Dollar General looks to its name as it positions for growth

As powerful inflation forces shoppers to focus more heavily on the basics, Dollar General is putting a high premium on low prices.

Even as it faces rising costs and supply chain constraints, the discounter has recently been putting an especially strong emphasis on offering products that cost $1 or less, and is seeing increasing signs that its strategy is resonating with stressed-out consumers, CEO Todd Vasos said Thursday during Dollar General’s second quarter earnings call.

The $1 price point was among the chain’s fastest-growing subcategories during the quarter, with shopper interest in items at that level increasing as the period progressed, Vasos said.

“We're seeing that it is so much more important for her today than ever before to be able to feed her family toward the end of the month,” Vasos said, referring to Dollar General’s customer base.

Dollar General’s shoppers have been increasingly trading down when deciding what foods to buy, a trend that has boosted private brand penetration for the retailer — and helped the company maintain margins, Chief Operating Officer Jeff Owen said during the call.

Vasos added that Dollar General has been preparing for months to bolster its ability to cater to shoppers whose budgets are particularly tight, and said the company’s merchandising team will continue to highlight items that carry prices no higher than a dollar as the year wears on.

In a reflection of people’s interest in saving money on essential goods, Dollar General shoppers have lately been gravitating toward basic foods that allow them to save money, Vasos said. Over the last two quarters, the retailer has generated sales of canned meat, seafood, dry pasta, soups, rice and beans that are up by 15% to 20%, he said.

In addition to dry goods, shoppers have also been taking advantage of Dollar General’s growing emphasis on perishable goods, which the company has been supporting through DG Fresh, a multi-year program through which it has moved distribution of fresh and refrigerated items in-house. Perishables generated the company’s strongest rate of comparable sales growth during the first half of 2022, according to Vasos.

Inside a Dollar General store in California — Dollar General has seen growing interest in perishables and in products available at the $1 price point.

Justin Sullivan via Getty Images

Dollar General is coming off a strong quarter that saw the company deliver significantly stronger financial results than it did earlier in the year. The retailer, which added 436 stores to its fleet in the second quarter, bringing its total number of locations to 18,130, generated same-stores sales in Q2 that were up 4.6% compared with the same period in 2021. Net sales, profits and earnings also showed improvement during the quarter.

One challenge for Dollar General is that the consumable goods that are drawing shoppers to its stores are generally less profitable than other types of goods. But the company has been taking steps to improve its supply chain management capabilities as it looks to build its financial strength even as it leans heavily into its reputation as a low-price retailer.

Owen noted that Dollar General is building three new distribution centers, each of which will occupy about a million square feet. The company will begin building two of the facilities, in Little Rock, Arkansas, and Salem, Oregon, during the fall, and has already started the third, in Aurora, Colorado.

The new distribution centers slated for Arkansas and Oregon will handle fresh foods as well as other products, while the facility in Colorado will be entirely focused on dry goods, Owen said.

Dollar General is also moving forward with its efforts to expand its trucking capabilities.The retailer had 1,100 tractor-trailers in its fleet at the start of the second quarter and is en route to doubling the size of its fleet in 2022 compared with its size at the end of 2021, Owen said.

Vasos said Dollar General has been making inroads with shoppers further up the income ladder as inflation continues to bite. A substantial number of the trade-down patterns it is seeing involve shoppers who earn more than $100,000, but are “very digitally and tech savvy,” he said.

In a reflection of Dollar General’s growing appeal to bargain-focused e-commerce shoppers, Dollar General’s partnership with DoorDash, announced in November, generated sales during the first half of 2022 that exceeded the company’s expectations, Owen said. Dollar General now offers service in partnership with the delivery company at 13,300 stores.