Dollar General: 8 Days To GrowBy Kim S. Nash | Posted 2004-07-01 Email Print
Dollar General opens two new stores every day. The secret isn't Miracle-Gro. Instead, there's a well-honed choreography of human muscle and precision logistics that sets up each new outlet in little more than a week. We take you inside what Dollar General
Today's dollar store is a five-and-dime shop, adjusted for inflation. It's what Sam Walton envisioned when he created Wal-Mart in 1962: a neighborhood store selling affordable necessities to people who can't pay top prices for soap and toilet tissue.
Now that Wal-Mart pushes wide-screen TVs and vacation packages along with its low-priced detergent, there's room underneath for chains devoted only to small-ticket goods. Not everything at a dollar store costs just a buck. But the combination of $1 shampoo, $3 bug killer and $7 area rugs is big business. Shoppers spent $16.6 billion last year at the top five dollar stores, up from $12.2 billion in 2002.
Dollar General is the king of that market, generating $6.9 billion a year in sales in 29 states from 6,930 stores.
That's more outlets than even Wal-Mart. Check again a week from now, and 14 more will have been born. The company is adding 695 stores this year, on top of 1,300 launched in the last two years.
Successfully opening two stores a day is more than a matter of precision logistics: It's crucial to Dollar General's bottom-line results. Each day it can slice off the opening process means $2,800 in added revenue and $124 in profit at a typical store. Where the company 10 years ago took weeks to launch a new store, it now has the process down to eight days, or fewer.
And each additional day of operation is another day added to Dollar General's surprising success at out-retailing Wal-Mart itself. Wal-Mart last year earned 3.5 cents on each dollar of its $256.3 billion in sales. But Dollar General made 4.3 cents on each dollar of sales, making it 12% more profitable than the world's biggest retailer.
Store-level frugality "is where their profit margin comes from," says Ben Ball, an analyst at Dechert-Hampe & Co., a consumer products consulting firm in Northbrook, Ill. "The technology strategy reflects that to a T."
Sure, the headquarters office in Goodlettsville, Tenn., offers on-site day care and dry cleaning. Yes, its seven distribution centers sport radio-frequency scanners and a raft of warehouse management and logistics software.
But the stores are spare. There is no network. No e-mail. No local servers keeping track of inventory. Aside from word of mouth, the only way information on each day's sales gets back to headquarters is when headquarters asks for it. A Hewlett-Packard Superdome mainframe computer in Goodlettsville polls each store's IBM cash registers via satellite network every night, recording how many of which items were sold and at what price.
The company spends less on technology per employee every yearabout $3,000than any of its dollar-store competitors, according to Alinean, a technology measurement firm in Orlando, Fla.
That may keep store operating costs low, but there are consequences. About 3% of sales disappeared last year due to theft and loss. Items are bar coded, but store employees don't have readers or software to verify shipments and check in products as they hoist hundreds of cartons off delivery trucks every week. There is no store-level inventory system.
"You have to know when to apply I.T. at stores, how to use it there to further your goals," says Greg Buzek, an analyst at IHL Consulting Group, a retail technology consultancy in Franklin, Tenn. "I'm not sure Dollar General knows that yet. They're too focused on growing."
So critical is speed-to-market for Dollar General that company officials decline to talk about the store-opening process. They consider it a homemade competitive weapon against Dollar Tree, Fred's, 99 Cents Only and especially Family Dollar, which, at $5 billion in sales and 5,200 stores, is the next-biggest chain.
Yet as Dollar General marches to 7,400 stores by the end of the year, Baseline uncovered the company's setup method and found it to be equal parts information technology, paper pushing and strong biceps.
If you need a blueprint for profiting quickly from building new storesand backing them up with lean systemsyou could do worse than imitate Dollar General. But you may not want to mimic its controls.