Dollar General Business Model

Business / By / March 2, 2023

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.

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.

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. 

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About The Author

Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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