Dollar General Business Model

Dollar General is an American variety store chain with more than 19,000 locations across 47 states in the USA. The company was founded in 1939 as the family-owned business J.L. Turner and Son in Scottsville, Kentucky.

Dollar General is a discount retailer with a diverse selection of brand name and private label items in categories such as food, health and beauty, pet supplies, paper, home décor, apparel, and seasonal merchandise.

Table of Contents

Understanding Dollar General’s business model

Dollar General operates under a low-cost business model based on the everyday low price (EDLP) strategy.

This means the company offers low prices all the time and not just as part of a sale or promotion.

The EDLP strategy creates a simpler, more consistent price structure and fosters customer loyalty.

Dollar General also operates under the low-margin, high-volume model. In other words, the company sells large quantities of products at a low profit margin.

To make this model work, it must control operating costs and focus on supply chain optimization and efficient inventory management.

Convenience is another key aspect of this business model. The company offers an easy “in and out” store experience that differentiates it from other discount retailers as well as convenience, drug, grocery, and online stores.

The combination of EDLP and convenience supports Dollar General’s mission “to serve others. And, we think our customers are best served when we keep it real and keep it simple. We build and run convenient-sized stores to delivery everyday low prices on products that our customers use every day.”

Other aspects of the Dollar General business model

Store location

Dollar General aims to locate its stores in convenient locations – irrespective of whether the location is rural, suburban, or urban. By placing stores close to consumers, the company can increase consumer loyalty and repeat visits.

The company also uses a propriety algorithm to determine the best place to build a new store.

The algorithm analyzes various data points related to population, population density, traffic patterns, and speed limits. It also looks at destinations in close proximity that attract visitors like post offices, churches, and schools.

Lastly, Dollar General looks at mobile data to determine how far a customer travels to one of its stores and whether they visit competitors.

As the company’s store network grows, more and more data is fed into the algorithm to yield insights.

Dollar General has found success by focusing on small towns overlooked by other retailers, with 75% of its stores located in towns with less than 20,000 people.

The company likes to establish stores on popular commute routes, but it also enters into residential areas to serve those without access to transport.

Store size and products

Dollar General stores span around 8,500 square feet on average or around 5% of the size of a typical Walmart. In a 2014 interview with DSN, then-CEO Rick Dreiling explained that the company was “trying to be the general store that our grandparents shopped in, and our goal is to make that box productive.“

Stores are productive in the sense that they sell a carefully chosen assortment of the most popular brands, products, and sizes. As we touched on earlier, this makes shopping simpler for the consumer because it is easier for them to find what they need.

Cost reduction

Dollar General’s preference to set up in small communities means it can save money on land and labor-related costs.

Its small box stores are also relatively cheap to construct at just $250,000, but the company (like most others) has faced increased construction costs related to inflation and supply chain issues in recent times.

Value Proposition

Convenience and Affordability: Dollar General’s value proposition revolves around offering a convenient shopping experience with everyday low prices. By providing a wide range of merchandise at affordable prices, Dollar General attracts budget-conscious shoppers seeking value and convenience for their everyday needs.
Product Variety and Accessibility: Dollar General aims to meet the diverse needs of its customers by offering a broad assortment of merchandise across multiple categories, including household essentials, groceries, health and beauty products, apparel, and seasonal items. With convenient store locations and extended operating hours, Dollar General ensures accessibility and availability for customers in both rural and urban areas.
Community Focus: Dollar General emphasizes its role as a community-oriented retailer that serves the needs of local neighborhoods and communities. By tailoring its product selection to the preferences and demographics of each location, Dollar General fosters a sense of belonging and meets the specific needs of its customer base.
Branded and Private Label Products: Dollar General offers a mix of branded products from well-known manufacturers as well as private label products under its own brand names. This combination allows customers to choose between trusted national brands and value-priced alternatives, providing flexibility and choice to meet different budget requirements.

Revenue Model

Merchandise Sales: The primary source of revenue for Dollar General comes from the sale of merchandise in its stores. Customers purchase a variety of products across different categories, including consumables, seasonal items, home goods, apparel, and beauty products.
Private Label Sales: Dollar General generates additional revenue through the sale of private label products, which are manufactured specifically for the company and sold under its own brand names. These private label offerings often provide higher margins compared to branded products and contribute to overall sales and profitability.
Store Expansion and Franchise Fees: Dollar General may generate revenue through store expansion initiatives, including the opening of new company-operated stores and the sale of franchise licenses to independent operators. Franchisees pay initial fees and ongoing royalties to Dollar General in exchange for the right to operate a Dollar General store under the company’s brand and guidelines.
Services and Financial Products: In some locations, Dollar General may offer additional services and financial products to customers, such as check cashing, money transfers, and prepaid cards. Revenue from these services supplements the company’s core retail operations and diversifies its revenue streams.

Marketing Strategy

Targeted Advertising and Promotions: Dollar General utilizes targeted advertising and promotional campaigns to reach its core customer demographic and drive foot traffic to its stores. This may include print advertisements, digital marketing efforts, and in-store promotions designed to highlight special offers, discounts, and seasonal deals.
In-Store Merchandising and Layout: Dollar General employs strategic merchandising techniques and store layouts to enhance the shopping experience and encourage impulse purchases. By placing high-demand items in prominent locations and optimizing product displays, Dollar General maximizes sales opportunities and increases average transaction sizes.
Community Engagement and Sponsorships: Dollar General engages with local communities through sponsorships, partnerships, and charitable initiatives. By supporting local events, schools, and organizations, Dollar General strengthens its ties to the community and fosters goodwill among customers and residents.
Digital Engagement and Loyalty Programs: Dollar General leverages digital channels to engage with customers and build loyalty through email newsletters, mobile apps, and loyalty programs. By offering personalized promotions, digital coupons, and rewards for repeat purchases, Dollar General encourages customer retention and repeat visits to its stores.

Distribution Channels

Brick-and-Mortar Stores: Dollar General operates a network of brick-and-mortar retail locations across the United States, with thousands of stores in both rural and urban areas. These stores serve as the primary distribution channel for Dollar General’s merchandise, providing a convenient shopping destination for customers seeking everyday essentials.
Store Formats and Expansion: Dollar General offers multiple store formats to accommodate different market needs, including traditional stores, Dollar General Market locations with expanded grocery offerings, and Dollar General Plus stores with larger footprints and additional product assortments. The company continues to expand its store footprint through new openings and strategic acquisitions to reach underserved communities and capture market share.
E-Commerce and Online Sales: In addition to its physical stores, Dollar General may offer select products for purchase through its e-commerce platform. While the majority of sales still occur in-store, the company’s online presence provides another channel for customers to shop and access Dollar General’s product offerings, particularly for those who prefer the convenience of online shopping or live in areas without nearby physical locations.

Customer Segments:

Cost-Conscious Consumers: Attracting consumers seeking affordability and value in everyday products.
Convenience Shoppers: Catering to customers looking for a quick and easy shopping experience.
Small Community Residents: Serving communities, particularly in small towns with limited retail options.

Cost Structure:

Low-Cost Operations: Dollar General’s low-cost model includes efficient supply chain management, store construction, and labor-related savings in small communities.
Construction Costs: While stores are relatively inexpensive to construct, the company faces challenges related to construction costs due to inflation and supply chain disruptions.

Key takeaways

Dollar General is an American variety store chain with more than 19,000 locations across 47 states in the USA. The company was founded in 1939 as the family-owned business J.L. Turner and Son in Scottsville, Kentucky.
Dollar General operates under a low-cost business model based on the everyday low price (EDLP) strategy. The EDLP strategy creates a simpler, more consistent price structure and fosters customer loyalty.
One other aspect of the Dollar General Business model is store location. The company uses a proprietary algorithm to determine the best location for a new store by analyzing data on traffic, population density, and proximity to services such as schools, and post offices, among other factors.

Element	Description
Value Proposition	Dollar General offers a compelling value proposition for its customers, including: – Everyday Low Prices: Providing consistently low prices on a wide range of products. – Convenience: Offering convenient locations with extended operating hours. – Broad Product Selection: Carrying a diverse selection of essential items. – Retail Accessibility: Focusing on accessibility for customers in rural and underserved areas. – Private Brands: Offering private-label brands for cost-effective options. – Simple Shopping Experience: Creating an easy and straightforward shopping experience. – Digital Coupons: Providing digital coupons and discounts through the DG app. – Customer Loyalty: Offering a customer loyalty program with exclusive discounts. – Community Engagement: Engaging in community initiatives and support. – Accessibility: Making products accessible to budget-conscious shoppers.
Core Products/Services	Dollar General’s core products and services encompass: – Retail Merchandise: Offering a wide range of merchandise, including groceries, household essentials, apparel, and more. – Private Brands: Featuring private-label brands like DG and Clover Valley for affordable options. – Digital Coupons: Providing digital coupons and discounts through the DG app and website. – Health and Beauty: Carrying health, beauty, and personal care products. – Household Essentials: Offering household cleaning, paper products, and home goods. – Electronics: Selling electronics, including mobile devices, accessories, and more. – Seasonal Products: Offering seasonal items for holidays and occasions. – DG App: Providing a mobile app for shopping, discounts, and store location information. – Customer Service: Delivering customer service and assistance in stores. – Community Support: Engaging in community support and charitable initiatives.
Customer Segments	Dollar General serves a diverse range of customer segments, including: – Budget-Conscious Shoppers: Attracting customers seeking affordability and savings. – Rural Communities: Serving customers in rural and underserved areas. – Families: Providing essentials and groceries to families on a budget. – Seniors: Catering to seniors with discounts and convenience. – Students: Attracting students looking for cost-effective school supplies and snacks. – Value Shoppers: Engaging with value-conscious shoppers seeking low prices. – Working Professionals: Serving working individuals and professionals. – Community Shoppers: Fostering community support and engagement. – Coupon Users: Attracting customers who use digital coupons for discounts. – Small Businesses: Providing supplies and products to local small businesses.
Revenue Streams	Dollar General generates revenue through various revenue streams: – Product Sales: Earnings from the sale of retail merchandise, including groceries and essentials. – Private Brands: Income from the sale of private-label brands with higher margins. – Digital Coupons: Potential income from digital coupon promotions and discounts. – Store Expansions: Revenue gains from opening new store locations. – Franchise Model: Income from franchise fees and royalties in certain cases. – Loyalty Program: Potential earnings from the DG Rewards loyalty program. – Store Layout Optimization: Revenue optimization through store layout and product placement. – Community Engagement: Potential revenue gains from community-focused initiatives. – Supply Chain Efficiency: Potential cost savings through a streamlined supply chain. – Online Sales: Exploring opportunities for online sales and e-commerce growth.
Distribution Strategy	Dollar General employs a strategic distribution strategy to reach customers: – Physical Stores: Operating a network of physical store locations in various communities. – Rural Expansion: Expanding into rural and underserved areas to reach a broader customer base. – Supply Chain Management: Optimizing supply chain operations for efficiency and cost-effectiveness. – Private Label Production: Managing the production and distribution of private-label brands. – DG App: Providing a mobile app for customers to access discounts, digital coupons, and locate stores. – Community Engagement: Engaging with local communities through charitable initiatives and support. – Inventory Management: Efficient inventory management to ensure product availability. – Local Advertising: Implementing localized advertising and promotions. – Store Layout Optimization: Optimizing store layouts for customer convenience. – Competitive Pricing: Continuously monitoring and adjusting pricing to remain competitive.