Kelli Moore
Retailing (MG 181)
Dollar General/Family Dollar
Case Study
4/6/16

Walmart is the largest retailer in the world and is the second largest retailer, behind Amazon, in the United States. The majority of households in America shop at Walmart on a regular basis. However, Dollar General and Family Dollar have increasingly gained market-share over the years. Both stores are considered extreme value retailers. By definition, extreme value retailers are small, full-line discount stores that offer a limited merchandise assortment at very low prices.
In 2005, Goodlettsville, Tennessee-based Dollar General had over 7,500 stores in 30 states and more than $7 billion in sales. The company has grown more than 20% each year for the last six years. In 2004, Matthews, North Carolina-based Family Dollar had approximately 5,600 stores in 44 states with more than $5 billion in sales. Both retailers are growing so rapidly that each are opening, on average, one new store a day.
The typical Dollar General/Family Dollar customer is low-to-middle income young families, older customers on fixed incomes, ethnic groups and shoppers in rural and urban areas. These consumers frequently find good quality merchandise at competitive prices. The geographic breakdown of consumers who shop there is about the same as Walmart and Kmart. Approximately 25 percent of U.S. households shop at an extreme value retailer at least once a month.
While Dollar General and Family Dollar are considered “dollar store” retailers, both stores sell merchandise more than one dollar, with most products being priced below $15. About half of all merchandise sold is consumables; items such as food, personal hygiene products, paper products, household cleaning products and pet supplies. The other half of items sold include clothing, home products, hardware and seasonal merchandise. Vendors and manufacturers of both retailers have developed new products and changed packaging to meet the needs of the consumer who might want or need to buy products in smaller quantities than those found at other discount stores.
Dollar General and Family Dollar stores are typically much smaller than other discount retailers like Walmart and Kmart, averaging 6,000 to 8,000 square feet in size. This allows the retailers to easily find good locations in almost any market they choose to enter. Most of their stores are located in small towns in the Southeast where the companies are headquartered. However, more recently they are opening stores in suburban area strip shopping centers in retail spaces abandoned by drugstores that have moved to stand-alone locations. In the past, Dollar General and Family Dollar stores were typically only found in low-income communities or in areas that were too small to support a large discount store like Walmart or Kmart. The residents of these communities appreciated the convenience they offered.
While both retailers still advertise using sales circulars, they have reduced their overall advertising expenses in recent years. This has allowed both companies to make significant money-saving investments in point-of-sale terminals, store-level inventory tracking systems, automated distribution centers, space allocation software and replenishment systems to reduce stockouts and increase inventory turnover.

DISCUSSION QUESTIONS
1.) The target market for extreme value retailers is really anyone who wants to save money but historically their main target is rural and urban shoppers, low-to-middle income young families, ethnic groups and older customers with fixed incomes.
2.) Customers are increasingly patronizing these extreme value retailers for numerous reasons. Even though price is one of the main reasons, the ability to easily access the store from uncrowded parking lots and avoiding long checkout lines is also very attractive. Also, residents in many of the smaller towns where Dollar General and Family Dollar stores are located appreciate shopping at a store close to home and not having to drive longer distances to a Walmart or Kmart in a larger town.
3.) Extreme value retailers are able to make profits even when their prices and average transactions are so low because the extreme value stores’ main selling point is not lower prices, but lower price points.
4.) Extreme value retailers CAN defend themselves against merchandise discount retailers like Walmart and will not eventually be driven out of business by them. The main reason is that the gap between the upper class and lower income population continues to widen with the “middle-class” rapidly disappearing. Low price points and convenience of these retailers will serve them well into the future.