How Dollar General can stay so cheap, even with prices of goods rising

Dollar General
Dollar General deals.

  • Supply chain shortages, rising shipping costs, and wage hikes are forcing up the cost of goods.
  • Dollar General says it hasn’t raised prices recently and doesn’t plan to.
  • Here’s how it offsets costs to keeps prices down.

Rising shipping costs, supply chain shortages, and wage hikes are making the cost of goods such as food and household items more expensive.

Some retailers are raising prices for customers to offset this trend. Dollar General says it hasn’t and doesn’t plan to drive up prices.

“We have a lot of levers at our disposal to make sure that we don’t have to pass all that on to the consumer,” Dollar General CEO Todd Vasos said on the company’s most recent earnings call.

The chain sells products at 20% to 40% less than drug and grocery stores. Here’s how it keeps its prices low:

It offers a no-frills shopping experience

Dollar General
Scaled back stores.

Dollar General doesn’t own its stores, which helps to keep real estate costs down. Stores are small – on average 7,400 square feet, while the average Walmart store is 178,000 square feet) – and have a bare-bones design: metal shelves, strip lighting, and low-cost signage.

It is truly a no-frills shopping experience, suitable for the customer who wants to get in, buy what they need, and get out. According to Dollar General, the average shopping trip to its store lasts no more than 10 minutes.

It has a limited selection of products

Dollar General
10,000 to 12,000 SKUs.

“We don’t carry every brand and size, just the most popular ones,” Dollar General states on its website.

Each store has between 10,000 and 12,000 unique products. Around 60,000 are found at a typical supercenter like Walmart. Carrying a limited number of items gives Dollar General more buying power with suppliers, as it buys in bulk.

It keeps labor costs down

dollar general vallejo california
Fewer workers.

Its no-frills stores require less staff to run, keeping labor costs down. According to UBS, its employee wages are also lower than its competitors.

Its understaffed stores and low wages have been criticized in the past and led to workers quitting in some locations, however.

It carries private-label goods

Dollar General
Own-brands.

It stocks a selection of private-label goods, which have higher margins than national brands as the company has greater control over manufacturing costs and can set its own prices.

It stocks limited amounts of fresh produce

Dollar General
The fresh food section at a Dollar General store.

The majority of Dollar General stores don’t offer fresh food or perishable items, which have shorter shelf lives and tighter profit margins.

Critics say this is bad for local shoppers as it limits their access to fresh food. But from a business perspective, it helps to keep margins strong.

Dollar General packages items in small quantities

Dollar General
Not for the bulk buyers.

Instead of selling items in bulk, Dollar General sells small quantities of items to keep the cost of each transaction down.

It might seem like you are getting a better deal as the prices stay below $10, but ultimately, you’re likely paying more on a per-ounce or per-item basis.

Nevertheless, this lower-ticket value serves its core customer well, as they might not necessarily have the disposable income to shop in bulk.

It cuts costs in the supply chain

dollar general truck
Cuts out the middle man.

Dollar General is constantly looking at where it can cut costs in its supply chain.

In an earnings call earlier this year, CFO John Garratt said that the company plans to expand its private truck fleet to reduce its exposure to third-party carrier price fluctuations.

Its stores are located predominantly in rural locations

An exterior shot of a Dollar General store
Around 75% of its stores are in towns of 20,000 or fewer people.

Dollar General’s strategy since the early 2000s was to go where Walmart wasn’t. The majority of its stores in the US are located in rural and suburban areas, which cost less to run due to lower rent and labor expenses.

Read the original article on Business Insider