Dollar General is largest “dollar” retailer in the U.S. with over 16,000 stores across the U.S. Though the name would suggest otherwise, Dollar General sells merchandise up to $10 in price in categories such as consumables, household products, apparel and seasonal non-consumable items. Value is important for Dollar General’s customers and to meet customer preferences, 75% of items offered in store are below $5 in price. Average basket sizes have historically been in the range of $10-$11 but has increased to $12 since Covid.
Thanks for the writeup! Two questions. 1) DG's flywheel effect that you mention seems to me like a process that a typical business does (increase share -> leverage economies of scale -> reinvest back into the business). Am I thinking about this the wrong way? 2) re: margin pressure from the product mix, do you have an idea of what the margin would look like without owning distribution? I imagine over time the margins of a DG store will begin to more similar to a WMT super-centre
Thanks for the questions. Yes the scale economies are similar to most businesses that look to increase efficiency/lower cost by getting larger. But the scale at which Dollar General does this is impressive. Opening almost 1,000 new stores and remodeling/relocating another 1,000 is quite the operational feat. With respect to margins, I'm assuming you'd like to know what store level EBITDA margins are. Not sure how to get an accurate number but with company gross margins in the low 30s%, operating margins in the low 8s% and distribution + IT capex being 1/3 of total capex, I would guess it would be in the low teens %.
Thanks for the writeup! Two questions. 1) DG's flywheel effect that you mention seems to me like a process that a typical business does (increase share -> leverage economies of scale -> reinvest back into the business). Am I thinking about this the wrong way? 2) re: margin pressure from the product mix, do you have an idea of what the margin would look like without owning distribution? I imagine over time the margins of a DG store will begin to more similar to a WMT super-centre
Thanks for the questions. Yes the scale economies are similar to most businesses that look to increase efficiency/lower cost by getting larger. But the scale at which Dollar General does this is impressive. Opening almost 1,000 new stores and remodeling/relocating another 1,000 is quite the operational feat. With respect to margins, I'm assuming you'd like to know what store level EBITDA margins are. Not sure how to get an accurate number but with company gross margins in the low 30s%, operating margins in the low 8s% and distribution + IT capex being 1/3 of total capex, I would guess it would be in the low teens %.