Dollar General serves as a lifeline to many of the communities it serves. Many of the chain's shoppers do not have easy access to a grocery store, a Walmart, or a Target.
Serving that audience is something Dollar General (DG) has embraced. The chain has added fresh produce and expanded food selection at thousands of its stores.
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It has done that in markets where it's the only option that does not require a bus or some other form of transportation.
Dollar General has also kept prices down, and people perceive it as a low-cost option. The reality is that while the chain works to be affordable, it's actually not cheaper than traditional grocery chains and retailers such as Amazon, Walmart, Costco, and Target.
That's something CEO Todd Vasos was very candid about during the discount chain's second-quarter earnings call.
Is Dollar General really cheaper?
When you buy a massive jug of ketchup from Costco, you pay a lower price per ounce than the cost of a regular-sized bottle from your local supermarket. If, however, you don't use the whole Costco jug, you could end up wasting money.
Dollar General often works in a similar but reverse way. It sells many items in small quantities at a low price, but this cost is actually higher ounce-per-ounce than what you'd pay for a larger package.
You might, for example, buy a single roll of toilet paper — that's actually a half-roll — for a dollar. Buying four full rolls of the same brand, or maybe a bigger-name brand, might cost $4.
That means in the larger pack, you're paying a dollar per roll for twice as much toilet paper. That's a better deal, but Dollar General still offers a lower price,
If you only have $1 and need toilet paper, Dollar General fills a real need.
That's something the company fully understands.
Dollar General grows its audience
“Ultimately, customers across all income brackets are coming to Dollar General as they seek value. As America's neighborhood general store in more than 20,000 locations across the country, we recognize and embrace our role in being here for what matters for our customers,” CEO Todd Vasos said during the Q2 call.
He also admitted that Dollar General delivers what it considers value — not low prices, at least not relative to traditional grocery.
“This includes providing the items they want and need at prices they can afford. With that in mind, we are committed to delivering everyday low prices that are within 3 to 4 percentage points on average of mass retailers.”
So the CEO admitted that Dollar General in many cases costs more on a per-item, per-ounce, or per-weight basis.
Dollar General commits to $1 price
Dollar General has never been a true dollar store with every item sold at that price point. Rival Dollar Tree used to use that model but has shifted away from it.
That's something many experts agreed with.
“How small does a package of laundry detergent need to get to be $1?” David D'Arezzo, a former chief merchant at Dollar General and veteran retail executive, told WBAL.
Chuck Grom, an analyst at Gordon Haskett Research Advisors, supported the price change in an email to clients.
Dollar Tree, he wrote, “likely has more ‘permission' from its customer base today to hike prices because of these companies' moves.”
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Vasos has made it clear that while Dollar General is not a dollar store, it sees value in the $1 price point.
“While we are pleased that we continue to operate within the targeted price range, we are also focused on maintaining our substantial offering of more than 2,000 SKUs at or below the $1 price point,” he said.
He noted that, for many customers, the price point means something.
“We know this price point is important in helping our core customers stretch their dollar, particularly at the end of the month and when budgets are tight. In fact, our $1 Value Valley merchandising set, which is comprised of more than 500 rotating SKUs, was one of our strongest performing areas in the quarter, with same-store sales growth more than twice the rate of the overall company,” he added.
Dollar General FAQ
- Is Dollar General cheaper than Walmart or Costco? Dollar General often has lower upfront prices on small quantities of items, but larger stores usually offer a better price per unit.
- Does Dollar General still sell $1 items? Yes, Dollar General offers over 2,000 products priced at $1 or less, including its Value Valley section.
- Why is Dollar General adding groceries? The chain adds groceries to serve rural and underserved areas without easy access to full-size grocery stores.
- What has the CEO said about prices? CEO Todd Vasos says Dollar General focuses on value and accessibility, not being the absolute cheapest.
- How many Dollar General stores are there? Dollar General operates over 20,000 stores across the U.S., mainly in small towns and rural communities.
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