Free Marketing Essays - Dollar General Is A Global Retailing Phenomena
Dollar General.
Rupee General. Yen General. Hryvnia General. [Insert Currency] General.
Dollar General is a global retailing phenomena. Except, they only operate in one country. With more stores (7,320) than 'anybody', Dollar General has quite a footprint on the American retailing scene despite having stores that are almost always leased and seldom occupy more than 7,000 square feet (Dollar General 2004, p. 2). Dollar General, while a general retailer competes in the market is a very distinct way that is best observed by reviewing the fundamental of how a firm brings goods to the market, the 4-P's: product, placement, promotion, and pricing.
- Products - Dollar General stores carry approximately 4,000 different SKU's. This can be contrasted with a Wal-Mart Supercenter which handily carries over 50,000. These products are biased (63%) towards consumables and seasonal items (17%) (S&P NetAdvantage Business Summary 2005). Though many of these products are major brand name products (i.e., Tide, Lysol, Arm & Hammer, etc.) Dollar General also has private label products as well as some irregular or overstock-type items.
- Placement - Dollar General stores are located primarily throughout the southeast United States. Recently stores have been opened in states such as Arizona and New Mexico and Wisconsin but, though far from being 'saturated' the bulk of the over 7,000 stores lie within one quadrant of the country (Dollar General 2004, p. 2). In addition, placement also refers to the products placement in the store and this is an additional point of difference. Dollar General stores are laid out such that a person at the front of the store can see anywhere within the store. No merchandise is stacked beyond approximately six feet tall with the exception of the 'back row' of laundry detergents. Also, most stores are laid out very similarly with stores having one of two layout designs (Nash 2004, p.45).
- Promotion & Target Market - The target of Dollar General stores is clear with a each store targeting a market of a 5-mile radius of the store. Over half of the stores are located in communities of less than 20,000 (S&P NetAdvantage Business Summary 2005). Such a goal yields many targets and their comparatively small footprint allows them to get much closer to customers than stores of 100,000+ square feet. Further, in terms of customer segments, Dollar General very successful targets lower to middle incomes, often below $30,000 (Hastings 2005, p.6).
- Pricing - Dollar General pricing is one of the clearest example of the overarching corporate manrta to keep it simple. Stores feature only about 17 different though easy to understand price points, all based the common unit of a dollar, i.e., you will not see items for $3.97 (Dollar General 2005). Additionally, 1/3 of the items sold have a price of not more than $1.00 (Datamonitor 2004, p.6) http://www.dollargeneral.com/merchandise/prices.aspx).
Dollar General is not the only player in the market though they are the largest and perhaps best positioned in their sub-segment of the highly competitive discount or general retail sector. The US retail industry accounts for a staggering 30% of the US gross domestic product of $11.7 trillion. Of US retail dollars, industry giant Wal-Mart, accounts for almost 7% while Dollar General, a $7.7 billion, contributes to a comparatively meager 0.2%. This industry is comprised of two segments, durable and non-durable goods. Though is it arguable which segment some retailers are properly in, most department stores, general merchandise and apparel stores fall into the segment of non-durable (Asaeda 2005, p. 6). Though, depending on what report is reviewed, Dollar General Stores would be considered to be Discount Stores or Variety Stores with total revenues varying slightly, again depending on the specific classification of sub-segment members (Asaeda 2005, p. 6; Unknown 2004 Variety Stores). Clearly, this is a mature industry characterized by intense competition in diverse landscape (i.e, Wal-Mart competing with 'Mom & Pop' stores, the blurring of general merchandise and grocery formats, category killers vs. specialty/niche retailers).
In terms of other forces affecting this industry/segment, there are a number of indices used by those savvy in such matters such as the following somewhat volatile indicators:
- Consumer Price Index
- Consumer Confidence
- Disposable Personal Income
- Interest Rates
Each of these represents an element of macroeconomic force that, in general affects all participants in this sector. Despite this, one can hypothesize that more upscale formats would experience more 'downside risk'. For example, format such as Dollar Stores would be affected less than Nieman Marcus with economic downfall as more people would be likely to shop at Dollar General though their 'baskets' may be smaller. Conversely, in times of economic upturn, it is unlikely that regular patrons of Dollar General would shift their tastes upward; rather, they are likely to simple buy more of the same merchandise with perhaps a subtle shift upward in terms of perceived quality of goods sought.
Another factor is the overall saturation of the market. For the most part, domestic growth can be likened unto a 'zero-sum' game. That is, one players gain is another players loss the pie does not seem to be getting any bigger (Asaeda 2005, p.7). This type of fierce competition translates to little real growth opportunities as competitors can emulate most any action another makes. It is for these reasons, in addition to continual pressure from shareholders and 'the market' to produce consistent returns on investment that many companies are aggressively seeking the greener fields of foreign operations.
The lure of organic growth through foreign expansion can be lucrative as well as risky. While some markets may seem at first glance to be great opportunities, the key to successful evaluation of opportunities is to develop an objective scale by which to rank the opportunities. Following the ranking of opportunities, the potential costs and benefits can be scored against each opportunity which, if properly constructed will align the opportunities of the market with the characteristics of the organization. Assuming that the first choice is taken, the remainder of the list for which the criteria are met can then be executed until capital, staff or potential markets are exhausted.
It is just such a methodology that A.T. Kearny management consultants have constructed a Global Retail Development Index that ranks selected countries for expansion opportunity prioritization. To be eligible for consideration, a country must qualify based on three criteria (Moriarity & Farra 2005, p. 14):
- Relatively low financial risk in terms of stability.
- Greater 2,000,000 population.
- Greater than $2,000 US dollars of wealth per capita.
With these baseline criteria in mind, the following allocation of points was utilized to prioritize the countries(Moriarity & Farra 2005, pp. 14-15):
|
Business Country Risk |
25.0% |
|
Country Risk |
20.0% |
|
Political Risk |
5.26% |
|
Economic Performance |
5.26% |
|
Debt Indicators |
2.11% |
|
Debt in Default |
2.11% |
|
Credit Ratings |
2.11% |
|
Access to Short-Term Capital |
1.05% |
|
Access to Capital |
1.05% |
|
Discount on forfeiting |
1.05% |
|
Business Risk |
5.0% |
|
Market Attractiveness |
25.0% |
|
Retail Sales per Capita |
10.0% |
|
Population |
5.0% |
|
Urban Population |
5.0% |
|
Business Efficiency |
2.5% |
|
Law & Regulation |
2.5% |
|
Market Saturation |
30.0% |
|
Share of Modern Retailing |
10.0% |
|
Number of International |
10.0% |
|
Modern Retail Sales Area/Inhabitant |
5.0% |
|
Market Share of Leading Retailers |
5.0% |
|
Time Pressures |
20.0% |
|
Total |
100.0% |
This model makes an excellent 'jumping off point' from which to assign different weights and possibly different factors to provide a scenario assessment particular to
Dollar General's potential expansion. With this in mind, the following revaluation is proposed:
|
ATKearny Model |
Dollar General |
|
|
Business Country Risk |
25.0% |
25.0% |
|
Country Risk |
20.0% |
15.0% |
|
Political Risk |
5.26% |
8.64% |
|
Economic Performance |
5.26% |
3.16% |
|
Debt Indicators |
2.11% |
0.53% |
|
Debt in Default |
2.11% |
0.53% |
|
Credit Ratings |
2.11% |
0.53% |
|
Access to Short-Term Capital |
1.05% |
0.53% |
|
Access to Capital |
1.05% |
0.53% |
|
Discount on forfeiting |
1.05% |
0.53% |
|
Business Risk |
5.0% |
10.0% |
|
Market Attractiveness |
25.0% |
40.0% |
|
Retail Sales per Capita |
10.0% |
10.0% |
|
Population |
5.0% |
5.0% |
|
Urban Population |
5.0% |
5.0% |
|
Business Efficiency |
2.5% |
10.0% |
|
Law & Regulation |
2.5% |
10.0% |
|
Market Saturation |
30.0% |
30.0% |
|
Share of Modern Retailing |
10.0% |
10.0% |
|
Number of International |
10.0% |
10.0% |
|
Modern Retail Sales Area/Inhabitant |
5.0% |
5.0% |
|
Market Share of Leading Retailers |
5.0% |
5.0% |
|
Time Pressures |
20.0% |
5.0% |
|
Total |
100.0% |
100.0% |
Modifications were made primarily based upon the characteristics of Dollar General that would enable it to prosper in environments that would be less hospitable for other retailers. With regards to the overall mass channel, Dollar General seems to do well in the 'backyard' of large SuperCenters thus both time and saturation pressures were reduced. Correspondingly, 'market attractiveness' was increased, particularly with regards to 'business efficiency' and 'law and regulation'. Finally, the 'risk' category was modified to allow countries which may be less affluent yet politically stable to advance in the rankings. On the following page, this data is presented with the light green shading indicating AT Kearny data and the light blue shading representing modified weighting of factors.
Global Retail Development Index w/adjustments specific to Dollar General
With this analysis, a number of expansion options become clear and the proposal is ready to advance to the next round of consideration. At this point, a number of 'nuts and bolts' issues such as operational factors become quite relevant prior to firm plans to enter as, according to some sage advisors, it may be better to stay home.
The first issue that should be considered in both the decision to expand and where to expand is held in the concept of differential advantage. This term relates to the ability of a firm to distinguish themselves from the current operators in a market. If it cannot be done better, faster, or cheaper in any way, then the concept should probably not go to market (Simpson & Thorpe 1995, p. 18; Vida, I. & Irwin, R 1997 p. 18). To apply a somewhat more sophisticated model (PLIN), the following four elements should be evaluated for differential advantage (Simpson & Thorpe 1995, pp. 18-20):
- Product - Perhaps the most concrete of the elements, this refers to the uniques products and combinations.
- Lifestyle - This touches upon the match between the store environment, products, promotions and the lifestyles, behaviors, wants and needs of a targeted customer segment.
- Image - This is the personality of the store in terms of the mental image in the mind of the consumer and the alignment between reality and expectations as well as the store's status and reputation in the market.
- Niche - Given that a retailer must have a strategy, to succeed to should aspire to occupy the top position in some niche of customers.
If a store can demonstrate differential advantage in multiple elements, a greater likelihood of success is exhibited. On the other hand, if a store is only a facsimile of an existent competitor, it should pursue other strategies for growth aside from international expansion. Further, the presence of these elements will actually facilitate expansion due to market pull being exerted to bring 'something different or better' into the market.
An additional consideration in the retail business is in regards to supply chain issues. One of the biggest tasks before in-house store analysts is to minimize lost sales or stock outs. Though one can only speculate at the number of sales that have been missed when an item is out of stock, the fact remains that a store cannot sell what is not there on the shelf (even if it is in the backroom, etc.). To keep items on shelves, Dollar General serves it 7,000+ stores currently with seven distribution centers. To keep track of what is sold, data is uploaded each evening to headquarters via satellite connection. When one considers international expansion, there are a number of key logistics and supply chain issues that must be addressed. Assuming that the initial product mix is correct, resupply is generally a tradeoff between cost (air) and lead-time (ship). Also, depending on the location and nature and source of the products sold, it may be possible to also use on the road truck and trailers or by rail.
Thought the modified A.T. Kearny global development index did not directly take these factors into account, they must be considered with any other criteria of desirability. Based on a combination of these factors, rather than plan a single country, the idea of clustered, or 'store groups' should be considered.
Expanding using this method will achieve:
- A rapid 'branding' response that can establish a significant brand identity and preempt competitors moves.
- Economies of scale with regards to spreading the fixed costs of logistics and administration over a great amount of fixed costs.
- Commitment to the strategy - To often, a firm will 'dabble', never putting the thought or effort required into a operational thrust.
Based on the alternative ranking system, this idea has been captured in the proposal of three staged international thrusts into not countries but regions. These groups represent stores that are clustered closely within a geographic region to facilitate supply chain issues such as distribution and warehousing as well as logistical issues such as the likelihood of common languages, patterns of consumption and target customer segments.
These store groups consist of two Eastern European clusters for supply side issues, one Asian group that notably omits China due to potential difficulties with supply chain and the intense retail competition that is now taking place in combination with the significant language barrier. Though each of the potential targets does present language and culture issues, the Asia regions are generally the most different. As a consequence, though the actual business strategy would not change, the way it is implemented and the changes in thinking required to adapt to the market would likely be greater than in Eastern European regions (Hollensen 2001).
India, the current #1 pick of the industry (A.T. Kearny 2005, Destination India; model get its own cluster due to the size of the potential market, both in terms of geography and population. Finally, Mexico also becomes its own cluster. Mexico should be a comparatively easy move as existing supply chain networks can be utilized or extended. In addition, as there are stores in Texas, the move to Mexico could be a gradual one in which a across the border expansion was simply the growth of Texas efforts.
In the table below at the groups for proposed expansion as well as their alternative ranking base upon the modified Global Retail Development Index.
Store Groups I, II, III, IV and V
Alt Rank
Country
Store Grouping
Region
2
Russia
1
East Europe
12
Latvia
1
East Europe
13
Lithuania
1
East Europe
8
Slovenia
2
East Europe
14
Ukraine
2
East Europe
15
Croatia
2
East Europe
21
Slovakia
2
East Europe
25
Hungary
2
East Europe
27
Macedonia
2
East Europe
29
Romania
2
East Europe
30
Bosnia
2
East Europe
19
Thailand
3
Asia
11
Malaysia
3
Asia
4
India
4
Asia
9
Mexico
5
Latin America
In terms of each of these choices to expand, there are a number of ways to justify any of them in terms or priority. Given this, the following choices should be considered for priority:
- East Europe Store Group II - Though this group has slightly higher scores than Group I, they are all still in the top 30. In addition, the Adriatic Sea as well as the very US friendly nations Italy and Greece are nearby for a predicted less difficult supply chain relative to Group I.
- Mexico - This country is simply too nearby to ignore. The presence of extensive market intelligence on Mexico and the NAFTA trade agreements almost make this as simple as expanding to an additional US state.
For a third priority, the thrust should go to East European Group I in the case that Group II is 'under control' and 'successful'. If Group II is not meeting corporate, shareholder or market expecations, then India should be the next target.
In terms of how the market is entered there are a number of choices. Despite this, the franchise option can be omitted due to Dollar General's strong corporate control and the lack of a domestic model to base it on. Research indicates that the specific method of entry is based on a number of factors with organizational and national accounting for most of the variance and industrial and specific project-based goals also weighing in. All things considered, the most popular method for multinational expansion is the joint-venture which allows for both an element of corporate control, risk mitigation and ease of entry (Luo 2001 p. 465). In addition, the joint-venture presents an acceptable blend of control and risk when contracted with the very capital intensive wholly-owned method at one extreme and simply licensing or exporting goods (Nakos & Brouthers, 2002, pp. 47-48). In essence, the formation of strong joint venture organizational structures would allow Dollar General to operate in an essentially a multi-domestic market form and thus leverage one of its key assets, its brand (Hollensen, 2001).
In final consideration of the expansion of Dollar General into foreign markets, they seem to have a sustainable competitive advantage in the home market, professional management, excellent cost control and a well-articulated and, more importantly, well-executed strategy that enables success in the wake of what some call a hyper-competitive segment. Yet, one must wonder, in the wake of this considerable success, why is it that they have not already made the decision to expand internationally? Is it possible that part of their advantage lies in sticking to their knitting with a home field advantage? Regardless, it would seem that the would be able to leverage themselves much as they have done with their remarkable growth rate of two stores opening per day and easily make the jump into international waters where customers, as in America, would readily recognize and appreciate the value that Dollar General brings to the table.
Works Consulted
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