MBA FPX 5006 Assessment 2 Strategic Analysis

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Capella University

MBA-FPX5006 Business Strategy

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Date

Introduction

Dollar General’s origins trace back to 1939 with the establishment of J.L. Turner and Son Wholesale. Transitioning from wholesaling to retailing, the company achieved annual sales exceeding $2 million by the early 1950s. The first Dollar General store opened during this period, with the concept that no item in the store would cost more than one dollar. This strategy proved highly successful, and by 1957, J.L. Turner and his son Cal Turner Sr. had converted 29 more stores, generating annual revenue of $5 million. In 1968, the company went public as Dollar General Corporation, reporting annual sales of over $40 million and a net income surpassing $1.5 million. Today, Dollar General is a leading discount retailer with more than 16,000 stores in 46 states. It was recognized by the Fortune 500 in 1999 and ranked #112 in 2020. Over the years, Dollar General has grown into one of the most profitable stores in the United States, with revenue reaching approximately $27 billion in 2019. The company maintains the founding family’s ethos of hard work and friendly customer service, with about a quarter of its merchandise still priced at a dollar or less (Dollar General, 2020). This report will explore Dollar General’s business strategy.

Business Strategy

Dollar General has evolved from a single wholesale store into one of the nation’s largest small-scale retailers. Its success can be attributed to a focused low-cost strategy, where comparable products are sold at lower prices to increase revenue and gain an advantage over competitors in their niche. The company primarily operates in rural areas, often distant from competition, with most stores located within 75% of the American population. In contrast, larger companies like Walmart serve about 40% of the population in the same areas (Garcia, 2020). By focusing on towns with 20,000 or fewer residents, mainly comprising lower to middle-class individuals, Dollar General can better meet customer needs by stocking stores with essential household goods and produce at low costs. The company also attracts customers beyond the low-income sectors by offering value items from national brands that are not strictly priced at $1. Dollar General prioritizes customer experience by implementing an easy-to-navigate layout and promoting an inviting atmosphere. The company plans to remodel 1,000 stores and build 975 new ones over the next year (Bhattacharya, 2019). Additionally, Dollar General leverages technology to enhance efficiency with initiatives like the DG GO! app, a scan-and-go payment solution. Since its launch, the app has been rolled out to 250 stores, with over 140,000 downloads and 25,000 monthly active users (Bhattacharya, 2019). According to its website, Dollar General’s foundation for growth is a passionate commitment to serving customers, employees, and communities (Dollar General, 2020).

Business Model

Dollar General operates using a closeout retail business model, selling products at clearance prices until the inventory is depleted. This model outlines how a retailer creates and appropriates value for its customers and from the markets. The company optimizes this model through “customer discovery” techniques, identifying customer preferences and shopping patterns (Ramos, Souza, & Esquivias, 2020). Dollar General has adeptly adapted to changing times while staying attuned to its customer base’s needs. Core products include household supplies, kitchen and dining items, food, beverages, produce, exercise and fitness equipment, and arts and crafts supplies.

The company carries trusted American brands like Clorox, Energizer, Procter & Gamble, Hanes, Coca-Cola, Mars, Unilever, Nestlé, Kimberly-Clark, Kellogg’s, General Mills, and PepsiCo, along with high-quality private brands that offer customers more affordable alternatives. These private brands include Clover Valley, Good & Smart, True Living, DG Home, Gentle Steps, Studio Selection, DG Health, DG Office, Comfort Bay, Bobbie Brooks, Smart and Simple, and more (Dollar General, 2020). Dollar General designs small, neighborhood stores with carefully selected merchandise to ensure a hassle-free shopping experience, focusing on the products customers want most (Dollar General, 2020).

MBA FPX 5006 Assessment 2 Strategic Analysis

Dollar General’s core is its customers, targeting low to medium-income families who shop on budgets. Most stores are located in small rural towns, facilitating face-to-face interactions between customers and employees, which aids in customer retention and brand building. The company employs over 90,000 individuals, primarily in customer service roles. In many small towns, customers and employees already know each other, fostering personal relationships that enhance customer loyalty. Most of Dollar General’s profits come from in-store purchases, although the company is expanding into online shopping. About 75% of its items are priced at five dollars or less, with most revenue generated from low-cost sales of household goods and brand items.

Supplies come from fifteen distribution centers, with the majority of products delivered by third-party firms or vendors. The connection between the business model and strategy is evident in the company’s emphasis on location. The abundance of stores in rural areas makes shopping more convenient for customers, coupled with the low prices and popular brands offered, promoting customer retention (Dollar General, 2020).

Corporate Strategy

Since its inception in 1939, Dollar General has grown into one of the most profitable stores in the United States, with revenue reaching around $27 billion in 2019. The company was recognized by the Fortune 500 in 1999 and ranked #112 in 2020. By challenging and evolving its business models, Dollar General transformed from a single store to the conglomerate it is today (Dollar General, 2020). Dollar General’s corporate strategy involves conglomerate diversification, representing a growth strategy where a company seeks to expand by adding unrelated products and markets to its existing business. The company continuously introduces new products to meet customer needs, with recent additions including their DG Fresh Brand produce.

This focus on health has boosted business, and offering and distributing their own produce has reduced costs. Dollar General has also partnered with Federal Express, increasing foot traffic by providing FedEx package drop-off and pick-up services (Bells, 2017). In 2020 alone, Dollar General opened 500 new stores, remodeled 973 stores, and relocated 43 stores. The retailer concluded the first quarter with 16,720 stores in 46 states. For fiscal 2020, Dollar General aims to open 1,000 new stores, remodel 1,670 stores, and relocate 110 stores, totaling 2,780 real estate projects (Russell, 2020). In 2004, a Dollar General office was opened in Hong Kong to oversee global sourcing operations through exporting and importing products related to Dollar General goods (Trade India, 2020).

Corporate Structure

Dollar General operates under a hierarchical corporate structure, a chain of command from senior management and executives to general employees. The company employs a CEO, Executive Vice Presidents (including a CFO and COO), Vice Presidents, Directors, and over 90,000 employees. Each Executive Vice President oversees a different business line, with employee growth rising alongside store openings (Dollar General, 2020). The company currently sources from suppliers and third-party distributors and is working on vertically integrating distribution and warehousing. While Dollar General previously imported products from China, additional tariffs imposed by the United States prompted the company to focus on continual negotiations with vendors, product substitutions, product reengineering, and diversifying the country of origin for products (Garcia, 2019). Although Dollar General does not have stores outside the United States, it is developing global relationships.

Strategic Fit

Dollar General’s business strategies are customer-centric, thriving due to their rural locations far from competitors and a focus on prioritizing customer in-store experiences. The company employs a careful merchandising strategy, creating an inviting and easy-to-navigate store environment while leveraging technology to enhance efficiency. Aggressive remodeling and renovation of stores, along with the introduction of new services like the Federal Express partnership, have increased foot traffic and expanded the customer base. The company’s business model, focused on customer preferences, has made Dollar General a popular destination for low-income and other American consumers. By continuing to innovate and adapt its strategies, Dollar General is poised for sustained growth and success (Garcia, 2019).

References

Bhattacharya, S. (2019). A ‘savvy operator’: Why Dollar General dominates the discount retail category. Retrieved from https://digiday.com/retail/savvy-operator-dollar-generaldominates-discount-retail-category/

Bells, S. (2017). Understanding Dollar General’s Business Strategies. Retrieved from https://marketrealist.com/2017/04/understanding-dollar-generals-business-strategies/

Dollar General. (2020). Retrieved from https://aboutus.dollargeneral.com/

Garcia, T. (2019). Dollar General, PVH, other retailers adjust their outlooks to soften the blow of tariffs. Retrieved from https://www.marketwatch.com/story/dollar-general-pvhotherretailers-adjust-their-outlooks-to-soften-the-blow-of-tariffs-2019-08-29.

Ramos, P., Souza, R., & Esquivias, P. (2020). The Elements of a Retail Business Model. Retrieved from https://www.bcg.com/publications/2010/strategy-elements-retailbusiness-model

Redman, R. (2020). Dollar General, Dollar Tree stay on expansion track. Retrieved from https://www.supermarketnews.com/retail-financial/dollar-general-dollar-tree-stayexpansion-track

MBA FPX 5006 Assessment 2 Strategic Analysis

Trade India (2020). Dollar General Global Sourcing Ltd. Retrieved from https://www.tradeindia.com/Seller-1401913-DOLLAR-GENERAL-GLOBALSOURCING-LTD-/