Dive Brief:

• Dollar General this year plans to double the scale of its DG Fresh self-distribution program for fresh and frozen products. During the company’s earnings call on Thursday, company CEO Todd Vasos said the program will distribute to 12,000 stores by the end of 2020, up from 6,000 currently, and have as many as 10 dedicated distribution facilities, up from a current five.
• Vasos also said Dollar General plans to add fresh produce to around 400 stores this year, nearly doubling its previously stated goal of 250 stores. By the end of 2020, more than 1,000 Dollar General stores will carry an assortment of fruits and vegetables.
• For the fourth quarter 2019 earnings period ended Jan. 31, Dollar General reported a same-store sales increase of 3.2% and a net sales increase of 7.6%, to $7.2 billion. Operating profit grew 12.9%, to $720.9 million. For fiscal year 2019, Dollar General reported a same-store sales increase of 3.9% and net sales rise of 8.3%, to $27.8 billion.

Dive Insight:

Dollar General is seeing significant cost and supply chain benefits so far from DG Fresh, Vasos said, with fresh and refrigerated product margins coming more in line with other goods while in-stock levels are improving. Just over a year after launching, he said, the program should become a net benefit for the company in 2020.

Alongside the DG Fresh expansion, Dollar General is also adding cooler doors to its locations in an effort to put more fresh and frozen items on sales floors and less in-store backrooms. Last year, the company added 40,000 cooler doors across its stores, and this year it will add 50,000. It’s also rolling out higher-capacity coolers that can hold 45% more product.

Over time, Dollar General aims to increase its assortment of fresh and frozen items. It also plans to bring produce into its DG Fresh distribution system, expanding efficiencies for that fast-growing assortment. Dollar General stores' produce departments cover 80% of the categories found in grocery produce departments along with the top 20 selling items, Vasos said. 

“We believe DG Fresh could eventually provide a potential path forward to expanding our produce offering to more stores in the future,” Vasos said during Thursday’s earnings call.

Dollar General’s growing food and beverage assortment makes it a rising threat to grocers, particularly small operators that can’t match the chain’s pricing.

Recent studies have shown that produce quality at dollar stores matches that of grocery stores and that consumers are shopping more often at dollar retailers. Retailers like Walmart and Hy-Vee are feeling pressure to respond. Hy-Vee has opened a Dollar Fresh banner that features a full grocery assortment in addition to dollar-priced items. By this summer, it will have 12 locations, mostly in rural communities.

This year, Dollar General plans to open 1,000 new stores and remodel 1,500 locations. The majority of the remodels will be in the Dollar General Plus and Traditional Plus formats, which are typically larger than the company’s legacy format and include more coolers stocking frozen and perishable products.

The company is also building out digital initiatives, including a mobile checkout program that’s available at 750 stores and a click-and-collect pilot running at 30 stores.