Understanding Dollar General’s Business Strategies

Dollar General’s (DG) business strategy revolves around driving profitable top line growth while enhancing its low-cost operator position and capturing new growth opportunities. The company attempts to drive profitable top line growth through strategies like improving the in-stock position of its stores and continuously offering products at competitive prices.

The company tries to ensure that the right set of product assortment is always available on its shelves for customers. Dollar General has been increasing labor hours in stores that can generate positive financial returns.

The company faces a tough challenge of maintaining healthy margins while offering everyday low prices. To boost sales and address the needs of its core clientele, the company offers more than 75% of its stock-keeping units at $5 or less.

However, at the same time, Dollar General must remain focused on enhancing margins. For margin improvement, it follows strategies that increase private brands’ penetration, reduce inventory shrinkage, and improve distribution and transportation efficiencies, global sourcing, and effective category management (or the right sales mix).

Sales mix is important. It directly affects profitability. In general, consumables have a lower gross margin than non-consumables. Also, within each category, different products have different margins attached. So it becomes necessary to maintain the right mix of sales.

The effectiveness of all these initiatives can be judged from the improvement in the company’s same-store sales and margins. Read more about the company’s sales comps performance in the next part of the series and its margins in Part 7.

Investors looking for exposure to Dollar General through ETFs can consider the Van Eck Retail RTF (RTH), which invests 2.7% of its total holdings in the company