Dollar General, Case Study

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Institution

Introduction

How the Dollar General has built its costs advantage.

Dollar General has effectively accomplished an incredible task of consistently implementing a persistently low-cost strategy. Its strategic intent has been to become customer-driven distributor dealing in consumable basics. This has resulted in its growth to more than 6000 stores scattered across 27 states and with annual sales of more than $6billion, and employing more than 50,000 employees.

Its cost advantage has been built along its target market, which include large families, with fixed incomes and low incomes, as well as blue collar households (Shi et al, 2007). It had examined its market and determined that its customer base is primarily made of individuals with $30000 or less in annual income, with a third of its customer base making below $20000 annually.

The fundamental aspect in the company’s strategy for competitiveness and success has revolved around keeping its costs at the lowest level through distribution strategy, product selection, using single merchandise presentation, providing a limited assortment of merchandise, and investment in technology (Shi et al, 2007). It is worth noting that at least 50% of the company’s stores are located in small towns, s strategy that allowed the company to exploit to take advantage of extremely low lease rates unlike other bigger urban areas (Shi et al, 2007). On the same note, it changed its advertising strategy and reduced the percentage of advertising on sales, thereby allowing the company to lower its costs and consequently leading to increased sales.

Should Dollar General compete directly against Wal-Mart?

Needless to say, Wal-Mart is the closest rival to Dollar General Stores in which case one company’s efforts and strategies are bound to, in one way or another, affect the other. While the company may be inclined to assert its competitiveness, it is imperative that Dollar General does not compete directly with Wal-Mart. Direct competition occurs in instances where two or more business entities offer the same service or good. This, essentially, appears to be the case for Wal-Mart and Dollar General, where both are offering more or less similar goods. While Dollar General may have asserted its dominance and competitiveness in the market, research shows that Wal-Mart would still be considered as offering the lowest prices in almost all categories. Indeed, a 22-month research study carried out by Bloomberg Industries showed that Wal-Mart had considerably lower prices than Dollar General Stores across all categories all the time. This is complemented by the fact that the key cost advantage for Dollar General has been its strategy of locating its stores in residential area where, it hopes, Wal-Mart cannot reach. However, there are chances that Wal-Mart would eventually open its version of small “neighborhood” smalls in these territories, which would essentially eliminate Dollar General’s strategy for competition.

Recommendations to Dollar General regarding its strategic alternatives

In enhancing its growth, it is imperative that the company examines its strengths and weaknesses, with the sole aim of eliminating its weaknesses and taking advantage of its strengths in exploiting the opportunities available. First, it could expand its reach to other rural areas, a strategy that would be profitable especially considering its experience and established presence in similar localities, low cost, as well as reduced competition from other stores such as Wal-Mart (Ajitabh, 2008). In addition, it could consider expanding to urban areas, where, despite the high advertising costs and high expense, the company would benefit from high consumer traffic and new consumer base. On the same note, it is imperative that the company considers entering into joint ventures with other business entities such as Walgreens (Ajitabh, 2008). This would not only enhance its reach but also allow it to diversify into other areas, thereby eliminating the possibility of direct competition with Wal-Mart. All these should be done alongside enhanced use of information technology.

References

Shi, W.H., Kaufman, S & McKillican, R (2007). Dollar General (A). Harvard: Harvard Business School

Ajitabh, D. (2008). Global Competitiveness. New Delhi: Excel Books.