Dollar General And The Extreme Value Retailing = Industry - Internal Analysi

1. What is Dollar General's strategy to compete?

Dollar General has done an outstanding job of consistently implementing a focused low cost strategy. The company's strategic intent of being a customer-driven distributor of consumable basics and its effort has resulted in 6,300 stores in 27 states, $6.1 billion in sales, and 54,000 employees.

Dollar General Stores target large families, low-income and fixed-income and blue-collar households, and women ages 55 to 64. (C-87) Dollar General has determined that the yearly earnings of its customer base is $30,000 a year and below, and that one-third of its customers earn less than $20,000 a year.

Dollar General's strategy at being a low-cost provider is evidenced by minimizing labor and advertising costs, offering a limited assortment of merchandise, using a single merchandise presentation, locating in second tier shopping strips with low rents, and investing in technology and distribution. (C87).

* The most critical element of the company's strategy for success was keeping its costs to a minimum through product selection, distribution strategy, advertising, and use of technology (C96).

* By locating at least half of its stores in small towns, Dollar General took advantage of lower lease rates in those areas. (C-96)

* In the early 1990's, 13 direct mail circulars were sent out to the public. In order to stay within its strategic focus, advertising costs were cut back. Advertising as a percentage of sales dropped from 4 to .5 percent as a percentage of. When the company eliminated most of its direct mail advertising, some store sales seemed to decline initially. However, the change proved beneficial in the long run. Lower costs allowed the company to lower its selling prices, which led to increased sales (C96).

* In order to keep costs down, the company needed to have the latest technology. A huge improvement occurred in 2002 when the company went to a perpetual inventory system in its stores. This enabled the company to track inventory better. (C-97)

* Dollar General concentrated on building stores close to distribution centers in an effort to hold down distribution costs. From 1995 to 1997, the average distance between stores and the nearest distribution center was reduced from 600 miles to just over 300 miles. (C-91)

* The key to achieving high levels of productivity is the "Keep thing simple," which included reducing the number of SKUs. "Customers do not need a wide selection of merchandise." In addition, Dollar General increased hard lines floor space, as hard lines offered faster inventory turns. (C-90)

The Dollar Store industry differentiates itself through low prices in convenient small stores (C87), but within the Dollar Store industry, Dollar General does not differentiate themselves.

2. What does a SWOT analysis reveal about Dollar General's position?

DG's Resource Strengths and Competitive Assets

 Dollar General has a reputation for value and philanthropy with its target market demographic and has sponsored literacy programs and learning center stores. Since 1987, DG had made each of its stores a place where people could go to find out where to learn to read, take the GED classes or test, or sign up with a tutor. By 2001 the literacy program had helped more than 50,000 people. DG also offered grants up too $20,000 to nonprofit organizations to be used for programs targeting youth education, literacy, self-esteem and mentoring. By 2000, DG had opened 7 learning center stores that provided training, educational services, and access to needed merchandise for inner-city residents.

 Fortune 500 company ranking 7th in 10-year earnings per share growth.

 Has grown rapidly in the 90s with more than 6,000 stores in 27 states by 2002 (up from 1522 at the end of 1991), resulting in sales of $6.1 billion.

 Overhead costs have been kept to a minimum through product selection, distribution strategy, minimal advertising, and the use of technology.

o Minimal advertising expenditures - In the early 1990s DG sent out 13 direct mail circulars annually. It then cut back to sending direct mailings to support the openings of new stores. When DG eliminated most of its direct mail advertising, same-store sales seemed to decline initially. But, the change proved beneficial in the long run. Lower costs allowed the company to lower its prices, which led to increased sales. Advertising as a percent of sales dropped from 4% to .5%, helping to explain the increase in net income as a percentage of sales from .8% in 1986 to 5.7% in 1998. It offered no discount promotions or sales.

o Excellent distribution capability with new automated replenishment and allocation systems - kept merchandise in stock and distributed to store locations. To hold down distribution expenses, DG built stores close to its distribution centers and new distribution centers were built to support expansion into adjoining geographic areas. In conjunction with the automated replenishment and allocation systems, the company implemented EDI purchase ordering with 600 core vendors

o In 2003 systems to support perpetual inventories were implemented in all DG stores. The perpetual inventory system allowed the company to track store-level inventory at the SKU level and was expected to result in better inventory management.

o Investments in technology also included a new merchandise planning system to assist with purchasing and store allocation decisions and satellite technology for improved communications between stores and the corporate office.

 Abundant store network in relatively low-cost areas too small to support a super-center. By locating at least half of its stores in small towns, DG took advantage of lower lease rates in those areas.

 Continued its growth strategy, even when the accounting investigation was under way. From 1998 through 2002, its sales revenues doubled to $5.3+ billion.

 The company has been responsive to customer needs and has demonstrated a willingness to adapt its business model to meet customer demands. As stated by Cal Turner, "our agenda has to be to do everything we possibly can to be responsive to her needs."

o The Turner family opened the first Dollar General store in 1955 with every item in the store priced at $1 or less, and with a wide variety of closeout and discontinued merchandise.

o Two acquisitions in 1983 and 1985 suddenly added 50% growth and