Taming the ‘wild frontier’ of discount retailing: Dreiling leaving his mark as Dollar General CEO
Rick Dreiling, Chairman and CEO, Dollar General
When Kohlberg, Kravis and Roberts approached the much-heralded chain drug store and supermarket veteran Rick Dreiling to run Dollar General some seven years ago, the move signaled the investment firm’s determination to return its huge but somewhat floundering retail holding to fiscal health and public ownership as quickly as possible.
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Hiring Dreiling as Dollar General’s new top executive was a success. The company staged an initial public offering in 2009, just two-and-a-half years after KKR took the company private in a buyout, and years ahead of its own turnaround plan and IPO schedule for the Goodlettsville, Tenn.-based discounter.
Dreiling credits then KKR investment partner and turnaround specialist Mike Calbert as “very instrumental in the journey” of returning Dollar General to full fiscal health and independence. But the choice of Dreiling as CEO was the critical factor that set the stage for what was to be a sweeping business and cultural transformation at the 75-year-old small-box discount chain.
“When I came to this channel, this was the last wild frontier of discount retailing,” Dreiling recalled. What was critically needed to restore the company’s momentum, he told DSN, was to apply “all of that discipline that you learn in the grocery business and drug business and big box [retailing]” in areas like “labor control and category management.”
Dreiling brought with him a long and distinguished career in food and drug retailing. Before joining Dollar General as CEO in January 2008, he served as chairman and CEO of Duane Reade Holdings, the dominant drug chain serving the metropolitan New York market. Prior to that, he was EVP and COO of storied West Coast drug chain Longs Drug Stores.
Dreiling joined Longs in 2003, after garnering broad expertise in food and combo store retailing as EVP of marketing, manufacturing and distribution at Safeway Stores, and as president of Vons, a Safeway division serving Southern California.
He began his career in 1969 as a part-time clerk with Safeway in Kansas, working his way up the ranks and earning a degree in industrial relations before being promoted in 1998 to president of Vons. “I started off bagging groceries in a Safeway store,” he remembered. “My first promotion was sorting bottles, … and I thought that was the greatest job in the world.”
Under Dreiling’s leadership, Dollar General has regained its sales and profit momentum, fundamentally retooled its approach to merchandising and category management, and harnessed the power of its information technology to transform and smarten up its marketing, merchandising and expansion strategy.
“We used to generate a ton of data, but not a lot of information,” said the CEO. “And now we can look at that data and turn it into something that’s actionable.” Equally critical, Dreiling and his executive team have knocked down old departmental silos to unify Dollar General’s management and decision-making under a common vision and go-to-market strategy.
“Merchandising and operations have to function seamlessly together,” the CEO asserted in an exclusive interview with DSN. “When I first got here, I said to the [former management] team, ‘Show me a store.’ And the supply chain operator, the merchant and store operations couldn’t even agree on a store for me to see.”
When he arrived, Dreiling launched a rapid overhaul of the executive team, keeping valued decision-makers but bringing in a slate of retail, wholesale and supply-chain veterans from such companies as Duane Reade, Longs Drug Stores, Vons, Safeway, Eckerd Corp. and Starbucks to fill many key management slots. “The wealth of experience they brought to the table was in channels [such as] grocery and drug.
To their credit, said Dreiling, “that’s exactly what they did.” The new management team set about learning the techniques, processes and appeal of value-driven general merchandising in a smaller store format with a broad but concentrated mix of convenience, personal care, household and consumable items.
“Rather than coming in here and trying to change the world … everybody took their time,” he explained.
Also critical to Dollar General’s recent success, said Dreiling, was its operational flexibility. “When you have to come in and be a change agent, it’s a heck of a lot easier when the organization is changing with you, rather than fighting you. And particularly if you look at ’08 and ’09, when we drove north of 9% comps [same-store sales gains] two years in a row, that’s the organization coming with you. It’s executing a plan.”
The CEO also credited “the culture and the road work that had been laid by the Turners” prior to the modern era of Dollar General. That era culminated with the retirement of Cal Turner Jr., son of founder Cal Turner Sr., in 2003, and the hiring of David Purdue to the top spot.
After taking the reins in early 2008, Dreiling quickly made his mark. He eschewed top-down hierarchical decision-making in favor of consensus-building through regularly scheduled cross-functional meetings — and through a culture that encourages mentoring and career-track advancement in the field and stores.
“There’s not a lot of politics here,” said the CEO. “I eat lunch down in the cafeteria; I don’t eat it up here. And my team and I … do our best work over a glass of wine.”
That flattened-out, informal management style epitomizes the culture at Dollar General, and is clearly one of the factors in the company’s meteoric rise in American retailing.
“I think that attitude has worked its way down the organization,” said Dreiling. “We will disagree with each other and fight each other, but we are family when we go home. And I think that’s pretty unique in an almost $20 billion company.”
Dreiling is also a firm believer that “one of the most important things a CEO does is to make sure he or she isn’t the smartest person at the table. That means you’re bringing in good people with new thinking and new ideas.”
Supplementing that management muscle are “a tremendous number of people who have been here for 10, 12, 15 years, and we’re very blessed,” said Dreiling. “We’ve got a tremendous amount of talent here. I think what we’ve done is a much better job of listening to that talent and giving them a chance to lay their cards on the table and get things done.
“So we did it together,” he added. “It wasn’t just a bunch of new people who just showed up with all these great ideas. The new people listened to a lot of the ideas that never got a chance to be heard.”
Dollar General: Great things come in a small box
What retail chain has more stores than any other U.S. company, with plans to open an astonishing 700 new locations this year alone, while approaching $20 billion in revenue and maintaining sales and profit momentum?
It’s Dollar General, the storied Goodlettsville, Tenn.-based small-box discount giant celebrating its 75th year in business in 2014. Nearly seven years after the induction of a largely new management team under new CEO Rick Dreiling and the launch of a top-to-bottom revitalization of the company’s core mission and merchandising strategy, Dollar General has attracted the attention of both the financial and consumer press that it deserves.
(Click here to download the full special report.)
In recent months, the fast-growing company also has gained a higher profile through its well-publicized battle to acquire small-box discounter Family Dollar. Whatever the outcome of that takeover fight, Dollar General has already become a formidable market force in the shadow of such larger and noisier big-box general merchandise discounters as Walmart and Target.
Dollar General is the quiet giant of American discount retailing. Its more than 11,500 U.S. stores are deeply embedded in suburban and small-town communities in 40 states across the country, and in 2015 the company expects to open its first stores in Maine, Rhode Island and Oregon.
Dollar General stores sell a broad but tightly controlled mix of discounted name-brand and private-label household necessities, health and beauty aids, basic apparel, seasonal items and food in small-box stores that drive customer traffic with convenient locations, everyday low prices, brand-name quality and a small-scale retail format that’s easy to navigate.
‘An amazing business model’
“We’ve experimented with Dollar General Plus, at 10,000 sq. ft., and Dollar General Market, with 15,000 sq. ft.,” Dreiling explained in an exclusive interview with DSN. “But the core store is right around 7,500 sq. ft. We’re trying to be the general store that our grandparents shopped in, and our goal is to make that box productive.”
The watchwords are fast product turns and shopping simplicity. “Dollar General stands for convenience, quality brands and low prices” along with “a truly hassle-free experience,” the company reported. “We design small neighborhood stores with carefully edited merchandise assortments to make shopping simpler.”
“We don’t carry every brand and size, just the most popular ones,” the company noted. The typical Dollar General store sells approximately 10,000 items.
Added Dreiling: “The beauty of this business is that you’re dealing with a relative handful of very basic SKUs — with products like Tide and Clorox and a private-brand program. You don’t have to have seven or eight versions of everything. And that allows us a tremendous amount of flexibility in the stores.”
The result is “an amazing business model,” with stores that are “inexpensive to build, inexpensive to operate, and we open our stores at 85% of our average store volume,” said Dreiling. “Find another retailer that opens at 85% of their average store volume.”
Expanding the customer ‘sweet spot’
At around 7,500 sq. ft., the model for the standard Dollar General store also is compact enough — and appealing enough — to allow for plenty of new growth potential across the country. The company still foresees years of expansion opportunity in untapped markets.
“Using our real estate software, we have identified over 14,000 opportunities for [additional] small-box discount retail stores in the United States today,” he said. What’s more, Dreiling added, the nation’s “bifurcated recovery” means that “the economy is continuing to create more of our core customers.”
For Dollar General, those core customers are in the low- to moderate-income groups earning $50,000 or less per year, according to Dreiling. “That’s our sweet spot,” he noted.
Nevertheless, Dollar General stores appeal to a broader swath of the consuming public than they did a few years ago, added the CEO. “The store we’re building today is much different than the store we built in 2006 and 2007. The model is more viable across a broader spectrum of economics,” said Dreiling.
Nevertheless, he and the rest of the team guiding Dollar General are determined not to stray too far from the company’s founding principles of selling “everyday basic items at extraordinary prices for our customers,” according to the CEO.
“This organization … has 75 years of serving others. And if you look back over the last seven years, the key driver of the success this company has enjoyed is we’ve never lost sight of who we are,” Dreiling said. “There has been a major change in how this company does business — how it looks at its numbers and its results — and yet we still talk about [founder] J.L. Turner and [former presidents] Cal Turner Sr. and Cal Turner Jr. here. And we have never lost sight of what [their] core goal was, and that is to serve customers in underserved areas.
“So we’ve been able to hold onto the past and meld it with the future, and the results speak for themselves over the last seven years,” he added. “The company is 80% bigger in sales volume than in January of 2008, and store count is up 38% to 40%. And all that happened not in a fledgling start-up business, but in an incredibly mature business and a mature channel.”
Plenty of growth potential
Mature or not, the dollar store business still offers plenty of growth potential, said Dollar General’s CEO. “We think organic growth represents a great opportunity for us,” Dreiling said. “We see the square footage growing 6% to 7% [per year].”
Dreiling said that aggressive growth strategy rests on a solid foundation, given the leadership provided by “one of the strongest teams in consumables retailing,” the rapid maturation of new stores and the high turns generated across product categories.
“We’ve gone from $160 per sq. ft. to over $220” in recent years, he said, due both to smarter and more responsive category management and product selection, and to a decision made soon after he arrived to raise the shelf height on store fixtures by 12 inches.
“The productivity on our new stores, and the returns we generate, are just excellent,” Dreiling noted. “I can’t predict what’s going to happen with the economy or any of that, but I see no reason to slow store growth in our channel right now.”
A ‘pet project’ for pharmacy
That awesome little dude pictured is my bulldog Petey. As I write this column, my wife is bringing him home after five nights in the animal hospital — for that I am happier than the limits of my word count could ever fully allow me to convey.
Without getting into a lot of detail about Petey (he hates it when people “get up in his business,” particularly without even offering treats), let’s just say he’s got a bit of a fight ahead of him, but he’s a scrappy fella and we’re confident he’s going to stick around for a long time.
We’re also damn lucky to have pretty good insurance for Petey. Many people don’t, and some of their stories could break your heart.
Last month, DSN reported that Walgreens was testing a pet clinic concept operated by ShotVet in 50 Massachusetts stores. For my money, it’s one of those rare opportunities to do good while doing good business, too. Americans spent $14.4 billion on veterinary care in 2013, according to the American Pet Products Association.