Executive Summary: Dollar General is the 6th largest mass merchant. and the 4th largest price reduction shop in the U. S. However. important growing chances remain for extreme-value retail merchants such as Dollar General. Dollar General’s strategic aim is sustainable and profitable long-run growing. The company has chances for growing by spread outing in the United States to countries that lack an extreme-value retail presence. Continuing to function low- . middle- . and fixed-income households in little communities will forestall Dollar General from viing straight against mass retail merchants such as Wal-Mart and Target. Dollar General’s strength has been their ability to stay little. convenient. and cost-effective ; they should go on to make so. Consolidating the disconnected industry via acquisition will increase economic systems of graduated table in an industry where low-costs are critical.
Dollar General’s strategic aim is sustainable and profitable long-run growing. The extreme-value retail industry includes companies such as Dollar General. Family Dollar. Fred’s. and 99 Cents Merely. The industry is fragmented outside the two largest houses. Dollar General and Family Dollar. An analysis of the industry shows that the highest menaces are competition of bing rivals and client purchasing power. These menaces are due to the industry being extremely monetary value competitory and merchandising of uniform merchandises. In add-on. the mark market is low to middle income households who are monetary value sensitive. The critical success factors are accomplishing a low-priced concern theoretical account. economic systems of graduated table. selling. convenience. and effectual client service.
The internal analysis of Dollar General shows that the company relies on functioning a focussed mixture of branded and generic goods to low- . middle- . and fixed-income households chiefly in little communities. Fiscal analysis shows that net income and gross revenues growing increased steadily since 2002 until 2006. when net incomes and growing slowed. Dollar General must work to maintain operational costs low and grosss high. Their small-box format gives Dollar General the mobility and convenience that mass retail merchants like Wal-Mart and Target do non hold. There is room for Dollar General to spread out geographically in the U. S. . peculiarly to the West. Acquisitions enable Dollar General to accomplish economic systems of graduated table in the extremely disconnected industry. Acquisitions besides allow Dollar General to cut down the menace of bing competition in geographic countries.
The economic and societal environment plays a important function in the extreme-value retail industry. In 2007. the U. S. had 23. 000 small-box retail merchants. Consumers were seeking for the best deals with the enlargement of retail merchants such as Wal-Mart and Target. Sam’s Club and Costco were shops where consumers could salvage money by buying points in majority. In 2005. an increasing figure of consumers were shopping at dollar shop retail merchants. This can be attributed to the lifting figure of low-income families and the increasing figure of aged on fixed-incomes. The dollar shop industry is characterized by shops that offer low monetary values in a small-box format. The critical success factors are accomplishing a low-priced concern theoretical account. selling. convenience. and effectual client service.
Competition between bing rivals is high. This is due to the high-level of monetary value competition that stems from the sale of uniform merchandises. Keeping costs low is indispensable due to the demand of pricing merchandises as close to margin as possible. This means companies are viing on operational effectivity. Rivalry between companies besides develops from the fact that outside the two largest houses the industry is fragmented. The high menace of bing competition thrusts profitableness of the industry down. The sale of uniform merchandises increases client purchasing power. of which the menace is high. The big figure of purchasers with few exchanging costs increases purchaser power. The dollar shop industry caters to low- . middle- . and fixed-income purchasers who are monetary value sensitive.
Sing consumables. purchasers are looking for the best deal for an point that they will necessitate to buy once more in the close hereafter. The high menace of client purchasing power thrusts profitability down. In contrast to purchaser power. supplier power is low. This is due to the big figure of providers that offer price-competitive. uniform merchandises. Suppliers must trust on the retail industry to sell their merchandise. so forward integrating is improbable. The low menace of provider power additions profitableness. The menace of replacements is medium. Since extreme-value retail merchants offer a focussed mixture of goods in a small-box format. mass retail merchants such as Wal-Mart and Target are substitutes instead than rivals. On one manus. mass retail merchants have a larger mixture of branded goods. economic systems of graduated table. and are extremely monetary value competitory with extreme-value retail merchants.
On the other manus. extreme-value retail merchants are more convenient due to the small-box format. leting a client to acquire in and out rapidly. The merchandises being sold are undifferentiated so price-performance trade-off is low. The menace of new entrants into the industry is average. There are countries of the U. S. with no extreme-retail presence. doing it easier for a new entrant to open and capture market portion. On the demand side. clients may or may non be willing to purchase from a fledgling ; shift costs are low due to uniform merchandises increasing menace and diminishing profitableness. However. Dollar General has economic systems of graduated table and may be able to sell their merchandises cheaper than fledglings. Capital demands such as high fixed costs. client recognition. and constructing up stock list can discourage new entrants. increasing profitableness. After finishing an industry analysis. it can be seen that the industry. although competitory. has the potency for profitableness ( see Exhibit 1 ) .
The internal analysis shows that Dollar General’s nucleus competences are a low-priced construction. convenience. selling. and client service. For illustration. Dollar General builds shops in 2nd grade locations to keep low existent estate costs. Ad cost is less than 1 % of gross revenues. In an industry where companies maintain monetary values near to fringy cost. low operational costs are important ; this is why Dollar General operates the shop with a limited figure of forces to maintain labour costs down. Customer service and convenience go hand-in-hand. Most clients are in the shop for 10-20 proceedingss ; much less clip than a client would pass in Wal-Mart. This is made possible by Dollar General’s small-box format that makes it easy for clients to happen merchandises. In add-on. Dollar General offers even dollar monetary values on most of its merchandises so that clients can easy add up their measure. For trading. Dollar General offers a focussed mixture of branded and generic goods. Customers aren’t over burdened by picks and most merchandises are priced under $ 10.
Although Dollar General sells a wide merchandise mix. extremely consumable merchandises make up an increasing per centum of gross revenues every twelvemonth. with 65. 7 % of grosss in 2006. Therefore. Dollar General’s selling program should be to go on to concentrate on extremely consumable merchandises. Customers are looking for a deal when purchasing extremely consumable merchandises. whereas they may non desire to “go cheap” when buying apparels or place merchandises. The add-on of ice chests in the shop allows Dollar General to sell the merchandises needed to accept Electronic Benefit Transfer clients. Dollar General sells chiefly to low- . middle- . and fixed-income clients. many of which rely on authorities aid and electronic benefit transportation ( see Exhibit 2 ) .
Fiscal analysis will demo the Dollar General has had increasing grosss and net incomes the last five old ages. However. in 2006. Dollar Generals net income decreased by more than half. Grosss increased in 2006. so Dollar General’s costs are increasing more quickly than gross revenues. Because net income thrusts concern. most other ratios decreased. such as return on assets and return on equity. Net gross revenues increased every twelvemonth since 1993. but net income per centum has remained at about 4 % since 2001 ( excepting 2006 ) . This means that Dollar General could be making a better occupation commanding costs. Dollar General closed several low-potential shops and increased disbursement for reconstructing. relocating. and advertisement. Implemented in 2006. testing and preparation employees besides increases costs. In add-on. Dollar General has outfitted most shops with ice chests for perishable points that must be kept cold. Most of these costs are good for the long-run public presentation of the company. The fiscal slump of 2006 appears to be an outlier in the otherwise consistent public presentation of Dollar General that has enabled them to take the dollar shop industry.
Extreme-value retail leads the dollar shop industry in gross revenues. Much of this is attributed to Dollar General with 24 % of industry gross revenues in 2006. The 2nd place goes to Family Dollar with about 16 % of gross revenues. Despite Dollar General holding a hard fiscal twelvemonth in 2006. they still have the most shops every bit good. Limited mixture grocers. such as Save-A-Lot. hold big grosss per shop. but have well less shops than Dollar General. The Numberss become much closer when comparing Dollar General against mass retail merchants like Wal-Mart or Target. In 2005. Dollar General had the 2nd highest net income border behind Target and similar SG & A ; A costs. This is impressive because Dollar General does non hold the economic systems of graduated table or purchaser power that mass retail merchants have. However. Dollar General does non hold the grosss or the stock list turnover that the other mass retail merchants have. In 2006. after restructuring alterations. Dollar General falls to back to last in in net income and stock list turnover with the highest per centum of SG & A ; A costs.
There are several options that Dollar General can prosecute to accomplish its strategic aim of long-run sustainable growing. One option is geographic enlargement. in which growing will be driven by opening new shops. Dollar General has a presence in 35 provinces. The obvious pick would be for Dollar General to spread out to the West seashore of the U. S where it has less presence. California. Nevada. Washington. Wyoming. and Oregon all have rural communities where Dollar General could be successful. There is the possibility that Dollar General could lose focal point on the bing shop base. Opening new shops requires important capital. which may be a ground why Dollar General has had similar net income per centum despite increased gross.
Another option would be for Dollar General to better selling productiveness. This is a less feasible option because the bulk of Dollar General’s gross revenues are extremely consumable merchandises at 65. 7 % . It does Dollar General no good to spread out into electronics. pharmaceutics. or other ware when client purchasing tendencies already demonstrate what they are shopping for at Dollar General. Dollar General has the option of making an industry roll-up. Outside of Dollar General and Family Dollar the industry is extremely disconnected. Consolidating the industry would profit Dollar General in that it would enable enlargement every bit good as addition economic systems of graduated table. Economies of graduated table will take down costs. something that Dollar General needs to increase net income. At the same clip acquisition enables Dollar General to extinguish rivals. Rather than opening a new shops that portion locations with little rivals Dollar General can get the rival. Dollar General must be certain non to overpay for the acquisition as some companies tend to make.
Dollar General could see prosecuting a new shop format. the Dollar General Market. This is bad thought ;
non merely would the new shop format require important capital to open a larger shop. widen the stock list. addition distribution. and pass more on advertisement. the new shop format would set Dollar General in direct competition with mass retail merchants. Wal-Mart and Target already have market portion and client base. This would be an individuality crisis for Dollar General. Lastly. international enlargement is an option due to the fact that one out of four retail merchants opening in Europe is a discount house. Aldi. the limited mixture food market retail merchant based in Germany. has had success in Europe. In contrast. there is room for geographic enlargement in the U. S. It would be Dollar General more to spread out internationally where they have no client base. This would necessitate a new distribution web in Europe every bit good as market research to recognize the alone client purchasing tendencies. Rather than implementing any individual option. Dollar General should hold a combination of options.
Dollar General is already a profitable company and the critical success factors match the company’s nucleus competences. Therefore. Dollar General should still sell a focussed mixture of goods in a small-box format to low- . middle- . and fixed-income households. This means maintaining costs low by opening shops in 2nd grade locations and little communities will mass retail merchants are less attracted. Convenience is critical as this separates Dollar General from the mass retail merchants where immense shops make client service and happening points hard. Following. Dollar General should look to spread out geographically in the United States. With the U. S back uping an estimated addition of 5. 000 extreme-value retail shops in 2008. there is room for Dollar General to open more shops. Dollar General has placed a premium on same-store gross revenues and opening as many shops as possible.
However. Dollar General should chant down the figure of shops it opens so it can stay focussed on bing shops. This will forestall holding to make a major inspection and repair like in 2006. As a replacing for traveling full accelerator on new shop gaps. Dollar General should see acquisitions in order to consolidate the disconnected industry. The economic systems of graduated table will assist Dollar General’s low-priced scheme. Acquisitions will besides enable Dollar General to increase market portion and forestall the market from going saturated.
Shih. Willy. Stephen Kaufman. and Rebecca McKillican. “Dollar General. ” Harvard Business School 140th ser. 9. 607 ( 2009 ) : n. pag. Print
VALUE CHAIN ANALYSIS
Inbound LogisticsOperationsOutbound LogisticsMarketing/SalesServices
•Used direct-store-delivery sellers to administer and ware time-sensitive consumables such as milk and eggs
•New Inventory system improved in-stock per centum to 95 %
•New Inventory system enabled shops to better manage stock list flow and merchandise allotment
•2007 – Labor better matched client demand. instead cargo
•New Inventory system enabled distribution centre to better manage stock list flow and merchandise allotment
•Used direct-store-delivery sellers to administer time-sensitive consumables such as milk and eggs
•Price competitory ware
•Offers generic merchandises
•Low advertisement costs to back up low-priced concern theoretical account •Even dollar monetary values on most points
•2006 – Began utilizing local handbills
•Moved the company towards a pull scheme
•Inventory system provides merchandise information like gross border by class
•2007 – Gross border return on investing to measure overall SKU profitableness relation to stock list investing
•Coolers added to the shops enabled the sale of refrigerated goods – expand client base
•Focus on an mixture of quality. consumable ware
•In rural countries. employees frequently know their clients and want to supply great service
•Small shop size designed to increase client convenience – in and out
•2004 – credence of debit and recognition cards in most shops
•2007 – client service primary driver of work in the shop
•Coolers added to the shops enabled the sale of refrigerated goods
•Addition of ice chests allowed Dollar General to offer the types of merchandises needed to accept EBT – foremost extreme-value retail merchant
ProcurementHR ManagementTech. DevelopmentFirm Infrastructure
•Operated shop with limited forces to salvage costs
•District Managers link between corporate and single shops
•District Directors aimed to manage selling issues
•2006 – Selection and proving for shop director accomplishments
•Increased accomplishment set preparation increased the “hire from within” capableness
•2006 – 65 % of new territory directors were former shop directors
•2006 – turnover of territory directors drops to 20 %
•2002-2004 began utilizing auto-replenishment stock list system connected to electronic POS system
•2004 – credence of debit and recognition systems following the debut of card readers
•Average shop size is 6. 900 sq. foot.
•Small back-rooms designed to acquire merchandise on the floor every bit rapidly as possible
•Built shops in 2nd tier locations to keep low existent estate costs
Industry ANALYSIS – PORTER’S 5 FORCES ( Arrows represent profitableness )
Menace of Entry Substitutes Rivalry of Existing Competitors Suppliers Buyers Threat: Medium
Profitableness: MediumThreat: Medium
Profitableness: MediumThreat: High
Profitableness: LowThreat: Low
Profitableness: HighThreat: High
•Demand-Side Benefits of Scale: Extreme- value section is extremely disconnected outside two largest houses v
•Demand-Side Benefits of Scale: Customers may non be willing to purchase from a fledgling ^
•Demand-Side Benefits of Scale: Newcomer unable to vie on monetary value until built up client base ^
•Customer Switch overing Costss: Low shift costs v
•Capital Requirements: High fixed costs. client recognition. constructing stock list. start- up losingss. advertisement ^
•Large parts of the state have no extreme-value presence v
•Low authorities limitations v
•Expected revenge from officeholders ^
•Mass retail merchants have larger mixture of branded merchandises v
•Mass retail merchants compete on monetary value v
•Small-box retail merchants more convenient ^
•Price-performance tradeoff is low ^
•Undifferentiated merchandises ^
•Highly fragmented outside the top two houses v
•Price competition is high due to uniform merchandises. low fringy costs. few shift costs for purchasers v
•Industry relies on maintaining fixed costs low. doing operational effectivity of import v
•Large figure of providers that are competitory ^
•Suppliers rely on the retail industry to sell their merchandises ^
•Low shift costs in altering providers ^
•Suppliers offer uniform merchandises ^
•Substitutes for what the provider provides ^
•Low menace of forward integrating ^
•Large figure of purchasers ^
•Higher volume buying – one halt store v
•Industry merchandises are uniform v
•Buyers face few shift costs v
•Buyers non able to incorporate backward ^
•Buyer group is low- . middle-income. and looking for a deal v
•Buyers less concerned with quality due to consumable points v