DG Market Primed for Expansion

GOODLETTSVILLE, Tenn. — Dollar General Market lives. The 57-store small grocery chain run by giant Dollar General here, in limbo since 2007, was quietly revamped at three locations this year and showed promising results, the company revealed last week. We currently believe this concept can play an expanded role in the future of Dollar General, Richard Dreiling, chief executive officer, told analysts

GOODLETTSVILLE, Tenn. — Dollar General Market lives.

The 57-store small grocery chain run by giant Dollar General [4] here, in limbo since 2007, was quietly revamped at three locations this year and showed promising results, the company revealed last week.

“We currently believe this concept can play an expanded role in the future of Dollar General,” Richard Dreiling, chief executive officer, told analysts in a conference call.

Dollar General Market launched in 2003 under the company's prior ownership group. With stores of about 17,000 square feet, they offer a variety of bargain-priced dry groceries and perishables in addition to the general merchandise selections at a typical, 7,000-square-foot Dollar General store.

The concept, however, was put on hold after Dollar General was sold in 2007. A company spokeswoman told SN earlier this year that DG Markets “were, and continue to be, laboratory stores where we test new ideas,” but there were no plans to open new stores.

Dreiling last week revealed that some of those tests included a vigorous remerchandising at three locations. The remodels came as a result of new category-management processes resulting in revamped product selections and new adjacencies. Sales at each of the three remodeled DG Market stores — company officials were not available to say which locations — resulted in double-digit same-store sales increases, Dreiling, a former Safeway executive, said.

“We expect to make further progress on remodeling and remerchandising these stores in 2011,” Dreiling said.

Dollar General in the meantime is also stepping up efforts to grow its standard vehicle, announcing a plan last week to open 625 new stores in fiscal 2011, beginning early next year. The company will also remodel 550 locations.

The new store growth will take the chain into Nevada, New Hampshire and Connecticut for the first time.

“We believe we continue to have tremendous opportunity to open new stores with best-in-class returns,” Dreiling said. “Based on our analytical modeling, we believe we still have approximately 12,000 opportunities for new stores, with 8,000 of those in our existing markets.”

Dollar General operated 9,273 stores in 35 states as of Oct. 29. The company expects to open about 600 stores and remodel or relocate 500 during the current year.

The 2011 expansion plans were announced while the discounter posted financial results for the third quarter, which ended Oct. 29. Earnings of $128 million exceeded analyst estimates, but investors apparently were unhappy with the pace of sales, and sent Dollar General stock down by more than 7% on the news.

Overall quarterly sales increased 10.1% to $3.2 billion, with comparable-store sales of 4.2%. Comps were near the low end of Dollar General's annual guidance, and were weaker than a 9.2% gain during last year's third quarter.

Dreiling said sales slowed in September after a strong back-to-school season, and then rebounded again during October. “We're seeing customers being very need-based,” he said. “In August, they have to get in there and buy those back-to-school items, the stationery, the backpacks and the new jeans. I think September represented the option for the consumer to take a break, and they did.”