Will Gas Stations Fuel Dollar General’s Growth?
Dollar General certainly isn’t the first retailer to attempt to drive more traffic to its stores using fuel pumps. But the fact that the nation’s largest dollar store chain is testing a gas station for the first time is significant. Should it succeed, Dollar General will have another asset to draw shoppers away from competitive channels.
"Dollar General continues to innovate to provide convenience and value for our customers," said Rick Dreiling, chairman and CEO, in a statement. "This project to test a fuel offering is consistent with our strategy of continually looking for new and better ways to meet our customers’ needs for value and convenience and enhancing our position as America’s general store."
The test in Hanceville, AL comes as part of a deal with Mansfield Oil. Dollar General and Mansfield will evaluate the results of the pilot over the next year to determine if the concept makes sense to expand to other locations. Dollar General currently operates more than 11,000 stores in 40 states.
Discussion Questions
Do gas stations fit with dollar stores? What are the implications for Dollar General and its competitors should the gas station test prove to be a success?
According to the National Association of Convenience Stores, only 27% of convenience store fuel trips result in in-store purchases. Even at this low conversion rate, fill-up motivated trips contribute more than $19 billion dollars to convenience store revenues each year. Though the numbers are sure to be different, dollar stores are certain to reap sizable revenue benefits from the successful introduction of fuel pumps. And, the more fuel shoppers enticed to make purchases in the store, the higher the revenue boost.
Maximizing the impact of fuel stations is all about marketing. On the plus side, the gas station format lends itself well to additional marketing and merchandising opportunities for dollar channel retailers. Outdoor advertising pump toppers, window displays, stacks/displays outside the store (e.g. soda pallet), and ad or video displays on top of pumps has proven effective at driving fuel buyers into the retail store, setting the stage for the revenue infusion mentioned above.
This sounds odd, but just odd enough that it might work. My concerns are with the gas. For the most part, no one can get price advantage on gas. Dollar General might get away with selling milk $1 cheaper per gallon, but certainly not gas.
With over 11,000 doors, Dollar General is offered plenty of upside to add incremental revenue to the top line. They are known to their customer base as a channel that helps them save money.
Gas, groceries, and everyday household items provide frequency of visits and awareness. Dollar General does need to build a stronger understanding of their customer base. Having further information about those customers, via a gas card, should lead to the vital insights that Dollar General needs for future growth.
All decisions are destined to be driven by data. Having these insights about customers, positions Dollar General to hold “smart data” in their hands.
Strip malls are not the prime locations for add-on gas stations. Today’s article did not mention the numeric potential for the expansion. Pushing around the weight of all 11,000 stores needs to be thinned out a bit for site practicality.
Attrition is the second part of the impact. The gasoline market is losing stores daily for several reasons, price fluctuation due to the commodities exchange volatility and volume pricing with and without delivery being the biggest of all. This market may be a little too dangerous even for Dollar General.
Dollar General has 10,000 stores in 40 states. They have signed on with a strong partner in Mansfield Oil. With a tremendous amount of stores in rural locations, they have a strong opportunity to be competitive at street price.
Fuel promotions are as strong a promotion capability that they could have. Due to the size of their stores, it doesn’t take much of an increase in footprint to add a 3-4 dispenser fuel station. With the number of locations and expanse into 40 states, their buying flexibility gives them a great advantage.
My guess is that their pilot will not last long and their growth in adding fuel to their offer will be as aggressive as their store growth.
Susan is right when she states one of four customers shop in a c-store when they buy fuel. However, fuel is definite destination driver for c-stores as evidenced by the ability to buy fuel being one of the top reasons people select a particular c-store. Location is also a top reason.
Dollar stores already have location advantages. Adding fuel to the mix provides an additional strong reason for customers to stop.
What c-stores have learned is that creating a fueling habit also reinforces the in-store shopping instances. I expect this to be true for dollar stores as well.
This will all “fuel” frequency of trips and I think it could work brilliantly for DG. And, imagine a rewards-type club based on purchases at the pump that “drive” traffic in for their core offerings.