Tuesday, April 10, 2012

Dollar General's California Dream Becoming Reality

Tennessee-based discount retailer Dollar General has been moving hard and fast in Northern California, particularly in the Central Valley, since we first revealed the discount retailer's big plans for the market region in this December 5, 2011 story: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings.

In the mere four months since we published the report, Dollar General has hit the ground running, focusing on its Dollar General Market grocery stores and traditional dollar format stores in the region.

Below is what the mega-discount retailer, which operates 10,000 stores in 39 U.S. states, is up to:

>First store opened: Dollar General opened its first Dollar General Market grocery store in the region March 31, at 1729 West Highway 140, in Merced, California.

The grocery market was store number 10,000 for Dollar General, and it went all out for the grand opening, offering activities for shoppers including: a free make-up consultation from representatives of  L’Oreal and Maybelline; photographs for the kids with characters Sponge Bob, Bimbo Bear and the Energizer Bunny; and food sampling, offering numerous products sold at Dollar General. Additionally, the first 500 customers to arrive at the store for the 9 a.m. grand opening received a free ham and a reusable tote bag filled with product samples and coupons

>Store manager search: The retailer is currently advertising for store managers for its three Dollar General Markets in Stockton, California and the unit in the East Bay Area city of Brentwood. These are four of the five stores Dollar General is leasing from Stockton-based supermarket chain Centro Mart, as we detailed in our December 5, 2011 story. The fifth former Centro Mart unit, in Stockton, will be a Dollar General dollar format store. The four Dollar General Market grocery stores and the dollar store are set to open in the coming weeks.

>Regional director wanted: Dollar General is advertising for a regional director for its dollar stores and Dollar General Market stores for California and Nevada.

According to our sources, the retailer plans to open 150-200 units combined of both formats in California and Nevada over the next two-to-three years.

So far Dollar General has seven stores open in Nevada and six units in California. Dollar General CEO Rick Dreiling said in a March 22, 2012 conference call with financial analysts that the retailer plans to have 50 (grocery stores and dollar stores combined) units open and operating in California by the end of the year.

>More stores: In our December 5, 2011 story we reported Dollar General had plans to open numerous other Dollar General Market (which offer groceries along with perishables, fresh meat and produce) and dollar store units, which carry perishable and dry grocery consumables along with general merchandise items but not meat or produce, throughout Northern California, with a major focus on the Central Valley.

Above: The location of the Dollar General Market in the Gregory Gardens shopping center, Modesto, California.

Thus far we've discovered the following planned Dollar General Market grocery store units in the region: two units in the Fresno area, at Fruit and McKinley in Fresno and Bullard and Minnewawa in nearby Clovis (both are former Save Mart supermarkets which the Modesto-based chain had previously closed); a Dollar General Market in Modesto, in the Gregory Gardens shopping center at 2003 Tully Road, between Bowen and Briggsmore (the retailer has also signed a lease for a dollar format store at 510-560 North Main Street in Modesto); and a Dollar General Market in Winton, which is next door to Merced, where the first store in the region opened March 31.

Dollar General is currently advertising on a variety of online job sites for managers for the Modesto and Winton grocery markets, which are set to open in the coming weeks.

Distribution center

As we reported in our December 5, 2011 story, Dollar General has established a distribution center near Bakersfield, California to service its grocery and dollar format stores in California, Nevada, Arizona and New Mexico. The facility opened this month.

Major growth plans

Dollar General plans to open approximately 625 new stores this year, the majority of which will be its flagship dollar format stores, which average about 7,000 square feet, CEO Dreiling said in the March 22 conference call. Additionally, according to the CEO, the retailer plans to remodel and relocate about 550 stores in 2012.

The retailer opened 625 new stores in 2011, along with remodeling or relocating 575 units, for a net increase in square footage of 7%, Dreiling said.

Dreiling said in the March 22 conference call that Dollar General has about 40 new Dollar General Market grocery stores set to open this year, the majority of which will be in California, Nevada and Arizona.

Last year the retailer opened seven new Dollar General Market stores, seven of which were in Nevada (its first new market since 2006), and remodeled 25 existing grocery markets.

There are currently 70 Dollar General Market grocery stores in the U.S.

The grocery stores, which average 10,000-15,000 and offer a selection of grocery items, perishables, frozen foods, produce, meats and general merchandise, are a key element of Dollar General's strategy for California.

Part of that strategy is to focus on food deserts, regions and cities that are currently underserved by grocery markets offering fresh food and groceries at reasonable prices.

The Dollar General Market format is focused on everyday low prices. A number of industry surveys, for example, put the store's prices on par with Walmart for fresh food, groceries and general merchandise items. Dollar General also runs weekly ads for the grocery markets and sometimes offers store coupons, such as $5 off purchases of $25 or more.

Inside a new generation Dollar General Market. [Photo credit: Dollar General, 09/27/11.]

Good fiscal 2011

Dollar General had a good 2011 fiscal year on all metrics. Its full-year sales increased 13.6% to a record $14.8 billion. There was an extra week in the fiscal year. Excluding that 53rd week, full-year sales increased to 11.4%.

Sales-per-square-foot for fiscal 2011 increased to $209, compared to $201 a year ago. Average sales-per-store came in a bit over $1.5 million.

The 2011 fiscal year also marked the 22nd consecutive year of same-store-sales growth for Dollar General. Same-store-sales were up 6% for the year, with all regions reporting positive comps, according to CEO Dreiling. Dollar general is forecasting a same-store-sales increase of between 3%-5% for the current fiscal year.

Dollar General's adjusted operating profit grew 17% in 2011 over the previous year to a record $1.5 billion and a record 10.2% of sales.

The retailer posted a 31.7% gross margin rate for 2011, which was 31 basis points below the previous year but was 246 basis points higher than in 2008, the first full year of the "great recession."

On the bottom line, Dollar General's adjusted net income increased 26% over 2010, which is an impressive performance.

Dollar General also launched and e-commerce website in 2011, which will not only bring it added revenue but should prove to be a good source of data over time. For example, the retailer is currently in 39 states. Purchasing data from the site over time could prove valuable as Dollar General looks at which of those remaining states it wants to open stores in first.

A closer look inside the Dollar General Market. [Photo credit: Dollar General, 09/27/11.]

Dollar General's impact

It's difficult to forecast whether or not Dollar General will be a major player in the food and grocery retailing business in California in general and in the Northern California/Central Valley region specifically for a couple reasons.

First off, selling food and groceries isn't something the retailer has a solid track record of doing. In fact, a couple years ago Dollar General considered shuttering its Dollar General Market format and stores completely. However, it instead developed a new Dollar General Market prototype in Dallas, Texas, which is the model for the remodeled and new stores, and is going forward with the chain, including emphasising the grocery markets as part of its two-format strategy in California and Nevada, as previously noted.

Second, California has no shortage of seasoned grocery chains and independents, with more coming, like Walmart with its Neighborhood Market supermarkets (see the story link at bottom), for example. But Dollar General's focus on undeserved regions and cities in the Golden State, such as the locations in the Central Valley detailed earlier, could be a very smart move for the retailer with its Dollar General Market stores, which have a low everyday price focus.

For example, Tesco's Fresh & Easy Neighborhood Market, which continues to lose millions of dollars a week with its 10,000 square-foot grocery markets, isn't opening any new stores in California's Central Valley despite having numerous sites in cities like Bakersfield, Fresno, Modesto, Los Banos and Stockton, most of which its been sitting on for three to four years.

Fresh & Easy did finally open its first five stores in Sacramento (see story links at bottom), where Dollar General also plans to open a number of its grocery markets and dollar stores (the first unit we've discovered will be in the Grand Oaks shopping center at 7963 Auburn Boulevard in the Sacramento suburb of Citrus Heights), in March. Tesco now has 196 Fresh & Easy stores. There are 142 units in California, 24 stores in Arizona and 20 units in Arizona.

Dollar General's two-format - the grocery stores and dollar stores - strategy in California should be a powerful one though, allowing it to establish its brand in the Golden State (and in Nevada) much faster than if it was only going with a single-format approach. For example, the dollar format stores also offer a considerable selection of groceries and general merchandise items, along with some perishables and frozen foods (two categories Dollar General is expanding in the stores), which should allow the retailer to establish itself in the highly competitive Golden State faster than if it were doing a single-play strategy only.

We'll keep you updated like only Fresh & Easy Buzz can on Dollar General's march through California, which is just getting started.

Related Stories

December 5, 2011: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

April 3, 2012: Getting Real in the Golden State: First Group of 13 Walmart Neighborhood Market Stores Opening in California This Fall

March 9, 2012: Scoop Confirmed: Sprouts Announces Acquisition of Sunflower Farmers Market

February 9, 2012: Confirmed: First 2 Fresh & Easy Stores Open in Sacramento March 7; 3 in Metro-Area March 14

January 18, 2012: Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

August 29, 2011: Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch

August 3, 2011: Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store

August 31, 2011: Tesco Says Sayonara to Japan, Good Morning to Sacramento


Anonymous said...

Thanks for the info that Dollar General is hiring managers. I found the ads online and am applying. And yes I work for Fresh & Easy. Love the Buzz.

Anonymous said...

I wouldn't be at all surprised if Dollar General made Tesco an offer it couldn't refuse.

Fresh & Easy Buzz said...

Anonymous April 14, 2012 12:50 AM

I honestly can't think of one benefit for Dollar General of buying Fresh & Easy from Tesco if Tesco were to pull the plug.

Can you?

For example, there's tons of vacant retail big box buildings all over California. All DG has to do is pick and choose, and pop stores in the locations it chooses. Is inexpensive.

There's also numerous opportunities for build-from-the-ground sites at excellent prices available.

DG already has a Distribution facility in Bakersfield, as noted in the story. So no benefit there.

In contrast, buying F&E should Tesco pull the plug would just result in DG taking on massive debt, a bunch of stores in poor locations (at least about 50% of the F&E stores can be classified that way), along with many other problems.

So, I see DG doing just that - putting most of its stores in vacant big big box buildings, maybe building some, continuing to operate the DC it just opened in Bakersfield, and staying away from any notion of making any kind of offer to Tesco should it decide to pull the plug on F&E.

I also don't see any retailer who would want to buy F&E, as we've said in the blog in the past.


Fresh & Easy Buzz said...

You're welcome April 12, 2012 5:17 PM. Glad you enjoy Fresh & Easy Buzz. Good luck on the job search.


Anonymous said...

Thanks for the clarification, Editor.

Anonymous said...

How about Aldi buying F&E?

Bad or good idea?

Anonymous said...

Tesco will pay someone to acquire Fresh And Easy to avoid any stigma with declaring Bankruptcy or abandoning the USA with massive unpaid debt. To do so would have a more costly impact on the stock price and make entry into other countries more expensice when borrowing.

Given the format, the locations, the equipment and layout similarities as well as the relative ease of coverting F and E stores to the DG layout...it seems that DG is in a great position to negotiate a sweetheart deal. I predict Fresh and Easy will pay 500 million to Dollar General in stock, cash or other incentives to take over the 300-400 remaining leases and other debt obligations in early 2013.

Its decisive, it stops the bleeding and D G is the right company to profit from it.

Fresh & Easy Buzz said...

Anonymous said...
Thanks for the clarification, Editor.

April 14, 2012 7:13 PM

What did I clarify?


Fresh & Easy Buzz said...

How about Aldi buying F&E?

Bad or good idea?

Anonymous April 15, 2012 2:22 AM

I think the best way to answer your questions is with this question ... What would Aldi gain by buying Fresh & Easy from Tesco that it couldn't do on its own by simply acquiring vacant store buildings (and putting Aldi stores in them) along with building stores in California, Arizona and Nevada?

After all, Aldi already has about 1,200 stores (as far west as Texas at present)and has been in the U.S. for much longer than Tesco has with Fresh & Easy.

So my opinion is, if I were running Aldi I wouldn't buy Fresh & Easy, should Tesco put it on the market. But I would like to hear what others, including you anonymous, think.


Fresh & Easy Buzz said...

Thanks for the comment Anonymous April 15, 2012 6:43 PM

About 60% of the Fresh & Easy stores are dogs.

Once Dollar General saw the sales for those stores, not to mention the sales for the stores that are better, which don't have very good sales even so, they would have a very difficult time justifying a $500 million buyout to shareholders, were they foolish enough to even consider it in the first place.

That's my analysis and opinion. But I find your analysis and opinion a very interesting one. Feel free to elaborate.


Anonymous said...

I've shopped at Dollar General. In my opinion, they make Fresh and Easy look really good. Dollar General sells crappy produce, horrible store brands which are really cheap middle-of-the road products. Nothing original. Nothing organic. Nothing of interest. Average prices. The only thing they have going for them is that they take manufacturer's coupons, but here's the thing. Like F&E, they stock mostly store or unknown brands so there are no coupons. Their store coupons are only good on Saturdays and are not particularly good ones at that. Their stores are a mess. They don't have enough checkouts - you end up waiting in line when you are one of only 3 customers in the store. Only about half of the store is even food. This translates into little variety for groceries- staples only and a few snacks. On the non-food items you can do way better on price an selection at Walmart, 99Cent Only, or even CVS! Of course Fresh and Easy has made it's own mistakes as you quite well point out in your blog. Dollar General has put stores in poor locations just like F&E. In fact in Las Vegas there are F&E stores and Dollar Generals within spitting distance from each other. If Dollar General lasts 5 years I would be really surprised. I think however of the two chains, it's hard to imagine one that has made the most mistakes in their business plans.