Date: April 30th 2013
Dollar General Business Proposal
Our group performed an analysis of Dollar General’s external and internal environment, which included a Porters Five Forces breakdown. Those findings as well as analysis on the company’s financial statements formed the basis for our recommendations. We considered several alternative growth strategies for Dollar General to implement. Those strategies are, international expansion, continued domestic expansion, internal improvements, extending services, and taking the company private. We concluded that the most beneficial direction for the company is to go private thereby relieving pressure to meet short-term objectives. We also believe that Dollar General can benefit from increasing domestic expansion and improving its value chain efficiency by upgrading merchandising products. This strategy will allow Dollar General to achieve sustainable long-term growth.
Dollar General has reached an inflection point in the company’s history. Recent growth has been explosive, sending revenues to a high of over $9 billion in 2007. However that data may be misleading, though revenues have been increasing each year the rate of revenue growth has been declining steadily since 2000. This phenomenon of diminishing margin of returns, as well as recent issues forcing the close of 200 stores in 2006, has put Dollar General in an uncomfortable financial position with its Wall Street investors. The question we will be addressing in our paper is the strategy Dollar General should use to grow its business efficiently and create sustainable long-term advantages. External Environment
By performing an external analysis we were able to determine many potential opportunities for Dollar General. First, consider the changing demographics in the United States. In 2005, 37 million Americans had household incomes below the poverty line as defined by the U.S. Census Bureau. The shift in demographics has arguably led to a new bargain-based mentality of the American consumer. In 2005, 67% of American households shopped at some type of dollar store, up from 55% in 2000. Additionally, an aging population (such as the Baby Boomers) contributed to a rise in the number of people on fixed incomes such as pensions. Clearly, Dollar General has the opportunity to exploit consumers who value a low-priced bargain shopping experience, in addition to consumers who come from low-income households and require EDLP in order to satisfy their needs on a budget. By keeping their retail format to a small defined set of goods they are able to open in areas big box retailers such as Wal-Mart are unable to. As stated Wal-Mart requires a population of at least 50,000 in order to consider opening a store, Dollar General finds itself successful with populations of around 20,000. Management has also considered bringing their talents to other portions of the world where extreme retailing is much more widely accepted. With the past successes of the Aldi Corporation in the United States, and one in four retailers opening in Europe being a discounter, Dollar General should absolutely consider a possible expansion into Europe. Unfortunately, there are also significant external threats that Dollar General faces. Extreme competition between Dollar Stores and Extreme-Value Retailers, who offer everyday low prices in small-box format, presents a huge potential concern. Extreme-Value Retailers offer a more focused assortment of goods compared to mass retailers such as Wal-Mart, but still stock a significant number of nationally branded products. Dollar General, although seemingly a “Dollar Store,” utilizes the “Extreme-Value Retailer” model. These two retail formats feature similar strengths and weaknesses, which is why the extreme competition presents itself as a threat. The price point at which Dollar General operates at is also a threat to their existence. While goods can be priced...
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