GOODLETTSVILLE, Tenn. -- Seeking to combat the threat of convenience stores that have enjoyed growth by adding groceries and fresh foods, is Dollar General following in the footsteps of the failed Walmart Express?
Testing a new 6,000-square-foot, small-format store, discount retailer Dollar General is placing a greater emphasis on consumable products and other items that “meet the needs of our urban customers,” CEO Todd J. Vasos said during the company's recent fourth-quarter earnings call.
Wal-Mart tried to compete with smaller-value chains such as Dollar General and Dollar Tree by opening up 15,000-square-foot Walmart Express stores.
The experiment was a failure, and the retailer quickly began rebranding the stores to the larger Neighborhood Markets format. Earlier this year, it threw in the towel completely, announcing it was exiting the convenience-store model altogether and was closing the 102 remaining Walmart Express stores.
With Dollar General now announcing plans to expand its own smaller-footprint stores nationwide, a Motley Fool report asked, will it be making the same mistake as its bigger rival, or can it succeed where Wal-Mart failed?
Dollar General—with stores typically at about 7,400 square feet—has experimented with different formats before. Its upscale DG Markets, for example, offer customers a wider selection of goods than they’re typically accustomed to finding at a traditional store, including fresh produce. Last year, it began testing a small prototype that would serve as the basis for all new store openings, as well as those it was remodeling, featuring more refrigerators and freezers, as well as an enhanced checkout experience.
Convenience stores are the largest segment of retailing, representing more than 34% of all retailers with almost 155,000 stores in operation, said the report, citing statistics from the National Association of Convenience Stores (NACS). In contrast, dollar stores are among the smallest, with a little more than 27,000 locations.
More than three-quarters of all c-store operators reported seeing foodservice sales increase last year, and almost 80% are optimistic about their outlook for the coming year. The most recent data available shows foodservice sales hitting approximately $41 billion, or almost 20% of in-store sales in 2014.
The average size of a convenience store is around 2,700 square feet, according to NACS, but newer ones average almost 3,600 square feet, making Dollar General’s new smaller prototype somewhat closer to these retail outlets.
So far, Dollar General said the tests have been generally positive. While the stores tend to have higher costs associated with them, pinching profits, the company hopes consumer desire for greater convenience—to be able to get in and out of a store quickly with needed items—will drive volumes higher at these stores, giving them more sales per square foot.
The difference between Dollar General’s prototype and the one Wal-Mart launched is substantial. In the latter case, the retailer stocked significantly fewer items than customers were accustomed to finding as Wal-Mart had to limit the number of brands it carried. Dollar General, in contrast, by reducing the store size by about 20% but expanding the number of popular items available by limiting the weakest, should encounter the opposite result, the Fool report said.
The company will be opening 80 such stores this year on top of the 30 already in existence.
Goodlettsville, Tenn.-based Dollar General operates 12,483 stores in 43 states.
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