Discount Variety Retail Chain Dollar General (listed NYSE: DG) is trying attract shoppers beyond its core low income consumers.
Dollar General is trying very hard to be taken seriously as a place where consumers regularly buy their groceries. It recently opened a 85,000 square foot distribution center in Blair, Neb., that will help supply its stores with fresh food. The company also has plans to build a similar but much larger facility, 185,000 square feet, in Amsterdam, N.Y.
The distribution centers are part of a massive effort by Dollar General called DG Fresh to transform its supply chain into one in which it can self distribute fresh and refrigerated products. By contrast, rivals like Target Corporation rely on third party wholesalers to manage such inventory.
Building a supply chain that can reliably handle perishable items is a tall order. But Dollar General has yet to show it can consistently manage its inventory.
Supply Chain Woes
Like many retailers, the company struggled to supply its stores during the covid-19 pandemic. Much of the industry has since recovered, except Dollar General. The company admitted that it botched its supply chain for a good deal of last year, which resulted in “significant impact to our operating results.”
“In the second half of 2022, we experienced a temporary shortage of available warehouse capacity, primarily due to delays in opening temporary warehouse space,” the retailer said in its annual report. “This shortage resulted in a significant impact to our operating results due to increased costs associated with delays in unloading inventory into warehouse space, as well as inefficiencies in moving goods throughout our internal supply chain,” the filing said.
Too Much Going On?
Part of the problem is that Dollar General has a lot going on despite claims in its annual report that it operates “a relatively simple business model.” The company is rapidly expanding. On top of the $1.6 billion in capital investments last year, Dollar General plans to spend another $1.8 billion to $1.9 billion on 3,170 real estate projects in 2023, including 1,050 new store openings, 2,000 remodels, and 120 store relocations.
The company just opened its first international store in Mexico. And despite its moniker, Dollar General is aggressively expanding its merchandise mix to attract consumers from all income groups, not just its core group of bargain shoppers. The retailer has been rolling out its new pOpshelf formats that contain “treasure hunts” of unexpected products including home furnishings and arts and crafts.
And then there’s DG Fresh
“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 multi year track record of growth in cooler doors and associated sales,” CEO Jeff Owen recently told analysts.
“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,” he said. On top of all of that, president and CFO John Garratt, a respected veteran, is retiring. Some analysts have questioned the company’s furious pace of activity.
“Last couple of quarters, (Dollar General) had some missteps that haven’t gone to plan,” Simeon Gutman, an analyst with Morgan Stanley, said during a recent conference call.
“Not all of that I think is clear to us or The Street,” Simeon said. “And yet all these growth initiatives are still happening at the same time. So the open-ended question is have you debated balancing growth” against the core business?
Owen said he was confident Dollar General will fix its execution problems.
“What we do here at Dollar General is we control what we can control, and that has allowed us to emerge even stronger as we move forward,” he said. “So as I think about our balance between execution and innovation, one of the things I think it’s important to remember is we have a long track record of execution, and this team will continue to deliver on that.”
