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USA: Dollar General eyes international expansion, frictionless customer experience and boosts Fresh

Discount Non-food Retail Chain Dollar General (NYSE stock listed) is, er several months of cost pressures and disruption, rounding out 2022 with a focus on expanding digital capabilities, adding to their store count, and differentiating their customer experience.

In 2023, the variety store chain will set approximately 3,170 projects in motion, including 1,050 new store openings across the U.S. With nearly 19,000 stores located within 5 miles of about 75% of the population, Dollar General already has a significant physical presence across the retail landscape, reaching shoppers in places where other stores oftentimes cannot. Dollar General also plans to open their first international stores in Mexico some time in 2023. "This growth underscores our belief that our value and convenience proposition resonates with a broad spectrum of customers and will continue to be important to all customers in this challenging economic environment," said Jeffery Owen, Dollar General’s CEO, in the retailer's Q3 earnings call.

Furthermore, 80% of these new stores and almost all the relocations will be in a larger store format, making space for planned innovations and developments, including more cooler counter space and room for fresh produce.

Fast Tracking Frictionless Customer Experiences

Looking forwards, Dollar General will move full steam ahead on a number of digital initiatives designed to complement their expansive physical footprint. According to Owen, the company’s efforts remain focused on creating a “digital front porch” for customers, which involves driving engagement through digital properties such as the mobile app, which now has 4.5 million monthly active users. Through their ongoing partnership with DoorDash, Dollar General will aim to bulk up their ability to offer same-day delivery in an hour or less. Currently, this offering is available in just over 13,000 stores across the country.

“Overall, our strategy consists of building a digital ecosystem specifically tailored to provide our customers with an even more convenient, frictionless and personalized shopping experience. And we are pleased with the growing engagement we are seeing across our digital properties,” said Owen. One of the main components of this digital strategy is to fast track the installation and implementation of self-checkout stations. According to senior leadership on the call, self-checkout was made available in around 10,500 stores (with the retailer on track to bring this figure to 11,000 by the end of the year) at the end of the third quarter. The hope is to build these capabilities out further in 2023.

“We believe this full self-checkout option could further enhance our convenience proposition, while enabling store teams to dedicate even more time to serving customers. We are currently testing this layout in approximately 250 stores and are pleased with the early customer and associate response,” Owen said in the earnings call.

As innovation becomes a priority across the company, there’s also an increased drive towards data strategies and emerging technologies. Specifically, Dollar General says they will be rolling out new digital tools to field agents, including data-driven inventory management, designed to free up retail leaders and store associates and reduce workloads across the enterprise.

More pOpshelf Store Experiences and Additional Fresh Produce

Dollar General opened 23 new pOpshelf locations in Q3, bringing the total number to 103 stores across nine states. Looking ahead, leaders say the retailer plans to almost double the number of pOpshelf stores to about 300 by the end of 2023 – keeping them on track to open 1000 stores by the end of 2025. pOpshelf stores have a playful, open design and mostly sell affordable products ($5 or less) including seasonal and home décor, health and beauty, and party goods. Commenting on the plans, Owen said: “pOpshelf aims to engage customers by offering a fun, affordable and differentiated treasure hunt experience delivered through continually refreshed merchandise, a differentiated in-store experience and exceptional value with the vast majority of our items priced at $5 or less. We recently celebrated the 2-year anniversary of the first pOpshelf store, along with our 100th store opening. And we are pleased to see the concept continuing to resonate with customers.”

Moving from non-consumable to consumables, Dollar General will continue to execute their shift to self-distribution of frozen goods through the DG Fresh initiative, upping their number of coolers and bolstering delivery capabilities for fresh and refrigerated options. Dollar General completed the initial rollout of DG Fresh across their entire chain in 2021.

“Going forward, we expect to realize additional benefits from DG Fresh, as we continue to optimize our network, further leverage our scale, deliver an even wider product selection and build on our multiyear track record of growth in cooler doors and associated sales. And while produce is not included in our initial rollout, we continue to believe that DG Fresh provides a potential path forward to expanding our produce offering to more than 10,000 stores over time,” Owen said.

Dollar General Third Quarter Earnings

Net sales increased 11.1% to $US9.5 billion in the third quarter of 2022 compared to $8.5 billion in the third quarter of 2021, largely driven by positive sales contributions from new stores and growth in same-store sales

Same-store sales increased 6.8% compared to the third quarter of 2021, driven primarily by an increase in average transaction amount, as well as a modest increase in customer traffic. Q3 gross profit as a percentage of net sales was 30.5% compared to 30.8% in the third quarter of 2021, a decrease of 27 basis points.

This gross profit rate decrease was primarily attributable to an increased LIFO provision, which was driven higher by product costs; a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories; and increases in distribution costs, markdowns, inventory shrink and damages; partially offset by higher inventory markups.

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