Providing value and convenience in a small-box format
The major retailer’s merchandising strategy may appear simplistic in nature as the company works to provide value and convenience to its customers in a small-box retail format. However, the consistent execution of that strategy across an expansive store base highlights the sophistication, complexity and ingenuity behind Dollar General’s success.
At Dollar General, where the merchant team must always be mindful when adding new items given that the retailer’s stores average just 7,400 square feet of selling space, decisions about products offered are based on extensive knowledge of their customers. From its foundational consumable and non-consumable merchandising work to newer ventures including the strategic non-consumable initiative (NCI) and pOpshelf, Dollar General continues to take an intentional approach to improve and refine its offerings to strengthen its merchandising mix.
At a high level, Dollar General’s business is categorized into consumable and nonconsumable products. Consumables — products that meet customers’ everyday needs and are used and replenished often — have been an important part of the company’s business. By offering a focused assortment of everyday necessities, Dollar General allows its customers to address most of their basic shopping needs with one trip, while simultaneously encouraging them to return often.
Dollar General’s consumable merchandising team continues to move ahead on a number of other fronts including partnerships with supply chain and store operations on the DG Fresh initiative, as well as on the company’s cooler door expansion.
A strategic move toward the self-distribution of perishable, frozen and refrigerated goods, for the past eight quarters, DG Fresh has been the company’s largest contributor to gross margin benefit and aims to reduce product costs by removing third-party markups and increase the sales of those categories. Nearly two years after launching, Dollar General was serving more than 13,000 stores from eight DG Fresh facilities as of Q3 2020 with plans to serve more than 14,000 stores from 10 facilities by the end of the company’s 2020 fiscal year.
“It has been a very big change in terms of process,” says Emily Taylor, who in September was named executive vice president and chief merchandising officer at Dollar General. (Taylor joined the Goodlettsville, Tenn.-based retailer in 1998 and most recently served as senior vice president of channel innovation.)
“The cross-functional teams that we have associated with DG Fresh continue to make tremendous progress. That’s particularly relevant for Dollar General as we continue to grow the fresh side of our business,” adds Taylor.
Additionally, the consumable team continues to lean into the company’s cooler expansion in existing and new stores, which included the addition of 49,000 new cooler doors by its third quarter 2020
“The consumables team’s work to lean into our DG Fresh initiative and our cooler expansion demonstrates their ongoing excellence and exceptional ability to support customers’ needs and the company’s growth,” says Taylor.
The progress made from Dollar General’s core nonconsumable merchant team in 2020 also highlights a strength of their business. Through the third quarter, the company’s three nonconsumable categories delivered a combined comp sales increase well in excess of the consumables business.
In addition to continual enhancements of Dollar General’s core non-consumable business, the company continues to give consumers additional reasons to shop through their nonconsumables initiative.
Launched in 2018 with the goal of improving Dollar General’s gross margins by offering expanded assortments in the key categories of home, domestics, housewares, party and occasion, NCI includes expanded assortments, as well as changing the way products were displayed. By the end of the company’s 2020 fiscal year, Dollar General plans to have NCI in 5,600 stores, as well as incorporate a light version of the mix into approximately 400 stores to provide a more streamlined approach resulting in less disruption to stores with the ability to aggressively scale as they move ahead.
“We looked at those businesses (NCI) with our customers in mind, to find opportunities to meet a broader set of their needs,” says Taylor.
The expanded merchandise — including lamps, throw pillows, wall art, gift wrapping, party suppliers and other home items — help create a treasure hunt experience for Dollar General shoppers. The retailer has further enhanced that experience by displaying the products in a visually appealing way that is more conducive to browsing.
“Our customers can really take their time and get inspired while they shop,” Taylor says. “We’ve had great success in taking our shoppers’ mission, which is often based on getting essentials, and tying in opportunities for additional purchases that address both their wants and their needs.”
The addition of exciting new products available in NCI stores was enabled by the reduction in space devoted to hanging apparel, Taylor points out.
“Balancing the offerings within a small box means making thoughtful choices on our customers’ needs. While NCI stores have less hanging apparel, we’ve also increased our more basic apparel offerings,” Taylor says. “This allows us to continue meeting our customers’ apparel needs, but we’re able to do it in a different way that requires less space. In all, we’re able to meet the higher demand that existed in home categories compared to the fashion side of apparel.”
In fall 2020, Dollar General revealed another demonstration of its ongoing consumer focus that incorporated nearly two years of NCI lessons when it announced a new store format that could represent a new growth opportunity for the retailer.
POpshelf debuted in two stores in the Nashville, Tenn., market. The stores aim to engage customers with a merchandise mix that includes on-trend seasonal items, home décor, health and beauty must-haves, home cleaning supplies, party goods, and entertaining needs, all in a fun shopping environment with affordable products.
“We are excited to introduce pOpshelf from a position of strength, further highlighting our innovative spirit and building on our proven track record of store format innovation,” Dollar General chief executive officer Todd Vasos said when the concept made its debut. “We have leveraged robust consumer insights to create a unique store that we believe will resonate with new customers, while providing Dollar General with even more opportunities for growth in the years ahead.”
The next four pOpshelf stores are slated to open in and around Atlanta, Charlotte and Raleigh markets by early 2021 with plans to have approximately 30 locations in various markets by the end of fiscal year 2021. The format’s initial target market is mainly digitally-savvy, suburban women with average household incomes of approximately $80,000.
“Similar to the way we approach all projects at DG, pOpshelf was based on a considerable amount of customer research, which told us that there is some space in the discretionary side of our business,” Taylor explains. “Specifically, what we’re delivering with pOpshelf is a continually-refreshed merchandising assortment, primarily in the nonconsumable categories, at an extraordinary value, merchandised in a fun and engaging store.”
Regarding the value component pOpshelf aims to deliver, Taylor noted that 95% of the products in the store are priced at $5 or less. POpshelf builds on a number of Dollar General’s traditional strengths, including customer insights, merchandising innovation and operational excellence, Taylor says.
“The two stores are fundamentally different from one another,” she continues. “First and foremost, pOpshelf is tailored for a different shopping occasion and is different in terms of real estate as these stores tend to be in more suburban locations.
“What’s exciting to us is that it really is different in terms of a trip mission versus a Dollar General, and it’s also quite different in terms of the types of markets where they will likely operate. It is an incremental proposition to our portfolio that is a truly new and differentiated brand.”
POpshelf also offers a differentiated store experience, Taylor says, “with impactful displays that help create a really fun, easy, and highly visual shopping experience in the store.”
Whether through the consumable and nonconsumable business, the expansion of the company’s NCI initiative and the creation of a new store brand, Dollar General’s merchandising team continues to innovate and move ahead on a number of initiatives that help drive the company forward. And beyond the strides made through Dollar General’s business in 2020, Taylor says she is most proud of the way her fellow merchants have demonstrated their commitment to the company’s mission of serving others during a particularly challenging year.
“Our merchandising team really is world-class, and I feel very fortunate to work alongside this team every single day to help deliver what our customer needs and expects from us at Dollar General,” Taylor says. “This merchandising team has advocated and pushed tirelessly throughout this year to make sure we’re meeting our customers’ needs and to ensure our customers are able to save money by shopping at Dollar General.”