• Author / Uploaded
• tirath5u

Citation preview

Dollar General Case analysis Question 2 Can you suggest what job Dollar General is doing for its customers? Selected Answer:

Dollar General was founded in 1939 and has been traditionally a family owned business. Since its inception Dollar General has maintained its company policy ‘To serve Others: provide customers a better life, shareholders a chance for superior return, and employees respect and opportunity’. Most of Dollar General’s customer are from low, middle and fixed income bracket. About 86% of their customers are women and 41% of customers earn less than $30,000 or less. Dollar General primarily operates in areas that are under-serviced rural and in urban neighborhoods in second-tier locations. Dollar General offers basic consumable products to meet the basic needs of consumers at low price, in a convenient environment, and make shopping for everyday items hassle free and simplistic. This can be evident from the fact that 30% of merchandise is priced at $1 or less, Dollar General operates on a small store format that are conveniently located in communities that have population of 20,000 or less, are with in 5 miles of such communities, rent stores on short term leases, advertising costs are kept to minimal to support its low-cost business model. The stores are small and convenient for customers to look for products. Another advantage of its size is: customers at dollar General on an average take 10-20 minutes to buy goods worth $9.9. Dollar General serves a niche market offers low prices by managing and implementing company wide low-cost strategy. Stocking minimum inventory, hiring adequate number of staff, keeping real estate costs low, and achieving organic growth through expansion, and keeping the overheads low has given Dollar General a focused cost leadership strategy in its industry because of. Dollar General has kept pace with technological reforms by installing auto-replenish inventory system coherent with its Point-Of-Sale system. They have now started accepting Credit and Debit cards and are one of the few retailers to have obtained Electronic Benefit Transfer (EBT) qualification from U.S government. Card readers have also been introduced to make shopping easier and faster.

Feedback: Good points Question 3 Who do you think Dollar General's real competitors are? Selected Answer:

DG can be classified as Extreme Value Retailer in the U.S dollar-store market. There are however, several Price Point retailers, Close Out retailers and Limited Assortment grocery retailers that can be classified in to the dollar store market. But these do not operate on the scale limited to Everyday Low Prices (ELDP) retailers. Dollar General and Family Dollar are the biggest competitors in the extreme-value dollar market. There are however, 23,000 such stores in extreme value retailers who can be called direct competitors of Dollar General. About 15 companies in this segment have acquired 61% of the market. This shows that the market is highly fragmented. Mass retailers such as Wal- Mart, Target, Costco do not come under the same category as DG but they do pose possible business threats. However, they are driven by different mission and different business concept. DG is a smaller store in terms of size, inventory selection, selling space, bargaining power, and customer base. Hence Dg has located several of its store next to Wal-Mart to serve the basic needs of consumers by offering added convenience and low price. Lastly, DG is a national player unlike Wal-Mart and Aldi. DG is also regionally segmented and does not operate in all 50 states like Wal-Mart. If DG plans to expand its operation internationally it will be placed at the same competition stature Wal-Mart and Aldi are.

Feedback: Explain the basis on which Dollar General competes with each of these stores. Question 4 Do you think Wal-Mart can respond to Dollar General's everyday low pricing? Selected Answer:

Wal-Mart being highly successful Extreme-Value Mass Retailer is capable of formulating a strategy to combat Dollar General’s everyday low pricing. There are factors that have kept and may keep Wal-Mart from giving Dollar General a tough competition on numerous sale points. The factors, I my

view, are accrued of structural build-up of the retail industry. Dollar General Overview and Approach Dollar General has maintained its leadership position within its industry by adopting a unique cost-efficient corporate approach in every possible operation and management. This strategy is evident from Dollar General’s store-size, store location in sub-urban areas with population of 20,000 or less, low expenditure on real estate by leasing space for short term, low inventories, less than 1% of sales spent on advertising, and minimum number of staff employed. This strategy has help Dollar General since decades but now needs to under-go several management, operational, and structural changes by focusing on long-term rather than short term gains to please Wall Street investors. The extreme value retail market has a high Threat of Entry of new competitors and low barriers to entry. The cost of setting up a store are not high and several barriers like patents, research and development costs, marketing, advertising do not pose a threat to new entrants in the industry. The industry is flooded with discounters as there are not more than 23,000 stores operating nation wide. Moreover, the industry is highly fragmented and regionalized. Dollar General too operates mainly is southeaster, southwestern, and midwestern region. Wal-Mart v/s Dollar General Wal-Mart on the other hand is a mass retailer with a higher turnover operating on a much larger scale and region than Dollar General. Wal-Mart stores are located in communities that have a population of 50,000 or more, operate on a selling space of 100,000 square feet and 75,000 Store-Keeping Units. This compared to 6900 square feet and 4900 Store Keeping Units operating structure of stores owned by Dollar General. Wal-Mart’s target customers are Dollar General’s mission is to provide customers with a focused assortment of fairly priced, consumable merchandise in a convenient, small store format. To serve their mission Dollar General focused on even-dollar price points of $0.50 and $1.50, and it core competency were convenience and price. Dollar General also provides faster customer service and small waiting times for its customers. Whereas Wal-Mart offers a high selection base to its customers, large variety of

brands, all available sizes, all at low prices. Wal-Mart also commands a high bargaining power from its suppliers because of the quantities its can stock and are setup is all 50 state of America. Wal-Mart can respond to Dollar General’s low pricing, according to me, in two possible ways: By setting up stores that operate and deliver identical values like Dollar General in an environment that resembles Dollar General’s convenience and price. This strategy can allow Wal-Mart to enter market catering to low income consumers while maintaining their current stature and strategy of existing store’s selection, price, and value. To add to that, this strategy will also allow Wal-Mart keep its current strategy intact of serving mass customers and providing everything they need under one roof. Setting up new stores that are smaller in size but offer larger variety of products to choose from can enhance their profitability. Wal-Mart can also provide the goods at a discount to equal Dollar General if not beat them. Since have Wal-Mart has the advantage of being a superstore, they can offer lower price to customers at price points similar or lower than Dollar General. It also seems easier for Wal-Mart to offer higher discounts by taking advantage of its bargaining power; thus pushing competition away. Feedback: Thorough response Question 5 How would you rank Dollar General's potential expansion options? Selected Answer:

Dollar General is currently faced with the dilemma of growth through expansion of stores or look within its business to identify the deviations that have made some stores unprofitable and get erect an operating system that can handle the changing and diversified needs of the customers and the business. The company’s performance has seen a downward slope in the past couple of years. Their Gross Margins have been high whereas their Selling and Administrations costs have also been high. Since 2000 company has being witnessing a gradual decline in sales and same store sales. Dollar General has also

not been able to meet its goal of opening 800 stores in 2007. Several such facts lead to the conclusion that Dollar General, in spite of high growth, has not been able to achieve its targeted growth due to its operational and management inefficiencies, inadequate technological advancement, limited expansion in new categories, and limited product mix offered. Growth Options available to Dollar General Each available option will be ranked as high, low, and moderate. High implies highly favorable to Dollar General, low will be least favorable, and moderate implies an option that may not have adverse effects on the outcomes. Demographic Pursue Urban Consumer: This option, in my view, is a low key option as Dollar General’s entire business concept revolves around offering basic consumer goods with convenient shopping at low price to low-income earners who reside in suburban areas. Pursuing urban consumers would require DG to re-establish its policies, operations, management, and understanding of consumer market. Pursue More Affluent Consumer: This option is a low key option for Dollar General at this point since the Extreme value retail is fragmented and there is still unsaturated, hence there is possible room for expansion for DG within its category. DG should focus on its current niche but should give them more options with the same convenience and low price. Geographic Growth Expand into Western U.S: This option would be highly favorable to Dollar General, since there may be possible markets in the western U.S that would highly suit DG’s culture and its operating structure. Also DG may be able to make loyal customers in the western part as well and making it a bigger player in the retail segment. International Expansion: this a moderate option for DG to

adopt at this juncture since the European market would be dominated by players like Aldi and unless DG can back themselves with the operational and managerial expertise to survive competition from local companies, it would be lethal to enter into international markets. DG, can however, eye certain markets that are conducive to their kind of business structure and can sustain the needs of the market. In-fill existing U.S presence: This would be a high-key option for DG since they U.S market can sustain upto 40,000 such retail stores, DG would be better of expanding its presence in the U.S market to achieve maximum growth before its reaches the saturation point. Industry roll-up: This option is also a high-key option for DG since the industry is fragmented and region based. One of the best options for growth would be to consolidate and buy out some of the stores in the retail industry. This would give them the ideal location and also enable them to serve the customers better. Product Growth All the options in the product growth are, in my view, are high key and should be implemented by DG. DG should consider revising its Product Mix offered to consumers to make it more compatible with today’s consumer’s needs. They may also consider offering an increased variety of products to offer a bigger selection. As seen since last couple of years, DG has started offering advanced in-store services to their employees which in turn is passed to the consumers. However, more services can be added to attract consumers DG has already adapted the new store concept which is called Dollar General Markets. They larger than the regular DG store and are assembled as a slightly larger-box grocery store. Feedback: Elaborate on the resources and capabilities that would facilitat or hinder Dollar General's pursuit of these expansion options.