Dollar General Case Study Essay

one dollar bill normal is a selling company, especially extreme value oriented.Since its makeup in 1955, Dollar ordinary has drastically grown. In 10 years, from 1955 to 1965, the ships company grew to 255 lineages with annual sales of $25.8 million. Today, Dollar world(a) owns 6,300 origins in 27 states, with 2002 annual sales of $6.1 billion and more than 54,000 employees. This growth was extremely fast in the 1990s. The turn of events of shop classs grew so from 1,461 in 1991 up to 6,113 in 2002.Since the beginning, Dollar General takes advantage of a niche by setting up profitable small stores delivering convenience and value. All the DollarGenerals Strategy is based on a customer-driven distri bution of consumable basics. monetary situation of the community remains really satisfying in spite of shareholders lawsuits due to restatement of its earnings few years ago. revenue growth was equal to 12.6% in 2003 for a total amount of $7.24 billion. Its net income was the largest of the sector with $319.9 million. In the same(p) time, and over the last triad years, the phoner has bring down its long-term debt by $448 million.Such a success can be explained by a really good positioning of the union through its immaterial environment and among its direct competitors. Dollar general knows very well how to manage the exploited niche and its opportunities. The main strength of Dollar General remains its competency to constantly open virgin stores, knowing that the let out success holds in the proximity of small stores delivering convenience and value. It is in fact a kind of requisite comparative advantage on this market.The natural CEO, David Perdue has got no nonplus of retail industry. He has to choose in which direction Dollar General will go. He has to go on the expansion of the Company but with the arrival of new and very powerful competitors such(prenominal) as Wall-Mart or Kmart.1. BackgroundDollar General is a discount retailer of gen eral merchandise, with around 6,300 discount stores in over 27 states in 2003. The Company, which headquarters are based in Goodlettsville, Tennessee engages in the provision of general merchandise at low prices, serving customers in Midwestern and Southeastern US.The Company offers its customers an assortment of consumable basic merchandise, which includes health and peach tree aids, packaged food products, cleaning supplies, hardware, stationery, household items and basic apparels. The majority of its items are priced at $1. The Company employed around54,000 employees. Their buying staffs negotiate low buy prices from suppliers. It purchases its merchandise from various major suppliers. To maintain high in stock levels of core merchandise, the Company usually limits its stock-keeping units per store.TimelineIn 1939, with completely a third division education, J.L. Turner formed his own company in Scottsville, Kentucky, with his son, Cal.In 1955, Cal Turner and his son Cal Turn er Jr. opened the first Dollar General store in Springfield, Kentucky.In 1965, they operated in 255 stores and generated $25.8 million of sales.In 1976, Dollar General exceeds annual sales of $100 million for the first time.At the beginning of the 1990s, the Companys annual sales kept increasing and began to expand store sizes from 5,000 square feet to 6,800 square feet.In 2000, Dollar Generals corporate employees instill to Goodlettsville, Tennessee. The move also saw the most aggressive store reset in the Companys history, in which, more than 5,000 stores were set.In 2001, the Company began oblation perishable products. This program included a selection of dairy products, meats, frozen foods and ice cream, and was expanded from 411 stores at the end of 2001 to 1,367 stores at the end of 2002.In February 2003, 7 dissemination centres which served around 6,192 stores in 27 states and generated in net sales $6.1 millions.2. Dollar General diagnosisa. Financial analysisNet SalesInc reases in net sales resulted primarily from 587 net new stores and a same-store sales increase of 4.0% in 2003 compared to 2002, and 573 net new stores and a same-store sales increase of 5.7% in 2002 compared to 2001. The Companys merchandising strategy in recent years has been to place a greater emphasis on faster-turning consumable products and to give slight prominence to slower-turning radical products and clothing. The Company believes that this strategy has enabled it to wagerer serve its customers while improving its inventory turns. As a result of this strategy, over the past tercet years the highly consumable category has become a greater percentage of the Companys overall sales strut while the percentages of the home products, seasonal product and basic clothing categories have declined. In 2002 and 2003, the mix was as follows (in percent of sales)2003 2002Highly Consumable 63% 60.2%Seasonal Products 15% 16.3% theatre Products 12% 13.3%Basic Clothing 10% 10.2%The Com panys same-store sales increase in 2003 over 2002 of 4.0%, or $228.3 million, was due to a number of factors, including but non limited to change magnitude sales of candy and snacks, health and beauty aids items, pet supplies and perishable products primarily due to the increase in the number of stores with coolers (in 2002, 1,400 stores had coolers).Gross ProfitThe gross profit increased by more than 200 millions dollar in 2003 as compared with 2002 primarily due to the followingThe Company made progress in reducing the shrink at problem stores during 2003. Some of the actions taken by the Company to combat shrink beginning in 2002 included the installation and the implementation of software that improve the inventory management. They also invest in others technologies which help purchasing and store allocation decisions.Current Financial ConditionThe Company has also to deal with its accounting issues due to the uncertainty about their past financial reports. The Company is stil l under the investigation of the US Securities and Exchange Commission and has to provide solid proof for every financial figures published and for every transactions done.b. Strengths and weaknesses analysisSTRENGTHS WEAKNESSESOne of the leading dollar store retailers in the USImproved financial performanceStores located in small communitiesInvested in better distribution facilities Space issuesMerchandise mix problems disoriented of competitive advantageStrengthsDollar General is one of the leading dollar store retailers in the US. The Company enjoys a vehement market position inside this particular segment of the retail market. It has a low cost operating structure and a relatively limited assortment of products offered. The Companys strong market position will help to enhance Dollar Generals brand awareness. Dollar General is well known Company which does non need to communicate on their strategy because of their strong identity, they have low communication cost. This will in turn make it easier for the Company to attract new custom. Their strong store experience allows the superpower to develop their strategy with a high knowledge experience. It facilitates their expansion strategy.The Company improved its financial performance and increased in revenue in 2003 up to $6.1 billion after a 15% increase in 2002. Net income also grew by 27,7% in 2003 stretching $264,946.Stores are located in small communities, meaning it does not have to compete with the bigger retail outlets for custom.Moreover they have made better distribution investments which allow them to have better facilities in their distribution and lower costs.WeaknessesGrowing fast, involved learning experiences, duplicating models, and creating format. It has been a force during a few years. Nowadays, Dollar General has to adapt its stores to the demand, and follow the market growth.Merchandise mix problems Dollar General has also experienced merchandise mix problems in recent years. These mer chandise mix problems have led to the Companys inventories becoming obsolete. This has forced Dollar General to write down some of the value of its inventories.The concept of dollar store has been a success, and many competitors are on the general store traces. Their concept has been copied, so their competitive advantage and their strategy are no more as efficient as in thebeginning. Competitors have also learnt form the Companys experience.3. External Analysisa. CompetitorsAccording to the case the two major competitors of Dollar General Corporation areFamily dollarDollar treeThese two companies have adopted the same strategy than Dollar General. Their expansion has been fast, they have the same customers, and the same core business. Although they have many customers such as The Talbots, Inc.Freds, 7-Eleven, Sears Roebuck, Wal Mart, 99 Cents Only Stores, Kmart or Target.COMPETITOR COMPARISON (2002)The following chart shows the differences between those three companies.Comparison c riteria 2 1 0 1 2Industrial Equipment (number of stores, distributioncenter)Wide of product rangeProductivityProfitabilitypriceImagePenetration rateRevenue Growth over the past yearDollar steerFamily DollarDollar GeneralFollowing this represent study it seems Dollar General generally remains the most impressive competitors of the sector. DG remains the best in term of image, penetration rate (even if it is hardly present in 27 states whereas the others are present in about 40 states), financial position (they have the best Net Income 265 millions dollars, Dollar Tree 155 millions and Family Dollar 217 millions) and in term of selling force thanks to its still greater number of stores (6,113 stores for 54,000 employees, Dollar Tree 2,263 stores for little than 9,600 employees and Family Dollar 4,616 stores for less than 22,000 employees). in 2004, Dollar Tree has got 9,600 employees and Family Dollar 22,000 employees according to Yahoo.com so we can guess that it was inferior in 2002Nevertheless DG has to take care not to lose its leadership concerning the wide of product range proposed. And even if the target household income is not exactly the same than Dollar Tree, DG has also to liquidate attention to the politic pricing implemented by Dollar Tree, which is in fact the best of the sector thanks to products price at $1 or less than $1.But generally, DG remains really well positioned among its competitors.b. Opportunities and threats analysisOPPORTUNITIES THREATSNew distribution centersBusiness less susceptible to slowdown in consumer expendingStores expansion in new statesSize of the stores New competitionPeople qualificationDependency to suppliersOpportunitiesThe Company is dependent upon the smooth functioning of its distribution net and upon the capacity of its distribution centers. The Company relies on the ability to replenish depleted inventory through deliveries to its distribution centers from suppliers. New distribution centers are expecte d in the end 2004 or in 2005 in order to support continued growth.The dollar business is less susceptible to a slowdown in consumer expenditure compared with other retail operations because over a third of its stock costs $1 or less. This will mean that Dollar Generals business will not be affected as much as other high cost and high margin led retail operations, as in times of economic distress consumers will look to save money by purchasing goods that are perceived to offer better value from retailers such as Dollar General. So they have the possibility to gain market share if the economy slowdown.The stores are located in only 27 states so they have the possibility to open new stores and to expand into additional states. It will depend on factors that are beyond the Companys control such as the ability to negotiate favourable lease terms the ability to hire and train new personnel,especially store managers the ability to identify customer demand in different geographic areas.The size of the stores is from 5,000 to 6,800 square feet, whereas Family Dollar stores size is from 7,500 to 9,500. It shows that DG can extend the size of their stores in order to grow their sales.ThreatsThe discount retail merchandise business is subject to excess capacity and some of the Companys competitors are much larger and have substantially greater resources than the Company. The competition for customers has intensified in recent years as larger competitors, such as Wal-Mart, have moved into the Companys geographic markets. The Company remains vulnerable to the marketing power and high level of consumer recognition of these major national discount duress, and to the risk that these chains or others could venture into the dollar store industry in a significant way.The Companys success depends to a significant extent upon the abilities of its aged management team and the performance of its employees. The loss of services of key members of the Companys senior management team or of certain other key employees could negatively impact the Companys business. In addition, future performance will depend upon the Companys ability to attract, retain and motivate dependent employees to keep pace with its expansion schedule.The Companys business is dependent on its ability to obtain attractive pricing and other terms from its suppliers. The Company believes that keeping good relations with its suppliers is generally a good way to obtain attractive pricing. If the Company fails to maintain good relations with its suppliers, it may not be able to obtain attractive pricing with the consequence that its net sales or profit margins would be reduced.4. Problem identificationDollar Generals strategy is based on low prices and convenience. That is what differentiates this Company from another. They had the ability for delivering value to their customers and for placing many stores where other big-box retailers will not is well-deserved.The new CEO, David Perdue, which h as no experience in retail industry, has to go on the expansion. But he has to face the problem of a harder competition. Indeed, the success of dollar stores attract big firm such as Wall-Mart and Kmart on this market. So where will he decide to open new stores? He will probably has to expand new stores in new states but he might not find a location without competitors.