysts and investors at a conference in June.
So the company is evaluating the performance of larger stores dubbed Dollar General Plus with wider aisles and more refrigerator-freezer units. It’s also testing Dollar General Market, a 16,000-square-foot store with produce, meat and expanded dairy and frozen-food offerings. By year’s end, Dreiling said, “we intend to step back, take a look at them, analyze them, understand our cost of building them and our cost of running them” to see where they might make sense.
A spokeswoman for the company, Emily Weiss, declined to tell me this week whether either of those formats might be tried in the Northeast, where Dollar General has fewer than 300 stores. “We do not break down potential stores by location or store type,” she said.
But the handwriting is on the wall: Dreiling sees the company doubling in size to 20,000 stores by continuing to add locations in the 40 states in which it already has a presence, along with entering states without stores.
And in the Northeast, where Dollar General is dwarfed by Family Dollar and Dollar Tree, a new distribution center in the Philadelphia area capable of serving 1,000 stores is expected to open next year.