Making every item contribute
Larry Gatta, general merchandise manager, Dollar General
Dollar General employs sophisticated data analytics to gauge item movement, consumer demand and customer segmentation store by store. But beyond that, said Larry Gatta, general merchandise manager, “we go through a category review of every planogram” in the store on an annual basis.
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That process is not unique to Dollar General since the company’s overhaul began in 2008, but it has been enhanced with improved analytics and oversight, said Gatta. Thus, when updating a planogram or product set, “we go through … a strategy meeting first, followed by a business review, and then a final walk-through with the executives.”
Merchandising the store, planogram by planogram, is “a very collaborative process,” incorporating input in the planning meeting from “all functional groups,” said Gatta, including decision-makers across a broad spectrum of merchandising, supply chain and operational disciplines. “This meeting … incorporates all functional groups,” he said. “It’s shared accountability, so you have pricing, supply chain, a shrink team, a private-label team — every cross-functional team plays a role.”
The team also incorporates Nielsen data “within our customer segmentation,” as well as “clustering opportunities” for individual items and categories based on regional consumer preferences. For instance, “you have some brands that resonate strongly on the West Coast, but not so much on the East Coast,” Gatta explained.
“Everything is based on … the value proposition,” he added. “And in a limited-SKU environment, we get very ‘granular.’ So every SKU has to work hard for us, and we get to a micro level. We look at the trend data and build a forecast on every single SKU. So if those SKUs aren’t performing, the opportunity exists … [for] some mid-course corrections in between the [planogram] resets.”
Based on this analytical, data-driven approach and close scrutiny of customer preferences and product movement, “we change out probably 20% of our mix every year” through planogram resets and “mid-course corrections” of both individual items and categories, said Dollar General’s GMM. That means that product categories can go up or down in linear shelf footage based on their closely tracked performance throughout the year. And given Dollar General’s adherence to its core value proposition, “We continue to leverage our $1 price point, … which still accounts for well over 20% of our overall mix.”
Delivering value as a prime focus
Dave D’Arezzo, EVP and chief merchandising officer, Dollar General
Most of the products and brands sold in a Dollar General store can be found in any number of competing drug, supermarket, club and mass merchandise stores. So what draws millions of loyal customers back to its more than 11,500 locations every day?
It’s the knowledge that they’ll find the basic household and personal necessities they need at prices they can afford, day in and day out, said Dollar General’s top merchant. And with the company’s core customer base drawn from households earning less than $50,000 a year — in many cases much less — the ability to provide name brands and quality private-label brands at affordable prices is critical to the success of both Dollar General and its vendors.
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“Our key mission,” said Dave D’Arezzo, EVP and chief merchandising officer, “is delivering value every day to our customers.”
That means that both Dollar General and its suppliers “have got to be committed to cost,” he declared. “We have 30 million people coming through our stores every week, and we see ourselves as their buying agent.”
“We’re out there trying to deliver affordable products,” added D’Arezzo, who joined the retailer in November 2013 to head all merchandising and marketing activities after serving in senior management roles at Grocers Supply Co., Duane Reade, Raley’s and Wegmans Food Markets. “So if you’re a supplier, you’ve got to be committed to finding ways to deliver affordable products to us that we can carry every day, year-round. We want to build the businesses that deliver … everyday value to our customers.”
Dollar General’s merchandising team now expects three critical capabilities from its vendors, added general merchandise manager Larry Gatta. Besides the ability to deliver “affordable pricing,” he said, vendors “have got to know our customers and customer segmentations, and exactly how they live on a daily basis.”
Thirdly, vendors have to know “what creates the opportunity for segment growth,” said the GMM. “We’re not in an environment where we carry three brands of cake mix. We have one branded yellow cake mix. So we’re looking for new segment opportunities, for innovation that grows segments. We’ve got to concentrate on who our customer is.”
Sharpening the focus in merchandising
Todd Vasos, COO , Dollar General
With their arrival in early 2008, the new leaders of Dollar General began a massive but methodical transformation of the chain’s critical merchandising and marketing functions. The goal: to tighten up and rationalize a store presentation and product mix that had drifted and lost focus, while boosting turns, shelf productivity and profitability.
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Leading the charge were new CEO Rick Dreiling and his former, Longs Drug Stores veteran Todd Vasos. Armed with their combined experience in drug store and supermarket retailing, the new executives immediately launched an urgent campaign to apply new retail disciplines to Dollar General’s merchandising and marketing strategies.
“For example, when I got here, we had 16 ft. of candles,” said Dreiling. “Today we have four — which left us with 12 ft. for something else.”
Dealing in a limited mix of just 10,000 SKUs in stores averaging approximately 7,500 sq. ft. of selling space, Dollar General’s merchants have become adept at squeezing the most from the shelves. “What you learned in the grocery business was about SKU productivity,” said Dreiling. “And here, SKU productivity has to be right. If a SKU doesn’t produce, you’ve got to be smart enough to get it out and get in something that does. We do a really good job of turning things fast.”
Even before Dreiling arrived, he told then KKR principal and Dollar General director Mike Calbert that it was critical that the chain rein in and rationalize its merchandise mix with the kinds of retail disciplines he had sharpened at Duane Reade, Safeway and other companies. “That was one thing I told him we had to get done,” he said. “We had allowed a very eclectic store base, in terms of its size and shape, to turn into an eclectic offering. Merchandise selection was inconsistent across the store base.”
In the previous era, “While there were planograms being done, there were really no analytics attached to it. It was the old category management style of vendor-managed categories, driven by category captains,” Vasos explained.
“We called it the treasure hunt, but what that really meant was you didn’t know what you were going to get,” Dreiling added. Some of the items on the shelves, he said, “were in one store and not in another. And 25% of every store was what was called flex space, meaning it was up to each individual store manager on how to merchandise,” said the CEO.
“There was a lot of flex space in the store, and not everything was programmed,” Vasos agreed. “So the [new] team brought a real discipline into category management, and instituted what we would consider some best-in-class category management systems and tools, leveraging company-specific movement data from Nielsen, as well as our own analytics.”
“What’s really important about that [Nielsen] data is that it’s only based on our history; it doesn’t take into account a lot of other segments,” said Vasos. “We’re really better off, especially in a limited-SKU environment like ours, to hone in on our core customer. What does he or she really want? We rate that a 10 on a scale of 1-to-10.”
To get the answers, Dollar General also has invested heavily in information systems and powerful analytical software to not only track item-by-item and store-by-store product movement, but to give its buyers and category managers the tools to respond to — and anticipate — its customers’ purchasing preferences far more effectively and quickly.
Rethinking health and wellness
Under Dreiling’s and Vasos’ leadership, Dollar General also has dramatically redefined its approach to merchandising health, wellness, personal care, beauty and food. “In ’08 and ’09 we only had 3 ft. of health-related items in our store. It was an end cap,” said Vasos. “And beauty was only around 12 ft., including products like shampoo and deodorant.”
“We recognized right away that we had to gain legitimacy with the consumer, especially in the health arena, but also in the beauty arena,” he continued. “We brought in lines that would give us legitimacy, but also enhance our private-brand program.”
Across categories, private brands specific to Dollar General have become critical to the company’s success and renewal in recent years. “In private brands, we now have over 3,000 everyday SKUs,” said Vasos. “It’s a big piece of the mix, and we’ve more than doubled our private-brand sales in the last six or seven years.”
A major component of Dollar General’s expanding private-brand business is the Rexall line of health and beauty aid products, which Vasos called the “cornerstone” of its efforts to expand and legitimize its commitment both to wellness and private label. “We were able to obtain that Rexall brand and really make it a stand-alone brand on its own. And it’s now an over $200 million brand at Dollar General.”
“That’s how important the health mission is to us for our consumer,” he added. “And the reason we saw that as a real opportunity and went after it — and we did it very methodically, not right away but 4 ft. here, another 8 ft. the next year — was that [our consumer] doesn’t go to the doctor as often as [consumers in higher income brackets]. The doctor is a last resort because it costs money.”
Also undergoing significant expansion at Dollar General under Dreiling, Vasos and other new leaders since 2008 has been the consumables category. Vasos called Dollar General’s food mix “very aggressive,” and compared it with the mix of consumables offered by Longs Drug Stores. “We copied the playbook from there as we went into the food business here,” he offered.
In consumables, as well as wellness, private label has become a key component of the mix, said Vasos. Indeed, private brands now account for 24% of total food sales, according to the COO.
Those store brands help keep prices down. So, too, does Dollar General’s expanding ability to source product globally.
“Today, we’re importing out of 27 countries, whereas seven or eight years ago we were sourcing out of just four countries. We have … a main office in Hong Kong and a Dollar General sourcing presence in more than 10 other countries. We continually bid for items in these countries.”
‘She knows she can trust us’
At its core, said the COO, Dollar General strives to be “a convenient general store” offering consistently low prices storewide. In terms of its overall pricing, said Vasos, “we’re at par with mass, on average 20% or so lower than grocery every day on the shelf, and 40% lower than drug every day on the shelf. To do that, we have to keep our costs down.”
“The company is 75 years old, and it’s always been built on serving the underserved,” Vasos added. “Everything we do is to deliver the right product at the right value at the right time to the consumer. And we hope that as she walks into our store, … she knows she can trust us.”
“Yes, she might be able to find Tide cheaper somewhere on sale during that week, but she knows she is not going to overpay when she has to come in to buy something to take home tonight,” said Dollar General’s top merchandising and operations executive. “When she walks into the store, we want her to be able to find what she needs, at the price she feels comfortable in paying, and also knowing that that is a seven-day-a-week, 365-day-a-year promise that we make, to keep those prices low.”
To maintain that low-price, low-cost operating structure, “the No. 1 thing we all talk about day in and day out is that we have to keep it simple,” Vasos added. “That’s the mantra around here, because as you layer in complexity, you layer in costs. It never fails. Everyone falls into that trap. So at all costs; keep it simple.”
“We have a relentless focus on making life easier for our stores,” he added. The company’s collaborative command structure is also key, said Vasos. “This company has no silos. We do everything in collaboration with each other. While there’s always a healthy tension, there’s not a combative tension between marketing, merchandising, operations and supply chain — everyone works together. That helps us achieve the goals we need to achieve and keep those prices low.”
Meanwhile, Dollar General continues to expand its access to consumers through a mobile app that debuted recently. Roughly half of the company’s core consumers already use smartphones, and that number is expected to rise to 75% within two to three years, according to Vasos. In addition, with the difficult economic environment continuing “to add to our core customer base,” he said, Dollar General also continues to explore new potential revenue streams as it builds hundreds of new stores each year. Last October, the chain opened a fueling station with gas pumps at a Dollar General Market store in Hanceville, Ala.
“We are very pleased with the volume. It’s doing the volume you see out of a convenience store,” said Dreiling. “The challenge for us is to figure out how to entice the consumer from the pump to the store, and from the store to the pump. It’s still very much in test.”