At first blush, there appears to be nothing special about Dollar General’s first Southern California store in the suburb of Montclair. It occupies about 7,500 sq. ft. of space in an aging strip center, and a small banner hung on the exterior beckons to passing motorists and pedestrians, “Now Open.” Inside, more signs explain the bare-bones merchandising of familiar brands to shoppers unfamiliar with the Dollar General value proposition. “No frills, just real savings” and “Simple prices you can add up in your head” make clear that Dollar General’s goal is to provide great prices on household essentials.
Such an approach to merchandising doesn’t qualify as “special” in the same visually appealing way it does at a Nordstrom, Target or Bass Pro Shops. Then again, special can take many forms, and in Dollar General’s case, its dowdy little store east of Los Angeles looks good because it is the model of consistency that just last month enabled Dollar General to open its 10,000th store. The company already had the largest network of retail stores in the United States after opening 625 new stores last year, and with that many planned for this year, as well, it quickly hit the 10,000-store milestone.
According to chairman and CEO Rick Dreiling, Dollar General has been able to achieve such considerable growth by focusing on the four priorities of driving productive sales growth, increasing gross margins, leveraging process improvements in information technology to reduce costs, and strengthening and expanding Dollar General’s culture of serving others.
“We believe that adherence to these priorities and our focus on multiple leverage to drive sustainability of results will continue to separate Dollar General from the competition and allow us to provide our customers with the consistent low prices that they trust,” Dreiling said during the company’s recent conference call to discuss record fourth-quarter results.
“The returns on our new stores remain some of the best in retail, thanks to the disciplines we have developed in our real estate model,” he said.
Discipline is a good thing for a company to have, especially one that is expanding its store base at an unprecedented rate. For example, when results for the fourth quarter ended Feb. 3 were reported on March 22, the company indicated there were 9,937 stores in operation. An annual report filed the same day with the Securities and Exchange Commission showed the store-count figure as of March 2 had increased to 9,961. Then on March 30, the company reported the opening of its 10,000th store in Merced, Calif.
The company added 63 units in the space of roughly two months, which sounds like a lot, but is actually a little off the pace the company needs to achieve the 625 new stores slated to open this year. Going forward, the company needs to average 1.8 new stores per day to hit its new-store expansion target of 625 units and 7% square footage growth by the end of its fiscal year in early 2013. And then the company needs to maintain or possibly even accelerate that pace over the coming 15 years, as Dollar General claims the U.S. market is capable of supporting upward of 20,000 of its stores.
The company’s steady success, as exemplified by 22 consecutive years of same-store sales growth and a strong rate of return, has led to plenty of fans on Wall Street, where there appear to be few doubters when it comes to Dollar General’s growth prospects. A key reason is the fact that the company only recently began expanding into Northeastern markets, and this year entered California and opened a new distribution center in Bakersfield, Calif. In fact, last year was the first time since 2006 that Dollar General entered a new market, which it did with new stores in Connecticut, New Hampshire and Nevada.
Typically, new market entries are fraught with risks, and those risks are multiplied in California, which can be like entering a foreign country, especially for a retailer whose roots are in the rural Southeast. Normally that would be the case, except Dollar General has a senior management team with deep roots in the western United States. The company recently hired Safeway veteran Greg Sparks as EVP of operations, which provides the company with valuable supply chain and operational expertise in western markets just as new distribution capacity comes online in Bakersfield to facilitate growth in California and neighboring states. Sparks spent 34 years with Safeway.
Meanwhile, Dreiling also has considerable exposure to California and Western markets. He joined Dollar General in 2008, but from 2003 to 2007, he was with California-based Longs Drug Stores as EVP and COO. Prior to that, he served as EVP of marketing, manufacturing and distribution at Safeway from 2000 to 2003 and was president of Safeway’s Vons division from 1998 to 2000.
Dreiling’s decision to hire Sparks as head of operations is not the first time he has turned to his former Longs and Safeway colleagues to build the next-generation Dollar General. In 2008, he hired John Flanigan as SVP of global supply chain after Flanigan served as group VP of logistics and distribution for Longs and, prior to that, as VP of logistics for Safeway. Flanigan was promoted to EVP at Dollar General two years ago.
Dollar General has come a long way since opening its first store in 1955 and completing a public stock offering in 1968. Taken private in July 2007 by Kohlberg Kravis & Roberts, Dollar General became a public company again in November 2009 with a new management team at the helm and ambitious growth plans in place, which have been successfully executed over the past few years and have the company positioned to eventually double in size.
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