There are 14,000 one-story cinder block Dollar Generals in the U.S.—outnumbering by a few hundred even Starbuck’s domestic footprint. (Fold in the second-biggest dollar chain, Dollar Tree, and the number of stores, 27,465, exceeds the 22,375 outlets of CVS, Rite Aid, and Walgreens combined). And, writes Businessweek (Oct. 16, 2017), 1,000 Dollar Generals are opening this year as part of the $22 billion chain’s plan to expand rapidly in poor, rural communities where it has come to represent not decline but economic resurgence.
As retail stores were going under across the nation, the commercial real estate company, Cushman & Wakefield, was searching for bright spots in the industry. For 5 years running, Cushman realized, a dollar store had opened once every 4.5 hours, an average of more than 5 a day. “They see a need and are aggressively racing to meet that need for low-cost goods in places that are food deserts,” the firm says.
Dollar General’s sales per square foot have risen steadily in recent years, to $229– less than half of Walmart’s. Their gross profit margins were 31%, though, compared with 25% at Walmart. A Dollar General store also has lower startup costs; it spends about $250,000 for a new store, vs. the more than $15 million Walmart puts into a new Supercenter. The dollar chain thrives mostly on selling low-ticket items and basics, such as toilet paper, that help shoppers on tight budgets get through the week. (Dollar General hasn’t technically been a dollar store for decades, and only a quarter of its products sell for that amount today.)
In 2016, the firm detailed a site-selection strategy focused on small towns, dubbed “Anytown, USA.” It defined the core customer as: “Our Best Friends Forever”—an extremely cash-strapped demographic, with a household income less than $35,000, and reliant on government assistance, that shops at Dollar General to “stretch budgets.” These BFFs represented 43% of its sales. The company’s map shows 13,000 green dots as “remaining opportunities” for new stores—some in low-income urban neighborhoods, but most in small and very small towns.
Classroom discussion questions:
1. How does Dollar General’s location strategy differ from that of Walmart?
2. Are Walmart and Amazon threats to Dollar General?