Intuitively one might assume that Dollar General, the well-known extreme-value retailer, has an established competitive advantage versus other consumer goods retailers with respect to price. It would then follow that cost would be a defining characteristic of the company, and a cost analysis an appropriate analytical tool.
However, the four distinct types of retailers within the dollar store retail segment (original dollar stores, close-out retailers, limited assortment grocers, and extreme-value retailers) all compete on price. Dollar General is very competitive in this regard, but this alone has not rendered the company successful; price is not Dollar General’s competitive advantage amongst its competitors. Therefore, a demand-side differentiation analysis proves far more useful in addressing the current issues facing Dollar General (only 6.9% sales growth and 1.5% net income growth in 2006, down from 23.1% and 5.5% respectively in 1997), and furthermore developing a plan for increased future profitability.
Dollar General currently commands ~24% of all sales in the US Dollar Store Industry. The company’s product, or more accurately the need that the company satisfies, is the desire for an accessible small-format retailer for purchases generally totaling $10. The store acts as a convenient, temporary alternative to weekly shops at grocery stores or minor goods retailers. Keeping in line with this are the average sizes of Dollar General stores (6,900 square feet), which allow goods to be sought out in an efficient, brisk manner with limited store traffic.
Where Dollar General locates their stores is essential to both satisfying current market needs, and to diversifying the company away from competitors. The company operates more than half of its stores in communities of 20,000 people or less; in these rural areas, Dollar General represents one of very few options with regards to small-scale basic consumable merchandise. Furthermore, Dollar General...
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