Dollar General CEO Discusses Future Direction
Richard Dreiling, the new chief executive officer at Dollar General, recently spoke with The Tennessean about the company he joined two months ago and what it will take to drive growth during trying economic times.
On joining Dollar General after two years running the Duane Reade drugstore chain in New York, Mr. Dreiling talked about those things that attracted him to the company.
“The business model to me is fascinating,” he said. “It serves smaller communities, a different demographic and it gives me the opportunity to come in and apply some of the retail disciplines, some of the principles, executed across other retailing segments.”
Mr. Dreiling sees higher prices and economic uncertainty as an opportunity for Dollar General to strengthen its business.
“The fact that there’s pressure on food, which is facing inflation right now, and on gasoline, bodes well for [Dollar General]. I think people are going to be looking for an inexpensive alternative to the channels that they’ve historically [shopped] in,” he said.
“Also, when you think about the economy and think about the big-box operators, they’re all talking about a smaller-box (store) format now. And that smaller format is where we’re keenly positioned already, and a format that we understand greatly as an organization,” he added.
As to future plans for store closings and openings, Dollar General’s CEO told The Tennessean, “We’re going to build approximately 200 new stores next year. We are going to remodel approximately 250 stores next year. I haven’t had enough time on the job yet to say how many more stores we might close.”
Operating in a price/value format makes cost control a high priority at Dollar General.
“We’re going to focus on taking out costs that are redundant … and we’re also going to look at what I call unproductive inventory. You don’t want to reduce inventory that the customer expects to see on the shelf. But other products go through a cycle where they are very hot and generate a lot of gross profit … and then where they fall out of favor and get discontinued,” he said. “What we want to do is manage the inventory on the back end of the product cycle… If anything as we take out some unproductive [product lines] we’re actually finding items that we can add back into our mix. As we gain legs on this, we’ll reduce some inventory but replace it probably with more productive items that the consumer is looking for.”
Discussion Questions: Do you think that Dollar General and other dollar stores are in a unique position to pick up market share during uncertain economic times such as those being experienced at present? Do the dollar stores have a real opportunity to expand their reach into the middle class or is this mostly wishful thinking?
A golden opportunity! But just because the opportunity is there doesn’t mean that they won’t have to work to draw in their new potential customer base. As an old F.W. Woolworth manager, I can see the similarities between the energy crisis of the mid-70s and today’s energy crunch. Then as now, you need to reach out.
The first thing General Dollar and all other Dollar stores need to do is clean up their stores. CNO…clean, neat and orderly. They may have to spend a few more dollars on salary to do this, but the results will more than offset the cost. And, surprise, surprise, this will also increase their normal low income customer base.
It might be useful to segment “value shoppers” in this discussion between those who have money and are simply looking for a good deal and those who are driven to value outlets by necessity. As David Livingston pointed out, Club stores did very well in the fourth quarter because people with money got more value-conscious. That is the bulk (sorry) of their business.
With 64% Household Penetration now, Dollar stores are certainly attracting some of these shoppers as well. But if the core of their business is families who shop there because they have little money, well, in a slow economy they have even less. So this may not be the boon for Dollar stores that we expect. After all, Dollar stores exploded during relatively good economic times.
There’s no question that dollar channel retailers are in the sweet spot for an economic downturn. The big question is, how much of the new business can they retain after things start to get better?
A few lifetimes ago, I was a store manager for a big EDLP operator whose business model was similar in many ways to today’s dollar channel operators. I spent a lot of time prowling the aisles, talking to customers, etc.
One day, I saw a long-time regular who I had not seen for several months. When I asked why, she said that her husband got a nice promotion, so now she could afford to shop the hi-lo competitor across the street. She came in for a few things for a while, but eventually disappeared from my store.
Dollar store operators are likely to face a similar exodus. The smart ones will be ahead of the game change and be ready for it.
The appeal of the dollar store concept is increased during tough economic times. But that translates to a temporary sales increase. As the perception of a recession fades, customers return to their brand choices.
Because stock in dollar stores is never static, that in itself prevents it from being a shopper’s destination point and more like a ‘let’s check it out today and see what’s there’ event.
Absolutely, during tough economic times, there’s more interest in the dollar stores. DG has positioned themselves well. They are in small towns, convenient and cookie cutter. They have the essentials (milk, bread, pet food, and cleaning products) all at very good prices. They started over 15 years ago with their own brand products and they are good in quality.
DG’s distribution network is top notch but their weak link is the quality of in-store training and customer service. Many times you walk into a store and the aisles are blocked by metal carts, or boxes waiting to be stocked. Also, it is common to be at the cash register to pay and not find anyone to take your money.
If DG fixes their in-store associate quality and management training problems, they will far exceed the others.
The economic cycle is certainly playing to the advantage of those retailers catering to price.
While Dollar General has a core customer base, tough economic times that include high fuel and increasing food costs are enough to tip a significant segment of our consumer base towards a value retailer like Dollar General. Wal-Mart’s re-emphasis on low prices has certainly paid off.
Low prices alone, however, are insufficient to ensure Dollar General’s success. As Richard Dreiling notes, he must focus on his inventory and assortment. Merchandising and operations are crucial to ensuring that both his current and potential new customer base will want to shop at Dollar General.
The opportunity is certainly on his side.
I think dollar stores, off-price retailers, and warehouse club concepts have a great deal to gain in the current and future tight market. There are several things they must do, however. The marketing and advertising strategy must show the potential shopper that shopping in their stores is the smart thing to do.
People don’t want to be shown how hard times are, they already know that. They want to see that they can still live the good life, have all the things they and their family want, but if they are smart they don’t have to pay full price. It is not only smart, but considering the limited availability of some items, TIMING becomes really important. I am sure there will be or already are out-of-work shoppers who have the timing down as to when “the good stuff” hits the sales floor. How about offering early opening hours, free coffee, or outside the store benches for those first shoppers?
The stores need to stay real clean, not messy or torn up by so many shoppers in them. Give the unemployed or nervous professional a safe place to park their new pickup or Mercedes. Be a friendly place to shop, don’t act rude or surly just because the customer is saving money with you. Treat these customers with respect and let them keep their pride.
One personal strategy I would use is to not concentrate on comparable value price signing, but rather, how good a value or performance factors the product represents, and “you save money.”
Remember, the ultimate goal is to win customer loyalty, not just sell them when budgets are tight. We all saw this after the big supermarket strike in California years ago. Shoppers discovered their independent, local market and specialty markets, many of them never leaving.
Great time to be running dollar stores. Just as the latest numbers have been great for Wal-Mart, the same should be true for most of the Dollar Stores. Look at the three main things they have all build their business on.
1. Perceived low price;
2. Location: Usually low cost space – easy to get to plenty of parking;
3. In the last couple of years they have gone to a broad assortment of merchandise which in many cases makes it a one stop shop.
Yes, I do think companies like Dollar General are in a good position to increase sales. Oddly, the big box club stores recently claimed that they were in a good position to increase sales during difficult economic periods. I disagreed and said the dollar stores were in a better position because if people don’t have much money, they don’t have the ability to buy expensive club items in bulk. Poor people don’t buy in bulk. The fact that the low income inner cities are littered with bodegas selling beer and cigarettes individually is proof of that.
One of the biggest things they have going for them is the ability to enter a market at a much lower cost than a super center. This allows Dollar General and their peer group to locate stores closer to the customers they want to target. With gasoline above $3.00 per gallon we’re just now starting to see customers base their shopping habits on the distance they need to drive.
The dollar is weak against foreign currencies, restrictions on Chinese imports are increasing significantly, and discretionary income has hit the skids. None of these influences bodes well for business at dollar stores. First, dollar store inventory will cost more and more. And second, family food expenditures are the first to return to previous levels when budgets are readjusted during economic downturns–both individual and systemic. This means that while families may dip into dollar stores briefly, they will return to their original food purchasing habits and expenditures after adjusting other budget items.
Dollar General, like all dollar store companies, will improve profits by building very few new stores, as few as possible. The category has too many competitors. The better uses of capital: merge with your competition or return the profits to the shareholders. If you cannot merge, see if you can swap locations regionally so that regional market share dominance can be established. The best cure for retailing’s ills: less competition.
Two factors come into play here. First, dollar stores have been greatly improving their product selection and presentation. It still is not up to other retailers, but it is improving. By improving the presentation, more consumers will consider shopping the store which will increase sales.
On the other side, store site selection is geared to the lower income segment. It is unlikely consumers will drive out of their way to shop dollar stores with the gas prices increasing. The store will have to settle for customers near the store. The net effect is a recession will not significantly increase sales.
Selling evolution is partnering with consumers to help them make better choices for themselves. Being frugal in difficult economic times or thrifty during good economic times are sound common sense food purchasing practices. I see a country who is ready to embrace common sense. Dollar General should invest in its customer service teams, its assortment, merchandising tactics to create a neighborhood focused, price conscience, and with easy shopability experience.
This is great time to heat up the General store train.
There are a few things about the dollar stores and particularly Dollar General in today’s environment that I believe puts them in an outstanding position.
Over the last several years, I had been very impressed with the chain drug metamorphosis into being part convenience store and their success with that model. In many ways, the same applies to dollar stores now. For years they have grown in the underserved urban and rural markets. Over the last several years they have begun to put locations into blue collar areas as well. With today’s economic conditions, and the prospect of $4 a gallon gasoline this summer, I believe they will continue to gain momentum in that area.
The addition of Rick Dreiling to the DG team is an outstanding move. In an overall retail environment that generally lacks vision and creativity, Rick has been a cut above and performed well in his roles at Safeway, Longs and Duane Reade. The last two stops with their unique customer base and merchandising assortments have allowed him to continue to round out his merchandising skills which are first rate.
Finally, the continued positive momentum in this channel will continue to attract major manufacturers to the table to collaborate in a more creative manner with this COT. P&G, Kraft and PepsiCo have performed well to date, but they represent just the tip of the iceberg.
Bottom line is a bullish outlook for this chain and class of trade. As has been mentioned, an ingredient for sustained success will be the retail formula that evolves from this period where they will certainly have more shoppers in their stores.
Dollar General and Family Dollar sell multi-dollar priced items besides the “dollar” items. They are positioned properly.
Hypothetically, I am a middle class shopper accustomed to stores that are clean and stocked–big problem for this category of retailers! No sense of cleanliness and always cluttered. So cluttered, they violate ADA mandates. As a result, there is a one-time visit and no more! Dollar Tree is the same!
Next, it’s poor service as these stores set up in older locations, buy cheap products and then there is no help in the place to STOCK, check out customers and so on. What an operation! For example, these stores are at 5% – 7% labor when 1% more will stock their stores or checkout their customers which creates a return visit. Wishful thinking!
Dollar Stores have the advantage of cost and convenience. In these days of hurry and high gas prices, they win.