GOODLETTSVILLE, Tenn. — When Rick Dreiling arrived at Dollar General Corp. at the beginning of 2008 the retailer had reached a watershed.

When Rick Dreiling arrived at Dollar General Corp. at the beginning of 2008 the retailer had reached a watershed.

It had experienced decades of strong growth that had made it the largest dollar store chain in the country, but like others in its channel, it had fallen behind the rest of the industry in applying systems and processes and its growth had become, undisciplined and sometimes ­unproductive.

Nevertheless, the company still represented an incredible opportunity, a fact that Kohlberg Kravis & Roberts Co. (KKR) recognized when it acquired the company in 2007. KKR also recognized that Dollar General needed an infusion of skilled management to engineer a turnaround, and Dreiling, who was then chief executive officer of Duane Reade Inc., was its choice to lead that turnaround.

It was an extraordinarily fortunate choice. “Turnaround” does not begin to convey what Dreiling has accomplished during his brief tenure. Not only has Dollar General reported astonishing financial results that are the envy of the industry as a whole, it is transforming small-box retailing and creating new concepts that can as yet only be glimpsed. There is much more to come from Dollar General.

A glance at a few financial metrics underlines the scale of achievement thus far. Sales per square foot — his favorite statistic, Dreiling says — were $167 in his first quarter at the company, and just broke $200 in the third quarter of the current year. Despite the recession and its severe impact on Dollar General’s core customers, comparable-store sales grew 18.5% over 2008 and 2009.

While the changes that he set in motion have transformed Dollar General and raised it to the top rank of retail in terms of performance, Dreiling has also shown the sensitivity to recognize, nurture and expand what was valuable at Dollar General, particularly its culture of serving others, a legacy of the Turner family that founded the company.

Dreiling is, as his executive team members point out, exceptionally self-effacing in describing what has been accomplished at Dollar General, but there can be no question that his tenure there represents the most creative and successful executive leadership that mass market retailing has seen in recent years. For that reason, MMR has selected Rick Dreiling as its Retailer of the Year for 2010.

Dreiling brought with him experience gained in a career that included both the supermarket and chain drug industries. After rising through the managerial and executive ranks of Safeway Inc. to become executive vice president of marketing, manufacturing and distribution, Dreiling served as executive vice president and chief operating officer of Longs Drug Stores before taking up the chief executive’s post at Duane Reade in 2005. As he points out, his career spanned the evolution and maturation of those trade classes in terms of developing rigorous disciplines regarding store standards, category management and financial management.

"One of the things that enticed me about Dollar General is that this was the last frontier of consumables retailing," he says. "That was attractive because there was so much opportunity."

He moved quickly on those opportunities. To provide a clear focus for everyone in the organization, Dreiling first established four operating priorities that still serve as the company’s lodestar today:

• Driving productive sales growth.
• Expanding gross margin.
• Leveraging process improvement and information technology to reduce costs that the customer does not see.
• Strengthening and expanding the Dollar General culture of serving others.

Any initiatives that did not mesh with those goals were ­jettisoned.

It was also essential to make necessary management changes quickly. Within a few months of his arrival, he had largely formed the team he has today, which he describes as the perfect blend of Dollar General veterans and new talent, or what Dreiling terms "very strong subject-matter experts." The additions include Todd Vasos, division president and chief merchandising officer; John Flanigan, executive vice president of global supply chain; and Bob Ravener, executive vice president and chief people officer. They joined a core of incumbents who included Kathleen Guion, executive vice president and division president of store operations and store development; chief financial officer David Tehle; and general counsel Susan Lanigan.

An early focus was developing and applying store standards through what is termed the model store program. "When you stand in a store of one of the great retailers, whether it’s in Minnesota, Florida or California, they feel the same," says Dreiling. "Ours felt different, not only in terms of the way they were laid out and the departmental adjacencies, but 25% of the store was flex space allocated to whatever the store manager wanted."

Now every store is entirely planogrammed, right down to clip strips and side panels. And that has been made possible by the application of rigorous category management by a team that has been rebuilt under Vasos.

"I would describe our category management as the perfect blend of art and science," Dreiling says. "We’ve been able to change the box and make it more appealing to our core customer and to a broader audience."

Under Guion’s leadership, Dollar General’s real estate program has been upgraded using sophisticated site evaluation and demographic analysis tools, with the result that the chain’s new stores now achieve about 90% of the chain average comparable-store sales in their first year. As Dreiling points out with understandable pride, it is difficult to find that kind of performance from new stores anywhere else in the industry.

He recently told analysts that the company’s financial model calls for new stores to deliver an internal rate of return of 25%, but in fact they are delivering returns in excess of 50%. That kind of performance, combined with the huge opportunities for new store development, paints a bright future for the retailer.

Dollar General currently operates more than 9,200 stores in 35 states, and the company has identified opportunities for another 8,000 in those states alone, plus a conservative estimate of another 4,000 in remaining states.

"I’m hard pressed to find another retailer that has that kind of opportunity," Dreiling acknowledges. "And it’s because of our model, which is really a small box that’s conveniently located with prices very comparable to mass. And we have a low cost model: low cost of entry, low cost of operation. It bodes well for our future."

The last three years have given Dreiling immense cause for satisfaction, and also provided matter for reflection. The experience at Dollar General has shown that the basic rules and disciplines of retailing learned in his supermarket and drug years apply very well indeed to the extreme-value channel. But in turn, he notes, these years have underlined the importance of keeping things simple. "As I look back, I sometimes wonder if we spent a lot of time building complexity in there," he says. "If I ever have a chance to go back, maybe what I would do is bring a lot of Dollar General and this channel with me."