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‘Trade-Down’ Shoppers Boost Dollar General

“And I think people are recognizing that we are offering values now that are pretty consistent on a day-in and day-out basis.” — Richard Dreiling, CEO, Dollar General

GOODLETTSVILLE, Tenn. — Dollar General last week said efforts to broaden its customer appeal helped the company increase earnings by 47% and sales by 10.4% during the fiscal second quarter.

Sales of $4 billion and earnings for $214 million were slightly above analyst estimates and prompted the company to increase its guidance for sales and earnings for the fiscal year. Same-store sales increased by 5.1% as store traffic and average ticket increased during the period, which ended Aug. 3.

Richard DreilingRichard Dreiling (right), chief executive officer, in a conference call discussing results said the company was experiencing the benefits of serving a core customer base which relies on Dollar General for basic needs, but also a growing number of higher-income “trade-down” customers who are recognizing the company’s efforts to improve merchandise quality and presentation at stores. New deals with eyewear brand Foster Grant and Nestlé’s Edy’s and Dreyer’s ice cream brands are recent examples of the boost in quality offerings.

“I think the merchants over the last year have done a wonderful job of improving the quality of the product and maintaining the retail price — and the costs, for that matter,” Dreiling said. “And I think people are recognizing that we are offering values now that are pretty consistent on a day-in and day-out basis.”

Greater Customer Acceptance

Dreiling cited an internal customer survey indicating that 23% of its shoppers in 2008 viewed Dollar General as “not for me” in quality or image. Today, he said, just 7% of shoppers hold that view.

This greater acceptance of the Dollar General brand is aiding the company’s expansion efforts by helping new stores ramp up sales faster, which in turn gives the company greater flexibility when selecting new locations, Dreiling explained.

“It opens up the potential for Dollar General in lot of markets or trade areas that we would probably have been afraid to go into in the past,” he said. “Brand recognition is making us relevant, and it puts us in a position where we can demand maybe a little higher initial opening store sales when we build the new store, which gives us the ability to go into a little more upscale market than we dealt with in the past.”

The company is also continuing to test new formats, particularly as it expands geographically into California. Of 295 stores opened during the second quarter, 21 were Dollar General Markets and 18 were the large-format Dollar General Plus stores, Dreiling said. The company expects to have 125 Plus and 110 Market stores open by the end of the year.

Read more: Perishables Boost Dollar General Basket

In California, Dollar General’s alternative formats currently outnumber its traditional outlets, although Dreiling said over the long term he anticipates the traditional Dollar General store would be its main expansion vehicle. Dreiling said California stores were “turning in a strong sales performance,” and that the company was on track for 50 stores in the state by year-end.

Dollar General Plus stores, which are larger than 10,000 square feet and tend to occupy higher density markets, were showing greater “shoppability” than traditional Dollar General stores due to wider aisles, and were also able to sell more perishable goods as a result of increased cooler space, Dreiling said. More space for seasonal displays in Plus stores also help margins. Dreiling added that he was pleased with how Dollar General Market was performing in Stockton, Calif., where it has three stores.

Gross margin as a percent of sales was down 13 basis points to 32% due to a higher mix of consumables and some markdowns.

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