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Dollar General In Command

July 8, 2010
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Dollar General is one discount retailer that has worked feverishly to create a fresh, innovative take on the once-drab discount format.

Years ago, many Americans saw the discount retail channel as boring and drab. And although shopping at discounters was an easy way to save money, you'd never expect to get the same quality of products you’d normally find at a traditional supermarket or drugstore.

My, how times have changed. According to recent Webcast from Planet Retail (a London-based research agency), “the discount channel is one of the most dynamic retail formats in modern grocery distribution (MGD) and has been outperforming the MGD sector as a whole.” And the global economic crisis, combined with the growth of the discount channel, has forced competitors to take the “discount threat” very seriously.

Consumers certainly have grown to accept discount retailers as the chic place to shop in recent years, especially since such stores are shedding their “cheap” image by offering more well-known brands and a wider variety of merchandise categories.

Dollar General is one retailer that has been working feverishly to create a fresh, innovative take on the once-drab discount format. According to Rick Dreiling, chairman and CEO of the Goodlettsville, Tenn.-based retailer, the company has invested much time and effort over the last year into revamping its product lineup and store format to offer customers an enjoyable shopping experience.

“We’re not just about opportunistic buys,” he notes. “We’re about a consistent strategy in regards to the mix of the items in the store, and we’re also working really hard on trying to get a very consistent store feel and store look.”

Of course, the Dollar General of today looks very different from the way it looked in the beginning. Since its start as J.L. Turner and Son Wholesale in 1939 in Scottsville, Ky., Dollar General has turned from a small, regional wholesaler into a fleet of more than 8,800 discount stores in 35 states. And according to Dreiling, although the retailer started out by primarily offering “closed-out clothing and merchandise,” today, it retails a variety of popular national brands alongside an impressive array of private labels that set the store apart from its competition.

“We have consistent planograms now that feature not only national brands, but more importantly, our private brands, [which] have a very high profile,” he says. “And private brands are part of our category management strategy.”

The Right Stuff

Dollar General’s private brand strategy is to create the right selection of products that compete against the most popular one or two national brands in each category, Dreiling explains.

“We go in, look at the best-performing national brand SKUs within a category, and we focus on those,” he says.

Terry Lee, vice president of consumer brands, notes that because of Dollar General’s small footprint and limited assortment, shelves can only hold one private label offering in each category. Therefore, that offering has to be just right.

“We look at buying patterns; we look at consumer preference; we look at competition,” Lee says. “Very importantly, we do this in conjunction with our total category, so we understand both what’s happening on the national brand side and what we see as opportunities on the private label side.”

According to Lee, Dollar General retails approximately 1,300 private label SKUs in its consumables segment (700 of them added since 2007, increasing private label penetration from 17 percent to 21 percent of consumables) under several private brands in various categories, including Clover Valley and Sweet Smiles (food and beverage), DG Health and DG Body (over-the-counter), Smart & Simple (paper/cleaning products), EverPet and EverPet Basics (pet care), DG Baby (baby needs) and more. Dollar General also added private brands in its non-consumables segment, including TrueLiving (home accessories), TrueLiving Outdoors (outdoor living/gardening supplies), TrueLiving Kids (toys), DG Office (home office), DG Hardware, DG Auto and more.

In addition to its own brands, Dollar General holds an exclusive license to the Fisher Price brand for certain items of children’s clothing.

The company also recently acquired the rights to be the exclusive retailer of Rexall brand products in the United States. (Rexall was the name of a highly trusted North American drugstore chain and its store brand.) According to a recent press release, Dollar General plans to unveil an assortment of Rexall products in several categories throughout the year, including over-the-counter medication, first aid, foot care and dental care. This addition of products expands on the Rexall vitamins and supplements Dollar General began merchandising in late 2009.

“We introduced Rexall vitamins late last year,” Lee says. “And it was really successful for us; it really did resonate with our consumers and show us that the Rexall brand had considerable equity and awareness. And so we recently announced that we had obtained the rights to be able to utilize the Rexall brand across multiple categories.”

According to Lee, obtaining the rights to merchandise goods under a reputable brand name such as Rexall establishes instant trust with consumers - something that would take a good amount of time to build up with a newly developed brand. The Rexall name also positions the retailer to compete against drugstore chains.

“It is a great way for us to create a product line under the Rexall brand, which really has 100 years of history behind it, and really appeals to those consumers who want that confidence that the Rexall brand brings,” he says. “We think it is a great fit with our consumers.”

A Refreshing Change

Dollar General also worked hard over the last year to revitalize a couple of its brands on both the product and packaging sides. Lee says the retailer used outside design firms - well-known brand-design experts - to redesign its entire portfolio of brands. This way, each brand complements one another on shelf, and they all work synergistically with store interiors.

“If you have the opportunity to walk into one of our stores, you’ll see how well the branding of our products works with the branding of our stores in terms of color [and] in terms of communication,” he explains. “Especially when you do it within our blueprint average of 7,100 square feet. It’s a very, very powerful message.”

Todd Vasos, executive vice president, chief merchandising officer and division vice president, says Dollar General revitalized two specific brands over the last year, allowing them to look better than ever on store shelves and racks. First was Open Trails, a line of clothing for men and boys; and second was Bobbie Brooks, a line of clothes for women and girls.

In particular, Vasos says Dollar General came up with a brilliant marketing plan for Bobbie Brooks: The retailer would hold a competition to select 10 employees as representatives of the brand’s products in advertising and promotions.

“Our employees [also] are our customers, and we’re very proud of that relationship,” Vasos says. “And when you look at it, they are very much in tune [with] their customer base, because we’re in a lot of rural towns - smaller areas - and everybody knows everybody. These are great brand masters for us, and I think that’s the best way to put it. And energizing them, getting them involved, is a great strategy for us.”

The clever idea behind the Bobbie Brooks campaign isn’t the only innovative marketing tactic Dollar General uses. The retailer is heavily involved in the online arena too.

Besides the Dollar General Web site - which Lee says the retailer uses to communicate everything from product descriptions to recipes that include store brand products as ingredients - the company uses social media tools such as Facebook, Twitter and YouTube to spread its message and communicate with fans. Lee says fans have been incredibly responsive through Facebook.

“When we announced that we were expanding the Rexall line, we immediately saw people on Facebook saying, ‘I remember Rexall!’ and how happy they were to see it coming to DG in the future,” he says.

Vasos also notes the success Dollar General has been having with Facebook. In fact, the retailer reported more success posting a coupon online for its Facebook followers (which number 159,000+ at press time) than offering a print coupon to the general public. (Lee says Dollar General puts out roughly one circular per month.)

In terms of offline brand communication, Dollar General does much of its marketing within the stores’ four walls.

“We don’t do a lot of conventional advertising, but we do a lot of communication in-store,” Lee says.

Since the rough economy is sending quite a few new customers into their local Dollar General stores, the retailer is preparing itself on the inside. Dreiling says he’s finding it to be more important than ever to focus on refreshing store interiors and product lines, as well as putting private label products in the limelight through “Switch and Save” promotions and money-back guarantees.

“We’re seeing a lot of new customers in our stores,” he explains. “And our customers are recognizing the changes that have been made in how we’re going to market, how we’re merchandising the stores [and] how we’re running the stores. And they’re also acknowledging our private brand program.”

Dreiling adds that many people say the recession is why Dollar General has enjoyed so much success in recent times. While he does credit the recession with bringing new shoppers into Dollar General, he believes it’s the product quality and the unique shopping experience that gets those customers to come back - even the retailer’s newer, more-affluent customers.

“Our fastest-growing consumers right now are those who are making more than $70,000 or more per year,” he says. “And what’s been nice for us is while we are growing in that [segment], we’re also growing our share with existing customers. They’re coming in now, and they’re seeing a national-brand-equivalent private brands program that has retail price points that they’re incredibly comfortable with.”

Looking Beyond the Gap

Along with making sure there’s an attractive price gap between national brands and store brands, Dollar General puts a lot of focus into making sure the store brand products are of good quality. Although the retailer does not manufacture any of its own products, it does employ three food scientists and a highly experienced quality assurance manager. Dollar General also has a test kitchen, where Lee says products are tested against a detailed list of specifications to make sure they meet quality standards.

“We rely on both internal testing [and] outside third-party testing and auditing firms to ensure that the organizations and companies we work with are delivering the products that hit that quality assurance,” he says. “Of course, these days, food safety is No. 1 on the priority list. And that’s why we have put such a stringent system in place today to ensure that the food safety is there.”

Vasos agrees, noting that the retailer never compromises product quality or safety to achieve a low price point. If Dollar General cannot deliver a product at a good price with a quality that is as good as - if not better than - the national brands’, the retailer simply won’t bring out a private brand at all.

“We feel that strongly about it,” Vasos notes.

Products also are put through a consumer panel before being launched.

“We do testing out there,” Vasos explains. “Even on our new packaging, for example - we tested that thoroughly.”

For example, at press time, Dollar General is performing consumer testing before launching a group of Rexall products.

“We just met yesterday on the three different looks that are being proposed to the consumer as we speak,” Vasos says. “We’re going to bring it into four different regions of the country, put it on the shelf and actually walk consumers through.”

Dreiling understands that quality goes beyond private brands and shopping needs, though - what’s most important to consumers is quality of life. And Dollar General prides itself in being a philanthropic company, serving the communities in which it operates and encouraging both its customers and vendors to do the same.

“We are incredibly involved with literacy and education, and we believe literacy and education are incredibly important steps toward people having a better life,” Dreiling emphasizes. “We founded the Dollar General Literacy Foundation in 1993. And since 1993, we’ve helped … 2.1 million people learn to read, get a GED or do a better job with speaking English. And we are incredibly proud of that because we believe it leads to a better life.”

And finally, in addition to its education efforts, Dollar General supports other charities through fundraising efforts.

“We do a lot with St. Jude’s Children’s Hospital; we’re actively involved with breast cancer research; and we hope to raise a lot of money for autism,” Dreiling says. PLB

Dollar General Snapshot

Headquarters: Goodlettsville, Tenn.

Chief Executive: Richard Dreiling, chairman and CEO

Banners: Dollar General, Dollar General Market

No. of Private Label SKUs: Approx. 1,300

No. of Stores: 8,800+ stores in 35 states

No. of Employees: 79,800

Private Label Brands: Bobbie Brooks, Clover Valley, DG Body, DG Health, Ever Pet, Holiday Style, Open Trails, Smart & Simple, Sweet Smiles, True Living and more

SIDEBAR: Important Dates in Dollar General's History

1939: J.L. Turner and Cal Turner Sr. open J.L. Turner and Son Wholesale in Scottsville, Ky.

1955: Turner’s Department Store in Springfield, Ky., is converted to the first Dollar General store. No item in the store is retailed for more than $1.

1968: Dollar General becomes a public company.

1973: A new office complex and warehouse for Dollar General are built in Scottsville.

1977: Cal Turner Jr. becomes president of Dollar General.

1983: Dollar General acquires 280 stores from the P.N. Hirsh division of Interco Inc. (now Furniture Brands International).

1985: Dollar General acquires 206 stores and a warehouse from Eagle Family Discount Stores.

1987: Dollar General launches GED/Learn-To-Read program.

1989: Dollar General celebrates its 50th anniversary with 1,300+ stores (in 23 states) and 7,000+ employees.

1991: Dollar General adds consumable basics to its product assortment.

1993: Dollar General Literacy Foundation is established.

1997: Chain growth surpasses 3,000 stores, and employees total more than 25,000.

1999: Dollar General joins the Fortune 500 list for the first time.

2000: Dollar General opens a corporate office in Goodlettsville, Tenn.

2003: David Perdue is named chairman and CEO. Retailer also adds milk, bread and other Refrigerated items to product assortment.

2006: Dollar General opens its 8,000th store.

2007: Dollar General goes private after being acquired by Kohlberg Kravis Roberts & Co., a private equity firm.

2008: Rick Dreiling is named CEO.

2009: Dollar General becomes a public company.

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