Week 4 SWOT Analysis By: Jeannie Gilmore University of Phoenix Shane Wentz, Instructor | | Dollar General: What would you say if I could told everyone that the average person could get their groceries and other everyday household items at a price approximately 25% below the average supermarket shelf pricing in a conveniently located store, where you don’t have to walk long distances and where you won’t get lost in the isles? |
4/7/2013
4/7/2013

When reviewing all the business plans, I chose the Dollar General Store for this analysis. If a person reviewed Dollar General in this fashion, by understanding all the changes and success, it is easy to see why Dollar General is in the top category for retail merchandising.
Strengths

- In the highly competitive retailing arena, many players compete for the lead. One would think that retail giants like Wal-Mart, K-Mart or Target would dominate the market. However, in the past few years, it’s Dollar Stores like Family Dollar, Dollar General or Dollar Tree that have taken the advantage, with share gains significantly higher than the ones provided by other retailers. Dollar stores price their products approximately 25% below supermarkets and drugstores, yet offer equal or many times have better conveniences.
Amongst Dollar Stores Chain, Dollar General is the big brother to them all. With over 10,000 stores in the United States, this leading company owes a large piece of its successes to an efficient management team. Many have defined management as a best-in-class ,their good administration skills has been crucial for Dollar General´s constant increasing sales productivity and EBIT Margins,( Profit from operations as a percentage of total revenue) over the past few years. The above mentioned strengths derive, amongst other factors, from the Dollar Stores solid business proposal: low operation costs and prices for the public, convenient locations, small-box format stores for a more comfortable shopping experience and a targeted customer base. All these elements compose an appealing proposition to investors, as well as the growth opportunities that continue to exist and arise.
Weaknesses

- Dollar Stores´ sales appear to be correlated to fuel prices. Increasing fuel prices imply not only greater operational costs, but also reduced personal disposable incomes amongst customers. The inability of Dollar Stores to transfer growing costs to prices (in order to remain competitive) implies that these oil expense increases would certainly diminish the profit margins.
Dollar General’s substantial debt to be repaid or refinanced (over $ 2700 billion as of February 2013) adds a liability when considering investing. The company´s net debt (if contrasted to its total capital) is the highest in the sector, reaching a 35% (compared to Family Dollar´s 22% and Dollar Tree´s -2%). Apart from the obvious limits that financial obligations impose on the free cash flow within the firm, additional restrictions derive from their loan agreements (i.e. proscription to sell assets, issue disqualified stock, acquire new debt, between many others), thus reducing even further the enterprise’s action margin.
Opportunities

- Growth potential in this industry is far from reaching its limit (currently, Dollar Stores only control about a 4% of total market share for groceries and other domestic supplies). Expert calculations have revealed that over 15,000 Dollar Stores can still be introduced successfully in the US market. The growth of disposable personal income over the past few years has provided, and is expected to continue to offer another source of progress for the Dollar Stores chain.
The introduction of Tobacco sales at some Dollar General stores will most likely boost their profit. Competing companies like Family Dollar have already implemented this policy, showing considerable signs of success. Howard Levine, CEO of Family Dollar, tobacco buyers spend up to 8% more in each shopping basket and they tend to take 60% more trips to the shop than beer and wine consumers, amongst other benefits that smokers generate. Dollar Stores will make an incursion in the tobacco retailing, thus providing an opportunity for investors that could see the company´s profit grow considerably.
Threats

- The incursion of Wal-Mart and other retail giants, along with aggressive expansion strategies implemented by other Dollar Store chains (principally, Family Dollar and Dollar Tree); generate fierce competition over the market. Store overlapping, although not substantial, is not negligible: overlapping (within a 3 mile radius) with other Dollar Stores reaches figures as high as 55%. The numbers when compared to supermarkets are somewhat lower, but still over 40%. Dollar General´s competitiveness largely relies on the payroll tax cut implemented in 2011 and the distribution of food stamps (which represent around 5% of the stores’ sales). Cuts and set-backs in these policies would considerably impact on the company’s profit margin.
Although the Dollar Store segment is a fast paced growing one and many believe that, not only is its momentum not over, but also growth opportunities are still aplenty, Dollar General Corp. might not be the right call at the moment, since stock provides limited upside. While Family Dollar and Dollar Tree have gone up 18% and 17% respectively, Dollar General only rose 9%, which could provide room for further share appreciation.