Dollar General continues push into grocery amid strong sales growth

  • Since January 2019, Dollar General has rolled out grocery capabilities across its fleet of stores through its DG Fresh initiative.
  • The grocery business is known for its thin margins, but Dollar General has seen major success with offering fresh and frozen products so far.
  • Through DG Fresh, Dollar General has been able to expand further into communities that need grocery options.
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Dollar General is doubling down on fresh grocery options as part of its bid to become one of the top retailers in the US.

For Dollar General, grocery is the key to continuing its ongoing expansion — by attracting more consumers to its stores. Fresh food also positions the retailer to go toe-to-toe with massive rivals like Walmart and Whole Foods.

Dollar General has enjoyed an excellent few months, with cost-conscious shoppers flocking to dollar stores during the coronavirus pandemic. Outside its sales success, however, the company is making several big moves for the future, post-COVID-19 world. 

On August 5, Dollar General announced that it would build three new cold storage distribution facilities. The warehouses – located in Bowling Green, Kentucky, Ardmore, Oklahoma, and West Sacramento, California – will each house products like frozen goods, milk, cheese, deli meats, and support a network of 1,500 stores. The move was just Dollar General’s latest barrage around its DG Fresh initiative. 

DG Fresh is a program that Dollar General first began working on in January 2019. The DG Fresh initiative has seen the dollar-store giant establish fresh and frozen-food options in its stores, which have traditionally lacked a grocery element. Currently, Dollar General delivers grocery products to more than 9,000 of its total 16,500 locations.

In May, Dollar General CEO Todd Vasos said that so far the company “is seeing the substantial cost benefit we expected” from DG Fresh, Retail Wire reported.

Despite the early success, questions still remain over why the leading dollar store chain is attempting to break into the grocery industry – a business infamous for its “notoriously thin profit margins,” as one 2020 report from consulting firm Duff & Phelps put it.

In part, the answer lies within Dollar General’s ambitions. Dollar stores have traditionally been associated with lower income communities and economic downturns, but Dollar General has goals of securing much broader appeal.

“In recent years, the dollar channel has attracted a younger, more diverse consumer base,” Christopher McGovern, senior consultant at Numerator previously told Business Insider. “And it’s not just low income — middle and higher income groups are electing to shop at dollar stores, as they recognize the lower price points for similar quality products that they would find in their regular grocery or big box store.”

Dollar General has additionally found some early success when facing off against one of the most formidable forces in all of retail: Walmart. Foot traffic analytics firm Placer.ai said that while “competition is near impossible” against Walmart, the world’s largest retailer, Dollar General is managing to give the big-box giant “a nudge on the cheaper side of the market.”

The researcher found that Dollar General’s “cross-shopping” visits from Walmart customers have spiked in 2020. Between May and July of 2019, 19.4% of Walmart shoppers also swung by a Dollar General store. In 2020, that has increased to 24.2%, which Placer.ai characterized as “a huge shift considering the massive number of Walmart visitors.”

Dollar General’s campaign for fresh, along with its increasing popularity across socioeconomic groups and latest wins against Walmart, have contributed to the company’s recent success during the coronavirus. And the grocery element, in particular, has aided its aggressive expansion.

This month, the Newton County Enterprise profiled property owners Bill and Peggy Lah, who praised the company’s grocery offerings after striking a deal to build Dollar General in Goodland, Indiana. Bill Lah told the newspaper that residents of Goodland were accustomed to living “miles away from access to basic groceries, household, and general health items.” Dollar General was the solution to that issue, in his mind.

“If you look at the USDA’s definition of a ‘food desert,’ that is us,” he said. “We have been living in that world for too long and it ultimately has impacted our attractiveness as a place of choice for people to live. My goal is, that when we enter the new year of 2021, that families will be able to do the bulk of their basic grocery shopping right here in Goodland.”

Lah went on to say that residents should not “judge Dollar General by stores they went in 10 or even five years ago.”

“What attracted us to Dollar General was their commitment to enhancing their distribution of cold chain groceries,” he said. “When you look at their new ‘DG Fresh’ program, bringing fresh fruits and vegetables into their stores, and their aggressive expansion of cold doors, it becomes an exciting proposition.”

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