Regarded as America’s neighborhood general store, Dollar General Corporation (DG) has remained committed to delivering value to shoppers and employees with career opportunities since its founding in 1939. Founded by J.L. Turner and Cal Turner SR., the enterprise has grown into one of the leading retail enterprises in the United States.

With over 17,000 stores across 46 states in the United States, DG delivers everyday low prices on frequently used and replenished products: food, health and beauty aids, snacks, basic apparel, cleaning supplies, housewares, and seasonal items all in convenient neighborhood locations.

  • DG posted net sales of $33.7 billion for the 2020 financial year, up from $27.8 billion in 2019
  • In addition to over 17,000 stores in 46 states, DG also has 18 traditional distribution centers, 9 DG Fresh facilities, a private fleet network, as well as a store support center
  • DG is driven by its mission of Serving Others, by offering safe products, supporting the community, and enforcing environmentally-friendly practices
  • Since 1993, the company has awarded over $197 million in grants to non-profit organizations that have helped over 12 million individuals to learn to read, prepare for their high school equivalency test or learn English
  • In 2019, DG was ranked as the most populous chain store in the United States with 17,348 stores, edging out Walmart at 5,253 stores and Walgreens at 8,760 stores

DISCOUNTS & MORE

DG stores have between 10,000 and 12,000 unique products. These products fall into 16 categories: food and beverage, household goods, office and school supplies, electronics, and apparel.

In a move to diversify its revenue sources and product offerings, DG has also ventured into the pharmacy business. Announced back in July 2021, the company set out to increase access to healthcare products and services at its stores. So far, it stocks an assortment of cough and cold, nutritional, medical, dental, health aids, and feminine hygiene products.

“This effort marks the first major step in Dollar General’s strategic journey toward increasing access to healthcare offerings,” noted the company’s official statement on the move.

Going forward, the company plans to make its stores a health care destination through offering telemedicine, prescription delivery and pickup, and mail order prescription.

“What we’re going to be squarely focused on…are those services that rural America today especially doesn’t have access to,” noted Todd Vasos, the company’s CEO.

“We talk a lot about grocery deserts or food deserts. There’s as equal health care deserts out there across the U.S., and we’re in all of these communities,” he added.

Also, in a bid to grow its physical presence, DG has set out to triple the number of locations for Popshelf, its new suburban-focused concept. The company is on track to add 50 Popshelf locations before the close of the 2021 calendar year and is targeting 1,000 locations by 2025, bringing its products and services closer to consumers.

These stores feature a bright, playful atmosphere, with merchandise priced at $5 or less. It stocks seasonal and home décor, party goods, and health and beauty products.

“Importantly, we anticipate these new Popshelf locations will be incremental to our annual Dollar General store opening plans, as we look to further capitalize on the significant growth opportunities we see for both brands,” noted Mr. Vasos.


STIFF COMPETITION

Being a discount retailer, DG stocks products from mainstream and private brands within the American market. This pits it against other retailers, including merchandise retailers such as Target and Walmart, The Kroger Co., and Costco. More direct competitors include Dollar Tree, and Big Lots.

Target

  • Founded in 1902, this enterprise has grown into an influential corporation within the American retail space, with a market cap of $107.7 billion
  • Has just over 1,800 stores in all states within the United States, serving 2 million visitors every day
  • Posted total revenue of $93.6 billion for the 2020 fiscal year, representing a 19.8% year-over-year growth from the previous year, and a five-year CAGR of 4.7%
  • 26% of the company’s sales constitute beauty and household essentials at 26%, food and beverage at 20%, home furnishings and décor at 20%, apparel and accessories at 16%, and hardlines at 18%

Walmart

  • Founded in 1962 and today has a market cap of $397.6 billion
  • Has over 5,200 stores in the United States, and in 2020, it was the leading retailer based on sales in the country
  • Posted total revenue of $524 billion for the 2020 financial year, representing a 1.85% year-over-year increase from 2019
  • So far, in 2021, 66% of Walmart’s revenue comes from groceries and consumables. Fuel and other categories account for 12% of the company’s sales, while home and apparel account for 11%. Health and wellness accounts for 6%, while technology, office, and entertainment account for only 5%

The Kroger Co

  • It is one of the oldest retail companies in the United States, dating back to 1883
  • Today, the company has close to 3,000 physical stores, and a market cap of $33.8 billion
  • In 2020, it posted total revenue of $132.5 billion, representing a 14.2% year-over-year growth from 2019
  • Non-perishable goods accounted for a significant proportion of Kroger’s total revenue for 2020 ($71.4 billion). Perishable products followed this at $33.5 billion, pharmacy at $11.4 billion, fuel at $9.5 billion, and the rest at $6.7 billion

Costco

  • It opened its first location in 1976 and today has a market cap of $245.1 billion
  • Has over 540 stores in the United States, serving just over 105 million customers in 2020
  • Posted total revenue of $163 billion in 2020, a 9% increase from the previous year
  • Food and sundries make up 40% of the company’s net sales. Softlines account for 12%, hardlines 19%, while ancillary and other products account for 14%. Fresh food makes up 14% of the company’s sales

Dollar Tree

  • Has a history that dates back to 1953, with the first dollar store opened in 1986. Today, this company is valued at just over $30.7 billion
  • Today, the company operates over 15,500 stores across 448 contiguous states and five Canadian provinces
  • Posted total revenue of $23.6 billion for the 2020 fiscal year, a 3.5% increase from 2019
  • In 2020, consumables accounted for $6.2 billion in sales, variety goods accounted for $5.5 billion, while seasonal products accounted for 550.5 million

Big Lots

  • Founded in 1967, this company has grown into an influential player in the dollar retail market, with a market capitalization of $1.3 billion
  • Today, the company operates over 1,400 stores in 47 states within the United States
  • Posted total revenue of $5.3 billon in 2020, up from $5.2 billion in 2019, a 1.6% increase
  • Big Lots’ furniture product category has been its best performing in sales, a category that covers upholstery, mattresses, case goods and ready-to-assemble departments

A SENSE OF BELONGING

DG customers have acknowledged the excellent customer service from employees at the stores. They are well trained and familiar with assisting customers, not just with locating the right products for them but also recommending what would work for their preferred application areas.

DG has also been lauded for its extensive range of options, meaning customers can find whatever they are looking for, all under one roof. This offers an added level of convenience, which improves the overall customer experience and customer satisfaction.

This company has also maintained its low prices despite increasing costs, which appeals a lot to its consumers. DG has achieved this by keeping labor costs down, renting its stores as opposed to owning them, having a limited selection of products and stocking its private-label goods.

This approach has allowed DG to sell low-income individuals a sense of belonging. By appealing to them with its low prices, it has created a sense of abundance, and made most products accessible to communities that would not have otherwise afforded them. Additionally, DG has given back to such communities by providing employment opportunities, and setting up infrastructure that members can benefit from and enjoy.


THE MARKET

DG’s is active within the discount retail industry, which is valued at $95.3 billion in 2021.

  • Since 2016, this sector has posted a 4.1% year-over-year growth given the demand for products offered, and how affordable they are
  • With over 37,000 dollar stores in the United States, they offer employment to more than 627,400 employees in the country
  • Between 2016 and 2021, this sector has posted an 8% annualized employment growth, with a 3.1% growth in 2021 alone

Given DG’s resolve to venture into the prescription delivery and pickup service sector, it now places it within the over the counter drugs market, which, in 2021, was valued at $24.6 billion.

  • It is estimated that by 2026, this sector will be valued at $33.2 billion, representing a CAGR of 6.2% over the forecast period (2021-2026)
  • This growth will be attributed to the changing cultural attitudes towards self-medication for minor health problems, coupled with the convenience of direct purchase, affordability of over-the-counter drugs, and the savings that come with the use of such drugs
  • Additionally, there has been a growing shift from prescription to over-the-counter drugs, which will also play a key role in the growth of the industry in the coming years
  • The market’s largest segment is the cold and cough remedies, with a market volume of $12.7 billion in 2021

EXPERIENCED MANAGEMENT

DG is led by Todd Vasos, its Chief Executive Officer (CEO) and member of its Board of Directors. Mr. Vasos previously served as the company’s Executive Vice President and Chief Merchandising Officer when he first joined the company in 2008, before being promoted to Chief Operating Officer in 2013. Has held various positions in different enterprises, including Eckerd Drug Company, Phar-Mor, Long Drugs, and Long Drugs Stores. Holds a Bachelor of Arts Degree in Marketing and a Bachelor of Science Degree in Management from Western Carolina University.

Todd Vasos

  • CEO and member of the Board of Directors at DG
  • Joined the company in 2008 and initially held the position of Executive Vice President and Chief Merchandising Officer before taking up the current position
  • Previously held different managerial positions at Eckerd Drug Company, Phar-Mor, Long Drugs, and Long Drugs Stores
  • Holds a Bachelor of Arts Degree in Marketing and a Bachelor of Science Degree in Management from Western Carolina University

John Garratt

  • Executive Vice President and Chief Financial Officer at DG, a position that he has held since December 2015
  • Initially held the position of Senior Vice President, Finance & Strategy upon joining DG in 2014, before serving as Interim Chief Officer from July 2015 to December 2015
  • Has served in various leadership positions at Yum! Brands, Alcoa and General Electric
  • Is also a member of the Board of Directors at Humana and the Federal Reserve Bank of Atlanta
  • Holds a Master’s Degree in Finance from the Carnegie Mellon University- Tepper School of Business and a Bachelor Degree in Finance from the Indiana University, Bloomington

Kathy Reardon

  • Executive Vice President and Chief People Officer at DG, a position that she has held since August 25, 2020
  • Joined DG in September 2009, initially holding the position of Director, Human Resources before being promoted to Vice President, Talent Management in October 2012
  • Has since held various positions at DG, including Vice President, Retail Human Resources, Senior vice President, Human Resources and Senior Vice President and Chief People Officer
  • Previously held various leadership positions at Centex, Carrier Corporation, and the Darden Graduate School of Business
  • Holds a Master’s Degree in Business from the University of Virginia, and a Bachelor of Arts Degree in English, French, and Psychology from the University of Wisconsin, Madison

POOR WORKING CONDITIONS

Dollar stores have been increasing and posting consistent growth over the past few years. However, employees have had to live with the sometimes poor conditions that come with their positions within these stores and the challenges associated with it. Most notably, dollar stores have been known to essentially break the law and cut corners with regards to basic work safety. This has meant that stress have opened for business with rodent infestations, exposed electrical wires and even broken toilets.

From a security standpoints, given the location of most dollar stores, they have been victim to robberies and break-ins. There have been cases of employees being stabbed, shot and killed. Some employees have also been forced to work by flashlight during electrical blackouts, while others have been left alone in stores for hours, working overtime in a cost-cutting move that has led to lawsuits.


TAKE A BREATH

So… This is a lot of information. Let’s summarise:

  1. DG is driven by its mission of Serving Others, by offering safe products, supporting the community, and enforcing environmentally-friendly practices
  2. In 2019, DG was ranked as the most populous chain store in the United States with 17,348 stores, edging out Walmart at 5,253 stores and Walgreens at 8,760 stores
  3. DG stores have between 10,000 and 12,000 unique products. These products fall into 16 categories: food and beverage, household goods, office and school supplies, electronics, and apparel
  4. This company has also maintained its low prices despite increasing costs, which appeals a lot to its consumers. DG has achieved this by keeping labor costs down, renting its stores as opposed to owning them, having a limited selection of products and stocking its private-label goods
  5. DG’s is within the discount retail industry, which is valued at $95.3 billion in 2021. Since 2016, this sector has posted a 4.1% year-over-year growth given the demand for products offered, and how affordable they are
  6. In a move to diversify its revenue sources and product offerings, DG has also ventured into the pharmacy business. Announced back in July 2021, the company set out to increase access to healthcare products and services at its stores
  7. DG is led by Todd Vasos, its Chief Executive Officer (CEO) and member of its Board of Directors. Mr. Vasos previously served as the company’s Executive Vice President and Chief Merchandising Officer when he first joined the company in 2008, before being promoted to Chief Operating Officer in 2013. Has held various positions in different enterprises, including Eckerd Drug Company, Phar-Mor, Long Drugs, and Long Drugs Stores

FINANCIAL CHECK

DG has had posted consistently-impressive financial performance for the 2021 financial year. On December 2, 2021, the company posted results from Q3, noting a 3.9% year-over-year increase in net sales from the same period in 2020. This growth was mainly attributed to the opening of new DG stores.

  • Net sales totaled $8.5 billion for Q3 2021 compared to $8.2 billion in Q3 2020, representing a 3.9% year-over-year growth
  • Operating profit was $665.6 million in Q3 2021, down from $773.1 million in Q3 2020, representing a 13.9% year-over-year decrease
  • Operating profit for Q3 2021 represented 7.8% of the company’s net sales over that period
  • Net income for the third quarter of the 2021 fiscal year totaled $487 million, down from $574.3 million in Q3 2020, representing a 15.2% decline
  • Total assets for Q3 2021 stood at $25.9 billion, down from $26.2 billion in Q3 2020
  • Total liabilities, on the other hand, were valued at $19.7 billion in Q3 2021, up from $19.2 billion in Q3 2020
  • Net sales for the 2020 fiscal year stood at $33.7 billion, up from $27.8 billion in 2019, representing a 21.6% year-over-year increase
  • Operating profit stood at $3.6 billion in 2020, a 54.4% year-over-year increase from the 2019 financial year
  • Net income stood at $2.7 billion in 2020, up from $1.7 billion in 2019
  • Total assets for the 2020 financial year stood at $25.9 billion, up from $22.9 billion in 2019
  • Total liabilities, on the other hand, stood at $25.9 billion, up from $22.9 billion in 2019

THE BOTTOM LINE

The Good

  • Dollar General is ideally placed to benefit from inflation pressures that drive customers away from more expensive stores and into cheaper alternatives
  • The company is expanding into more lucrative options such as more premium stores and the pharmacy business
  • Growth should be sustained by these new business lines and a rapidly growing lower income class

The Bad

  • Dollar General is also affected by rising prices, yet, we believe that the lack of alternative for shoppers could offset Dollar General's rising costs

THE STAKE

We have a position in Dollar General. Dollar General is a the largest discount store chain in the U.S.A. It is advantaged by its efficient cost structure and by the increasing demand for discount solutions.

  • We will increase if it manages to sustain its sales growths through its new ventures while protecting itself from competitive pressures
  • We will sell our stake if it fails to sustain its growth or if costs rise more than its asking prices

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We have invested in over 30 stocks throughout North America, Latin America, Europe and Asia. Typically, we target fast-growing companies (U.S. and global) with a market cap between $ 1B and $ 100B.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Nathália Rosa on Unsplash.