Dollar General Essay

Dollar General is the leading dollar store retailer in the United States with 2011sales revenues of $13 billion. It evolved since 1939 from a family (Turner) owned business to a publicly-traded company to a de-listed private investor-owned company in 2007. In 2008 Mr. Rick Dreiling, the current CEO and Chairman of the Board, began to steer the company in new directions.  The operating priorities were to drive productive sales growth, increase gross margin, improve processes and information technology to reduce costs, and strengthen the Dollar General culture of serving others. Dollar General began to experience a decline in sales and store expansion as early as 2005, prior to the recession of 2007. As a leader in the industry, with its primary products being lower-priced consumables, Dollar General turned around under the new leadership and ownership structure to again begin increasing store expansion, sales and prospects for increased revenues and profits. At the present time Doll ar General make strategic use of its core competencies – leadership under the CEO, product selection expertise in merchandise sales, their organizational style and structure, the power of the retail store chain and distribution centers and a quality shopping experience to move forward towards achieving their operational priorities. However, Dollar General faces challenges that are both internal and external. They have strong leadership but with 10,000 stores leadership, culture, and values are hard to effectively trickle down through the whole organization. Improving the customer experience includes having highly motivate employees with a corporate culture of service. Dollar General has succeeded, in part, because they have sought out markets that the big box companies like Wal-Mart do not target, at least by a smaller scale easily accessible store in close proximity to consumer homes. This means, however, that the primary market of the company has tradtionally been in lower income neighbourhoods: it suits the price consciousness of consumers and aligns with lower priced commercial real estate. It is an irony that Dollar General has prospered during the recent recession. They must strategically align their core competencies with the external competitive environment, and this will include a need to possibly shut down poorly performing stores at the same time as they seek new store expansi ons. These priorities will be best served with a strategy of expansion of higher concentration of stores in existing successful markets, and setting up stores in new areas — new markets within existing states and new states with low or no current presence of Dollar General Stores. Introduction Dollar General Corporation is the largest discount retailer in the United  States, the company offers consumer staples merchandise in four categories: consumables, home products, seasonal, and apparel. As of February 25, 2011, Dollar General operated 9414 stores located in 35 states. Dollar General was founded in 1939 by J.L. Turner and his son as a whole-sale business. The first Dollar General store which is also the first dollar store in the States was opened in 1955 in Springfield, Kentucky. In the rest of this report, we will look at what happened to the Dollar General these years and have a comprehensive analysis of the company, which include the external, internal and SWOT analysis. Also we will provide several strategies recommendations to keep the company in the good path. Analysis of the External Environment In order to analyse the external environment of the discount retail industry, we conducted PEST analysis (see exhibit 1) and Porter’s Five Forces analysis (see exhibit 2) of the industry and these methods of analysis have allowed us to identify several most important opportunities as well as threats of the discount retail industry. First, there are several opportunities within the discount retailer industry. With the uncertainty of economy within the U.S., discount stores are getting more popular as consumers are facing the situation of lower purchasing power. Lower income neighbourhood would really be the ideal place for discount retailers to demonstrate their marketing strategies and to locate their stores. Also the use of technology can really improve their operational efficiencies. At the same time, there are several threats that the industry is facing. From the political aspect, there are trading issues between U.S. and countries where the retailers are importing merchand ises, higher tariff brings down the profits for companies. Also, the rapid growth of online-stores raised the competition within the discount retailing industry. Intensive competition within the industry resulted companies constantly reducing prices and profit margins. Analysis of the Internal Environment Value Chain: Primary Activities Dollar General (DG)’s inbound logistics consist of offering consumable, home products, seasonal and apparel merchandise from various suppliers. They also have stores located in many different states to take advantage of attracting  more customers. DG’s stores are either in freestanding building or in strip shopping centers to save on building costs. For outbound logistics, Dollar General hires third-party trucking companies to complete deliveries. The trucking companies transport the merchandise to a store from their nearest distribution center. DG also installed a voice pick system in the distribution centre, which allows employees to communicate with warehouse software systems by speech recognition. This would make the distribution costs go down for DG when the fuel cost increased. Dollar General operates its stores in leased space and also in their owned stores. This allows them to lowers their limited maintenance capital, low occupancy and operating costs. DG keeps building new stores and remodels its stores to make them easier to shop and increase store’s sale productivity. DG also tried to make its store’s look standardized across the chain. Dollar General has its own marketing which focuses on four variables: Price, Place, Promotion and Product to allow the company to attract existing and new customers. They create value through various products by increasing private labels products in consumables and non-consumables and through many stores across different regions to bring their reputation to their market. Having newspaper inserts and a web site allow DG to increase their brand image nationally. Dollar General’s service is done efficient and effectively by staff-scheduling model. This system would help to ensure the staff available at different times to the level of sales volumes during the week. DG provides training to their employees and focus on how to recruit and retain their high-performance employees. Value Chain: Support Activities Dollar General’s firm infrastructure has Richard Dreiling as CEO and chairman of the board. He previously was the CEO and board chairman of the largest drugstore chain in New York City. He is experience and knowledgeable in the food and drug retailer industry. Under his leadership, there are four important priorities identified by the managers, which are: driving productive sales growth, increasing gross margin, improving processes and information technology to reduce costs and strengthening the DG culture of serving others. Each typical store has one store manager, one assistant manager and three of more sales clerks. Dollar General has great human resource management. They employed more than 85,000 full-time and part-time employees. They have focus on how to improve recruiting, training and retained their employees. Dollar General has great technology and development. They installed a voice pick system in the distribution centre to decrease the distribution cost due to high fuel cost. They also installed new analytical and monitoring tools to assist with inventory shrinkage reduction efforts. This would avoid them from the loss of merchandise due to shoplifting, employee theft, damage and obsolescence and allow them to increase gross margin. Moreover, having a web site to allow customer to place orders online is another technology for DG to bring customer to store. Dollar General’s procurement is by purchasing merchandise through various suppliers, importers, agents, and other third parties. DG offers brand name, consumable merchandise and private label brands. DG also uses direct sourcing to get products to their store in order to control costs and increase its gross profit. They also held licenses to provide various trademarks and brands to the stores. Core competencies (Appendix C page Based on VRIS framework, we have identified five core competencies of Dollar General. These core competencies are Richard Dreiling (CEO), consumable merchandise, benchmark organizational styles and their retail stores chain. The separate evaluation of each of these competencies can be view in Appendix A. SWOT Analysis Strengths Dollar General is considered to be the largest retailed stores for selling merchandise mix priced at $1 or less in the US with more than 9400 stores in 35 states as of February in 2011. They sell consumable products at a very low price which attract more discount shoppers during recession. Their marketing strategy on 4Ps allows them to attract more and new customers. DG has the ability to catch market trends and adjust their product mix accordingly. They also create a fast and convenience shopping experience for consumer. They also have a very strong financial since they leased most of their stores and purchased leased stores during weak estate market period. Therefore, they have very low cost on capital expenditure. Their staff scheduling model allows them to make sure employees available during peak time. Also, the voice pick system in the distribution centres helps them to reduce distribution costs dramatically due to increasing in fuel cost. Moreover, the standard design in each of the retail store has helped them to increase sale productivity and easy to shop for customers. Weaknesses Dollar General has many weaknesses in its operations. They have to hire third party truck to deliver most of their merchandise, which could lead to delay in delivering merchandise to stores since they do not have control over the trucking company’s operation. DG has initiative to remodel and renovate their existing stores which could dramatically increase their debt because they have over 9000 stores. Also they are late on introducing online orders in 2007. As a result, they could lose on bringing more customers to know about their brand image. Their human resource management is problematic because they did not have clear policy on overtime pay and inequality salary due to gender. This could cause their reputation badly and financially hurt as there were cases where employees sued them over those issues. SWOT MATRIX: For the SWOT matrix, we have determined several things to be of importance in the following table: SWOT Matrix Strength 1. Low operating cost model 2. Large scale in term of retail stores 3. Strong finance Weakness 1. High cost on capital structure due to renovation 2. Late on introducing online order program 3. HR management is inefficient Opportunity 1. Economic uncertainty helps dollar stores 2. Low income Neighborhood 3. Use of technology 1. Entering global market(S3,O1) 2. Attracting more customers from different income groups(S2,O2) 3. Improvement on operational structures(S1,O3) 1. Opening new stores during economic downturns(W1,O1) 2. Upgrading online-order program(W2,O3) Threat 1. National trading issues 2. Rise of online-stores 3. Intensive Competition 1. Increased market share reduces the competition(S2,T3) 2. Financially healthy helps supporting online operations(S3,T2) 1. Redesigning online-store for better shopping experience(W2,T2) 2. Transferring cost on capital structure for merchandise mix(W1,T3) Assessments: (Appendix D page The mission statement at Dollar General is, â€Å"Serving Others. ‘For Customers: Convenience, Quality, and Great Prices. For Employees: Respect and Opportunity. For Shareholders: A Superior Return. For Communities: A Better Life’.† Based on our evaluation of this mission statement, we came up with a total quality score of 71% (Appendix B page †¦We felt in the mission statement that the purpose of Dollar General, services/ products offered, their competitive advantage, how they do to survived, how they treat  customers and positive public image to stakeholders are clearly outlined in the mission statement. Dollar General does not establish what their scope of operations is, does not create a shared sense of value among employees and does not explain the technology or innovation in their operations. Dollar General definitely has a strong mission statement, but could improve on a few aspects to make it better. Objectives of Dollar General are to increase mark et share in product and services, achieving high technology in operational processes and boosting company’s reputation by serving others. The company managers under CEO’s leadership drafted firm’s corporate governance principles. Dollar General has a board of directors and CEO is the chairman of the boards. Rick Dreiling, CEO, has extensive knowledge and experience in food and drug retailer. DG’s Top Managers are made up of local stores managers who allow firm to identify directions for the whole company. This helps for tighter unity among the upper and lower level managers within the firm. Strategic Alternatives 1. Uniform Branding and Functional/Facility Design Description: Create consistent signage, logo, brand uniformity, including greater internet presence. Apply across advertising and promotion mediums. Standardized store (floor & shelf) layout, and build private store products under improved branding efforts. Pro: Increase the square footage of sales (e.g. 10,000 sq ft building; 60,000 sq ft sales area) Pro: Create uniform, time-saving shopping experience Pro: Improve and standardize surveillance to reduce shrinkage from theft (large part of theft from employees) Pro: Increase sales per selling space Pro: Increase profitability through higher margin building of private store brand Pro: Store brands manufactured through low-cost East Asia manufacturers under private label Con: Most stores are leased – hard to find uniform size, shape, etc. Con: National brands still a consumer preference in many groups (such as higher income) Con: Private ‘branding’ or brand building may not be as important to value-conscious price-driven consumers 2. Human Resource Development – More Managers, Assistant Managers, Performance Bonuses Description: One of the goals of the company is to offer higher living standards to employees. More managers and assistant managers allows for non-hourly monthly wage, with base salary plus profit bonus potential. Pro: Reduces high staff turn-over Pro: Reduces shrinkage from staff theft Pro: Increases productivity and customer service (e.g. Staff more willing to rotate stock and presentation such as for seasonal goods or lowering and strategically placing stock that is shelved Con: May be perceived as offering a job title without wage increases Con: Increases expectations of staff Con: Could lead to higher wage costs, reduced net profits (if profit sharing), need to offer benefits (health insurance) Con: Less flexibility with part-time employees and cyclical/seasonal trends 3. Expansion to New States/More Stores Description: Plans are underway for expansion to states such as Connecticut, New Hampshire, Nevada. Presently they are in 35 states; states like Arizona, Colorado, Delaware, Minnesota and Maryland all have less than 100 stores. A major business and population state like New Jersey only has 44 stores. New stores can be added to existing states because of local market (3 to 5 mile radius of stores) in all areas: city center, suburbs, rural areas. Pro: Resumes a past successful approach to expanded sales revenues and profits Pro: Shutting down of unprofitable stores, and new strategies, better suited to expand Pro: Recession has created many low-cost retail lease opportunities Pro: Many of the highest density states with most stores in ‘poor’ southern areas; major markets like New York state, Colorado and others are greatly under-served. Good opportunities. Pro: Regional distribution centers gain economies of scale and other efficiencies with enough stores; target areas wit h less-stores-per-distribution ratio Pro: Company has built high capability and advantage in low-cost store openings Con: Leases, even at lower prices, generally involve 10- to 15-year commitments Con: Recession still may be affecting employment, incomes and  sales patterns Con: Very low brand familiarity in new states Con: Threat, although small, of taking business away from other Dollar General stores if in higher per-city concentration 4. Target Higher Income Consumers Description: Higher income consumers have been shopping more at stores like Dollar General. This does not have to be solely for increasing purchasing power during recession. Many people of all incomes enjoy ‘value’ shopping. Increased focus on higher income consumers can be by increasing traffic to existing stores or new stores in more affluent areas. Higher income consumers may also have greater access to home computer, internet and preference for internet shopping. Pro: Increase per-customer total spending per visit, a main goal of current strategy Pro: Higher income consumers have means and ability to travel further – higher opportunity cost for their time though Pro: Allows for greater chance to sell national brands and higher price (closer to $10 range) goods Pro: Increased revenues and profits Con: Costs more to advertise/promotion to this new target audience Con: External advertising is more expensive and difficult to measure directly Con: Setting up stores in more affluent areas will have higher land, taxes, lease costs Recommendation: Alternative 3 — Expansion to New States/More Stores Implementation Plan The first step in the expansion plan is to identify the two paths of increased store numbers: (1) more stores per established markets and (2) new stores in new markets. (1) More stores in established markets Established markets have the advantage of useful sales statistics. Each area can be analyzed in terms of the total number of stores in an area, stores and sales revenue per population in the city/region, and total number of   stores, including competitors. These areas have already experienced within or intra-area exapansion. Impacts of higher concentration can be estimated. These patterns should be duplicated where possible seeking an optimum level of stores in a market. One of the great advantages the company enjoys is that most sales come from within 5 miles of an outlet. Even in cities with a high number of Dollar General stores, there remains a great deal of available market zones. (2) New Stores in New Markets Selecting new states to expand to and create new market presence can be guided by existing and planned distribution centers. Distribution centers are key to streamlining a uniform system of inventory and logistics. For example, relatively ‘new’ states with a lower density of Dollar General stores but with an existing under-utilized distribution center, with profitable stores, is the key criteria for new market selection. Other market analysis for new city/state markets can follow the patterns that have proven most successful in recent (past decade) expansions. Not all of the alternatives are mutually exclusive. The expansion to new stores and new markets more easily facilitates other goals such as improving store design and layout improving shopping speed, access to goods and higher density shelving use. These are tactics easier to achieve when selecting new properties than in remodelling existing buildings. Setting up new stores in new states may also be an opportunity to try out new labor-relations, including altering the mix between management (salary) positions and wage positions. However, to assure the most flexibility new stores and markets should begin with experienced store managers with wage employees. When new stores are in or near existing stores and markets it offers the chance for promotion of existing employees. The strategy is not simple expansion in terms solely of increased added store numbers. The strategic goal is to expand to new profitable markets and this includes the ancillary actions such as monitoring and closing poor performing existing stores. This blends opportunities while overcoming weaknesses towards higher profitability and sustainability. Implementation pace and schedule. With nearly 10,000 stores, and average expansion in the years between 2004-2009 inclusive being 354 stores, there are no simple decision criteria for selecting the best number for expansion. At the early part of the six year period (2004-5) expansion was by more than 600 stores per year. After a dip and slower growth in 2006-8, new store expansion grew to 466 stores in 2009. The bulk of this is higher concentration in existing state markets. Expansion to new areas should be in areas such as New Jersey, New York (state more than city due to high real estate costs in city) and other Northeast states which may be served by distribution centers. There is no current northeast distribution centers at all. Nearest regional centers are in Ohio (1229 stores) and perhaps Indiana (1000) stores. Over the next three years the pace and location of new stores in new markets should be 200 stores per year in the Northeast Atlantic coast area. Evaluation Criteria Through all stages the evaluative measure will be the extent to which performance matches the operating priorities: driving productive sales growth, increasing gross margin, improving processes and information technology to reduce costs, and strengthening the Dollar General culture of serving others. Conclusion Dollar General was the first mover in the discount consumer merchandise stores – an industry that has become mature, though continuing to find new ways to reshape itself or be influenced by world trends or forces. With a primary focus on low prices (many items in the $1 range and more established name brand products value priced with competitors like Wal-Mart) Dollar General has responded well to the low-cost production from countries like China and other emerging South-East Asia manufacturers. It has a high percentage of total products in national brands, but the majority of its products are private brands, including their own store brands. The strategic choices of Dollar General largely involves duplicating the sources  of their per-store success at a level encompassing nearly 10,000 stores in the United States. Dollar General has followed a strategy of rapid expansion of stores which has been successful except for a net closing of stores in 2007, and a slower pace of grow th in the years 2006 and 2008. Through the expansions, and restructured, and improved information systems and logistics, Dollar General is poised to achieve both increased number of sales and greater net profits. References: â€Å"Dollar General- Today’s Neighborhood Store† by Sue Cullers, Buene Vista University and S. Stephen Vitucci, Texas A&M University-Central Texas. â€Å"Dollar General 2013 Annual Report† by Dollar General. Exhibit 1 PEST Analysis Political – The level of political stability of the country is important to the consumer staples industry. Changes in government can lead to changes in taxation and legislation. The American elections may have an effect on the retailing industry as new legislation or new or existing government may bring in taxes. Also, trading issues between the US and other countries will affect retail companies when they are importing merchandises, higher tariff would resulted in decreasing profit margins for discount stores. Economic – The consumer staples industry is unique as it considered non-cyclical, which means it does not affected by traditional business cycles or economic downturns. The demand for consumer staples is always consistent as it has a low price elasticity of demand. Furthermore, discount stores often have recorded increased sales and income during recession. While their usual customers suffered from unemployment and lower purchasing power, people from higher income brackets found their way to dollar stores, looking for bargains. Social – Where income is distributed is an important factor that companies should look at as this also demonstrates the ideal place to aim their marketing or to locate their stores. Discount stores always targeted their merchandises assortment and store locations to meet the shopping needs of value-conscious customers. With the economy still remains weak and  uncertain, major dollar stores sought to keep their traditional customers and attract new customers. Technology – Use of upgraded technology of cashing machines can improve operational efficiencies. Also, integrated and sophisticated IT system would provide managements to manage their inventories efficiently and keep costs low. The rapid growth of on line-stores raised the competition within the discount retailing industry. Exhibit 2 Porter’s 5 Forces Analysis Threat of New Entrants (Low) The overall threat of new entrants in the discount retail industry is low. New entrants are facing many barriers in this industry. Top companies control the major portion of market share. Economies of scale play an important role in this industry as large companies have their cost advantage and offer their customers with lower prices products. New companies do not have much capital and resources to compete with them. Bargaining Power of Suppliers (Low) There is not much bargaining power for the suppliers include manufacturers and distributers. Large discount retailers purchase merchandises from many different suppliers so they are not relying on a sole supplier. Also most of the supplies are not rare or valuable. So the suppliers’ power in this industry is low. Bargaining Power of Buyers (High) The bargaining power of buyers is high within this industry, and this is due to customers are highly price sensitive, with low brand loyalty; customers are just seeking for products with the best values. Also, in the discount retail industry, the switching costs are very low, customers can easily switch between stores depending on which store has the cheapest products. Threat of Substitutes (Low) The threat of substitutes is low in the discount retail industry and this is due to products are already on the low end of pricing scale and the products offered by different dollar stores are almost the same, and the essential products are difficult to find substitutes. Rivalry among Existing Competitors (High) The competition within the discount retail merchandise industry is really high between several big players such as Dollar General, Family Dollar and Dollar Tree. Other than that, these companies are also competing with some giant retailers like Wal-Mart. Since the low-cost leadership is essentially the only competitive advantage within this industry, retailers are constantly reducing prices and profit margins to try to drive traffic to their stores and increase sales. Appendix C: Core competencies We have determined that Richard Dreiling is valuable, rare, costly to imitate, and non-substitutable. Richard Dreiling is valuable and rare because not many CEO’s have the leadership abilities to take Dollar General as far as he did. Further, Dreiling is costly to imitate and non-substitutable because a CEO of his caliber is very hard to find among CEO’s in the same industry. Consumable merchandise is very valuable because of the four categories that Dollar General offered, sales in consumable increased most rapidly during recession. This merchandise is not rare, costly to imitate and non-substitute because competitors can copy your merchandise by observing what your stores offer to consumers. Further, benchmark organizational style is another core competency. Benchmark organizational styles are valuable and costly to imitate because they represent an organizational structure that your competitors have difficulty mimicking. This organization style is not rare and is sub stitutable because competitors can copy your business model by observing how you operate as a firm. Retail stores chain is valuable and costly to imitate because Dollar has numerous of stores chain across the state, each store has been redesigned to specific standards to make it easier to shop and increase sale productivity. They also owned some of the leased store during the weak real-estate market, which is difficult for competitors nowadays to own its retail stores. These retailed stores chain are not rare and non-substitutable because competitors can copy their design and build their stores as same as DG did. Shopping experience is valuable, rare, costly to imitate and non-substitutable because Dollar General’s stores has provided  the marketing strategy 4Ps which allows them to differentiate from competitors on how consumers buy their products, how the stores designed and how the services they has to offered in such a fast and convenient way for consumer to shop. This experience is something that competitor cannot obtain by using money and copy from DG stores.