While Dollar Tree is seeing its overall performance dragged down by former rival-turned-acquisition Family Dollar, Dollar General continues to scale up its business. Dollar General closed out the year with Q4 same-store sales growth of 4%, but the retailer showed that its most aggressive growth is still to come: 975 new store openings slated for 2019 (up from 900 in 2018), 1,000 store remodels and 100 store relocations.
Net sales rose 8.5% to $6.65 billion, beating estimates of $6.61 billion, and driven by increases in average transaction amount and customer traffic.
One remaining area of concern for Dollar General has been its expanded emphasis on food offerings in 2018, which have cut further into margins. The retailer plans to spend approximately $50 million this year to improve its distribution of fresh and frozen food, shopping convenience and labor productivity, most notably with the introduction of the DG Fresh and Fast Track initiatives.
DG Fresh is designed to enable self-distribution of fresh and frozen products and is already up and running in approximately 300 stores, powered by a new cold storage facility owned by the retailer in Pottsville, Penn. Fast Track hasn’t launched yet, but the program is designed to enhance in-store labor productivity and customer convenience. The company has been vague about the details regarding Fast Track, but the program will be piloted in several distribution centers and select stores. CEO Todd Vasos indicated that Fast Track will help Dollar General execute its expansion of self-checkout in stores.
By self-distributing perishable goods, the DG Fresh program can:
- Reduce the long-term costs associated with working with other distributors;
- Improve in-stock levels of perishable foods;
- Tailor product selection to fit the needs of different markets; and
- Enable Dollar General to focus on a wider selection of private label products.
By the end of 2019, the retailer’s goal is to expand DG Fresh to up to 5,000 stores, with a chainwide reach achieved within three to four years. Coinciding with the DG Fresh program, Dollar General seeks to install 40,000+ more cooler doors across its store base.
“Net, net, I think this is a good move, but it’s not without significant risk,” said Mark Ryski, Founder and CEO of HeadCount Corporation in a RetailWire discussion. “While offering healthier food options is good for Dollar General shoppers, offering perishables changes the economics of DG stores. Retrofitting stores with proper cold storage is costly and the complexities of managing perishable inventory means more staff will be required, not to mention the waste of expired goods. The vision is sound, the execution will be critical.”