Dive Brief:

• Dollar General CEO Todd Vasos said during the company's second-quarter earnings call Thursday that he believes its nascent effort to position its stores as health destinations could eventually become one of its biggest financial engines.
• The discount chain also announced it has rolled out DG Fresh, its initiative to self-distribute frozen and refrigerated items, to all of its more than 17,500 stores.
• Even though Dollar General saw its overall and same-store stores decrease during the second quarter compared with the same period last year, the retailer delivered financial results that were substantially above their level before the pandemic began.

Dive Insight:

Dollar General has been moving aggressively in recent quarters to leverage its broad presence across the U.S., particularly in areas with a shortage of retail options — and those efforts are paying off.

The chain saw comp sales in the second quarter, which ended July 30, rise 14.1% compared with Q2 of 2019. Diluted earnings per share were up 27.7% in Q2 on a two-year stacked basis.

Dollar General's focus on DG Fresh the past few years has been a key success factor for the company, and that continued in Q2. DG Fresh was the largest contributor to its gross margin during the quarter, Chief Operating Officer Jeff Owen said during the call, adding that the company believes it will be able to bring produce to 10,000 of its stores by taking advantage of its self-distribution capabilities.

Even as Dollar General builds its presence in the grocery sector, the retailer has embarked on a project to use its broad store footprint and proximity to the majority of U.S. consumers to establish itself as a force in healthcare. Earlier this summer, the company announced it had hired its first chief medical officer and that it plans to offer more health-focused products and services. 

While the company is jumping into an area that's also drawn strong interest from grocery stores and other retailers, Vasos said he expects Dollar General's foray into healthcare could become an even bigger driver than its effort to expand its assortment of non-consumable products, known as NCI. Comparing the difficulty some people have accessing healthcare to food deserts, Vasos said he envisions Dollar General's fleet serving as a base for a variety of health-related services, such as eye care, telemedicine and prescription pickup.

Dollar General is not planning to put pharmacies in its stores, said Vasos, who served in executive roles for pharmacy retailers Longs Drug Stores, Phar-Mor and Eckerd before joining Dollar General in 2008.

"I don't want to get in front of our skis, but it could be a really big deal not only for our top line and bottom line at Dollar General, but even more so, making that box even more relevant to those consumers in rural America that have to drive now 30-40 minutes ... even to see the doctor," Vasos said. "I'm pretty excited about it, but the journey is just beginning."

Dollar General opened 270 new stores and finished renovating 477 additional locations during Q2, according to Owen. The company is on schedule to open 1,050 new stores and remodel 1,750 locations in 2021, he said. Most of Dollar General's new stores will be based on the 8,500-square-foot format it started testing in 2020, which is more than 1,000 square feet larger than its traditional stores, Owen added.

Dollar General, which said in July that it intends to hire 50,000 new workers by Labor Day, has also been making progress in rolling out its Popshelf concept, a format it launched last year that focuses on items like seasonal, home decor and beauty products. The retailer plans to be operating as many as 50 Popshelf locations by the end of the year, Owen said.