Dollar General Business Model

Dollar General Business Model Canvas - Dollar General Business Model

Dollar General is a corporation that was set up to provide a selection of merchandise like consumables, home products, and apparel to consumers at a lower price than they would get elsewhere. The Dollar General business model is focused on making shopping stress-free and affordable by selling everyday items at low prices to customers looking for both value and convenience.

Dollar General‘s business strategy is centered on creating profitable growth while keeping its image as a low-cost provider and seizing opportunities for growth. The company aims to do so by improving store in-stock positions and continuously offering products at competitive prices, as well as investing in inexpensive labor.

Their target customers are households that make less than 40,000 annually, which might make one begin to wonder how they are able to make any profit at all. In this article, we will be going into the nooks and crevices of the Dollar General business model and the methods they use to make their business thrive while catering to their consumers. 

A brief history of Dollar General

It all started in 1939 when James Luther — who had struggled to survive after his father’s passing in 1902 by dropping out of school and working on the family farm to provide for his family, as well as becoming a traveling dry goods seller, and even buying and liquidating general stores during the Depression — and his son Cal Turner Sr. pulled together and invested $5,000 each to open a wholesale business which they called J.L. Turner and Son Wholesale.

After failing twice in retailing when he was younger, J.L. decided to try his hand in wholesaling, which kicked off and eventually led him to try his third and final attempt at retailing. The switch to retailing was a great success, creating a boom of over $2 million by the early 1950s. 

By 1955, his son Cal had gotten the idea of a retail store that focused on selling goods for a doll. He got this idea from the Dollar Days promotions held at other department stores. The concept was rather straightforward: No item in the store would cost more than one dollar.

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On the 1st of June 1955, they converted one of their Turner’s Department Stores in Springfield, Kentucky, into the very first Dollar General Store. The store was a huge success, and soon they converted all the other department stores they owned. And by 1957, the annual sales from all 29 Dollar General stores hit $5 million. 

Unfortunately, in 1964, J.L. passed away, leaving his son Cal to continue his legacy. Cal didn’t disappoint, and four years later, the company he co-founded with him went public as Dollar General Corporation, raking in annual sales of more than $40 million and generating a net income in excess of $1.5 million. 

In 1965, his son, Cal Turner Jr., joined the company as the third generation Turner, and eventually succeeded his father as president of Dollar General in 1977. Cal Turner Jr. led the company until his retirement in 2002. During the years of his leadership, the company grew massively, owning more than 6,000 stores and generating $6 billion in sales.

Now, the company has become a major discount retailer with over 17,000 locations in 46 states. The founding family’s humble ethic of hard work and friendly customer service has been carried on by the company.

Who Owns the Dollar General 

Although it was established by the Turner family, Dollar General is not owned by any of the major grocery chains. It is owned by private investors, such as Kohlberg Kravis Roberts and Citigroup, and public stock investors, as Dollar General is a publicly-traded company.

The Dollar General Mission Statement

 “Serving others.”

How Dollar General makes money

High returns on lower incomes - Dollar General Business Model

Dollar General offers a selection of merchandise to consumers at discounted prices that are 20% to 40% lower than those found in grocery stores and drug stores. With this incentive, they have flourished, but the fact that they sell their items at such low prices begs the question of how they actually make money. They accomplish this by acquiring, storing, and distributing merchandise to their stores across the United States, as well as paying salaries and benefits to their employees in a manner that is inexpensive and cost-effective. 

  • Stores are located in rural areas.

The company’s target consumer comes from a household earning $40,000 or less per year and often lives in areas known as “food deserts”, which means they aim for homes located miles away from grocery stores. The plan was to go to places where Walmart didn’t go. As a result, the majority of its stores are in rural and suburban areas, where it is less expensive to operate.

  • Straightforward shopping experience

Dollar General does not own its stores. This keeps real estate costs low. And because the company does not own its real estate, it is easy to relocate stores if things aren’t doing well. A new store costs around $250,000 to open, which is significantly less than what a big-box retailer pays to build new stores. It is one-tenth the size of a typical Walmart store and has a simple design with metal shelves, strip lighting, and low-cost signs. The average shopping trip to Dollar General lasts no more than 10 minutes, and because the store’s designs are simple, the shopping experience is generally straightforward.

  • Limited products

Dollar General does not stock every brand and size; instead, they concentrate on the most popular ones. Each of their stores has between 10,000 and 12,000 different products, which is low when compared to a typical supercenter like Walmart, which has around 60,000. Because Dollar General buys in bulk, carrying a limited number of items gives it more negotiating power with suppliers.

  • Low labor costs.

Smaller, more basic establishments require fewer employees since they offer fewer items. Unlike Walmart, which has a diverse workforce ranging from greeters to shopping assistants, Dollar General keeps its staffing rather simple. The emphasis here is on getting a good price, which frequently means that customers are willing to give up services. Dollar General is also investing in its workers in order to decrease employee turnover, which is costly to the company. They boast the lowest store manager turnover rate in the industry.

  • Private-label goods.

Dollar General produces some of the goods they sell, with over 40 distinct private-label product brands. Because the corporation has better control over production costs and can establish its own prices, these items have bigger margins than national brands. 

  • Limited fresh produce.

Most Dollar General stores do not sell fresh food or perishable items, which have a shorter shelf life and lower profit margins. This contributes to the company’s healthy profit margins. Despite this, Dollar General is trying to expand this segment of the company and become a mid-week shopping destination by making customers visit the store more often to purchase perishables. They currently have fresh vegetables in 300 of their locations. 

  • Packages items in small quantities.

Dollar General sells goods in small quantities instead of in bulk to keep the cost of each transaction low. While the costs remain below $10, it may look like you’re getting a better deal, but you are probably spending more per ounce or per item. However, the lower purchase price serves its primary consumer well, as they may not have the disposable cash to buy in bulk.

  • Low costs in the supply chain.

Dollar General is always trying to minimize expenses in its supply chain. They aim to grow their own private fleet in order to regulate delivery times and guarantee that routes are more optimal so that vehicles do not waste time on transportation networks. The company believes that, by expanding its private fleet, it would decrease its susceptibility to third-party carrier pricing fluctuations.

The Dollar General’s Business Model Canvas

The Dollar General Business Model can be explained in the following business model canvas:

Dollar General Business Model Canvas - Dollar General Business Model

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Dollar General’s Customer Segments

Dollar General’s customer segments consist of:

  • Low and Medium-Income Families: Dollar General targets households that earn about $40,000 or less annually and are in need of everyday household items that are sold at affordable prices;
  • Millennials: Dollar General focuses on millennials that are mostly between the ages of early twenties and mid-thirties that prefer affordable options for essential goods; 
  • Budget-Conscious Senior Citizens: Dollar General aims to provide for the older generation that is still working but old enough to retire and prefers to be thrifty in their purchases.

Dollar General’s Value Propositions

Dollar General’s value propositions consist of:

  • Strategic Locations: Dollar General has a network of stores strategically positioned in convenient places for its customers. They focus on rural, suburban, and metropolitan neighborhoods that don’t have any supermarkets around. They place their outlets close to clients in order to increase customer loyalty while minimizing the number of retail visits;
  • Time-Saving Shopping Experience: Dollar General structures its stores in an easy-to-navigate manner, which makes goods convenient and easy to find. This, along with their ideal opening company’s easy operating hours, makes it favorable for customers;
  • Wide range of products: Dollar General provides a diversity of products to its customers, enabling the company to act as a one-stop shop for all;
  • Low Shopping Prices: Dollar General offers low prices on high-quality products to its customers, boasting lower costs than bigger grocery and drug stores and prices that are less than other retail channels. 
Dollar Deals - Dollar General Business Model

Dollar General’s Channels

Dollar General’s channels consist of:

  • Online Store
  • Website
Drivng Profitable Sales Growth - Dollar General Business Model

Dollar General’s Customer Relationships

Dollar General’s customer relationships consist of

  • Online store
  • Website
  • Retail outlets 
  • Customer service
  • FAQ’s
  • Social media

Dollar General’s Revenue Streams

Dollar General’s revenue streams consist of:

  • Sale of general and household merchandise
  •  Sale of advertising space
  • Lease of properties. 

Dollar General’s Key Resources

Dollar General’s key resources consist of:

  • Physical retail outlets
  • Catalog
  • Products and merchandise.
  • Supply chain
  • Logistics network
  • Online store
  • Website and IT infrastructure.
  • In-store staff
  • Partnerships 
  • Properties 

Dollar General’s Key Activities

Dollar General’s key activities consist of:

  • Offering consumable goods
  • Providing Seasonal items
  • Selling household supplies and beauty products
  • Providing delivery services to online purchasers

Dollar General’s Key Partners

Dollar General’s key partners consist of:

  • Advertising Partners
  • Vendor and Supply Partners
  • Distribution Partners
  • Affiliate Partners
  • Joint Partnership

Dollar General’s Cost Structure

Dollar General’s cost structure consists of:

  • Acquisition 
  • Storage
  • Distribution
  • Salaries
  • Development and maintenance
  • Partnership
  • Marketing

Dollar General’s Competitors

  • Walmart: Walmart is a retailer that owns and manages a network of superstores, cheap department stores, and grocery stores;
  • Dollar Tree: Dollar Tree provides a variety of items at discounted prices as well;
  • Walgreens: Walgreens is a store that sells pharmaceuticals and cosmetics;
  • Family Dollar Stores: Family Dollar Stores sells merchandise online and has a more limited selection of items, but offers sales and discounts;
  • Target: Target is another big box department store that sells general merchandise.

Dollar General’s SWOT Analysis

Here’s a breakdown of Dollar General’s SWOT analysis:

SWOT Analysis of Dollar General - Dollar General Business Model

Dollar General’s Strengths

  • Convenience: Dollar General provides a convenient means of shopping for customers, making it quick and easy to achieve;
  • Low purchase prices: Dollar General’s extremely low and competitive prices put it at the top of the retail chain and draw the attention of customers, boosting sales;
  • Strategic locations: The company has over 17,000 stores across the country, each placed at strategic locations like rural areas where such services are hard to come by;
  • Employees: Dollar General has over 90,000 well-trained employees and has the lowest store manager turnover rate in its industry;
  • Brand name reputation: Dollar General is a well-known brand name known for low-cost home items and has a history stretching back to the early twentieth century. Its reputation evokes customer confidence and trust.

Dollar General’s Weaknesses

  • Franchise Problem: Dollar General is having issues as a result of franchise personnel misconduct. With so many branches, it becomes increasingly challenging to regulate each employee;
  • Management Problems: With branches opening up in every neighborhood, managing their operations becomes a major challenge;
  • Need for High Technology: The company’s perspectives do not represent the technologies it now employs. As a result, in order to stand out in a competitive market, they must invest in new initiatives.

Dollar General’s Opportunities

  • New Environmental Policies: Implementing new environmental policies can create massive opportunities for Dollar General. With more effective environmental policies, they can gain new ones;
  • Low-Calorie Food: Investing in low-calorie foods in their health & food category will create a doorway for more traffic, especially at these times when more Americans are paying attention to their health due to an increase in obesity issues in the country;
  • International market: Dollar General should consider tapping into the minefield that is the international market. Extending their services across borders, particularly to countries with low inflation rates and emerging economies, will generate a new source of revenue that could be a game changer for the company;
  • Demographic Changes: Dollar General has already started experimenting with providing merchandise for the more affluent market segments of society. This is an advantageous move as it reduces their restrictions while increasing their growth margin and versatility.
Steady Growth in new stores - Dollar General Business Model

The Dollar General’s Threats

  • Governmental Issues: The government keeps implementing new laws and regulations that the company must adhere to each year. They have faced multiple regulatory pressures to increase the income of their employees. And aside from that, their license must be renewed annually following the laws and guidelines of the government officials who make this application;
  • Increased Cost of Operation: The cost of operation is on a steady incline, and this has increased the company’s expenses. They have no way to control these increases. These include personnel costs and basic material costs, which are increasing day by day. However, they can come up with a solution that can reduce costs and remedy this threat;
  • Lack of Long-Term Contract With Suppliers: A lack of steady suppliers can cause a serious threat to the company. Dollar General has suppliers that offer raw products such as vegetables and meat. So this can be a major issue if not paid attention to. 

Conclusion

Dollar General has achieved and will continue to achieve its aim of delivering stress-free and economical shopping for all of its customers. They save time by concentrating on their home. They sell necessities and other valuable items, while keeping their customers at the center of all they do. Their actions are motivated by the desire to serve others, both customers and workers, as well as members of their communities.

Dollar General is synonymous with convenience, high-quality goods, and affordable rates. Dollar General has been dedicated to its objective of serving others since its inception in 1939, and has stuck to it through the years.

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