Dollar General Industry And Competitive Analysis

Dollar General Industry and Competitive Analysis

INDUSTRY

The first step to understanding a company is to examine its industry. There are four main areas to consider when analyzing an industry. These include:

* Competitors

There are several different types of stores within the discount retail industry, and for comparison's sake, the industry is further broken into many segments. DG is in the market segment known as the dollar store category. As a result, competitors such as Wal-Mart are in the same industry but not the same peer group. Comparisons will be made throughout this report to Wal-Mart and other big firms because they tend draw some of the same customers.

* Customers

Retail merchandise stores attract many different types of people. For example, Wal-Mart targets all income level households, whereas dollar stores such as DG serve "need-to" shoppers. More specifically, the target customers of DG are normally in towns with less than 20,000 people and have the following characteristics:

* most customers are in the low-, middle-, and fixed-income brackets

* 81 percent of customers are female

* 44 percent of customers are over the age of 55

* 48 percent of its customers earn less than $30,000 a year

* 26 percent of customers have incomes lower than $20,000

* most customers live within five miles of the store

DG serves a narrow market range and offers low prices. It strives to meet the needs of lower and lower-middle income consumers. The company can be classified as having a focused cost leadership strategy according to Porter's Generic Strategies Model

* Merchandise

Stores within the discount retail industry offer a wide variety of products at low prices. Discount stores offer brand names but place an emphasis on brands unique to their own stores for a lesser price. Trends toward perishable items are becoming more apparent in the market as well. In 2004 DG started added in refrigerated coolers to there many stores which are filled with frequently purchased items including milk, dairy products, eggs, luncheon meats and selected frozen foods.

The store offers value to its consumers by having private label brands, and claims to "offer name brand quality at a very special price." The company's unique brands are Clover Valley, DG Guarantee, Open Trials, and Crossbow. The private labeled brands are tested each year to make sure the items meet the consumer's quality expectations.

Everything sold at DG comes with the Dollar General guarentee. If a customer is not satisfied with a product offered by Dollar General a full refund or an exchange is offered.

Dollar General continues to keep its cost of goods low by offering only a limited assortment of goods.

* Location

A business can only be successful if it is placed in a region where it is likely to strive. In the retail industry, stores are positioned accordingly. Larger firms, such as Wal-Mart, are present in all 50 states and have grown internationally as well. Smaller firms, such as Family Dollar and DG have not expanded into all 50 states, nor have they ventured into foreign markets. In fact, they are only present in 35 states. Each store has found success in different economic regions as well. For instance, Target is considered an "upscale discounter." Location, in combination with competitors, customers, and merchandise, all affect a company's business strategy.

Dollar General stores are located in small towns or neighborhoods of more densely populated areas, creating the "right" target market for their store. The stores are usually placed at a site visible from a major intersection. Dollar General believes it can offer better services by remaining small and conveniently placed; while larger "super centers" are forced to build out of city limits

COMPETITIVE ANALYSIS

DG has a current competitive advantage within its industry. DG maintains this advantage through a unique cost-efficient approach. This low-cost structure is apparent through low inventories, low advertising costs, and location of stores in rural areas. Though profitable in the short-run, its current advantage is not sustainable. It is not sustainable due to:

* rivals' similar competitive strategies

* low barriers of entry into the market

* the absence of a differentiation strategy

When examining competitive advantage, it is also important to consider the market and take into account the existing competition against larger firms.

Small firms often find it difficult to compete with larger firms. Though there are some disadvantages DG will never be able to overcome due to its size, small firms have advantages over their larger counterparts.

Advantages

* convenience

* absence of long lines

* customer service

Disadvantages

* low purchasing power

* smaller pool of resources to allocate

* less extensive market

Improving the store internally with more resourceful employees, better lighting and displays, and more organized floor plans will start to change the image of Dollar General that the average public holds. A more respectable store will lead to an increase in customers. Dollar General will then begin developing a system of a more sustainable competitive advantage among the small and large firms of the similar industry.

DG has a current competitive advantage within its industry that is maintains through a unique cost-efficient approach. This low-cost structure is apparent through low inventories, low advertising costs, and location of stores in rural areas. Though profitable in the short-run, DG's current advantage is not sustainable.