Dollar General expands fresh offerings, digital marketing to appeal to higher income shoppers

16-Sep-2020 - Last updated on 16-Sep-2020 at 13:41 GMT

Source: Dollar General

Related tags retail channels Recession

Higher income shoppers are frequenting discount retailer Dollar General more often than they did before the coronavirus pandemic, but it isn’t because they are avoiding crowds at higher end retailers or desperately searching for items out of stock at other stores – it is because they are finding what they need at prices they love, according to company executives.

“Even prior to COVID, when you start to think about who our core consumer is … our fastest growing segment by our percentage basis was really a higher income consumer,” who isn’t “trading down” because their financial situation has changed or the pandemic has restricted their options, CEO Todd Vasos told investors last week during Barclays Consumer Staples Conference.

Rather, he said, the shift is the payoff of Dollar General’s hard work in recent years to build out its DG Fresh program by adding more coolers to offer the frozen and refrigerated items shoppers want, as well as rethinking its non-consumable product mix, stepping up its private label offerings and expanding its digital marketing.

Expanding fresh

“We’ve done so much work to the box over the last couple of years with our cooler initiatives,” which as of the end of 2019 included about 5,500 of the retailer’s stores, he said, noting that the company added coolers to about 12,000 stores by the end of the second quarter and plans to add them to 2,000 more stores by the end of the year.

“Our cooler initiative by far continues to be the biggest sales driving initiative that we have, and I would tell you, because of DG Fresh and because of all the expansion that we’ve done with higher capacity coolers, as well as cooler doors, we’ve actually turned the clock back,” Vasos said, comparing the retailer current status to that of a baseball player in the 4th inning versus the 7^th inning, which is where the chain was previously.

The expansion of DG Fresh has also helped the retailer improve its margins, which CFO John Garratt said will continue to improve as the initiative scales and the retailer can tap into the efficiencies of serving more stores from the existing distribution centers as well as the sales benefited drives.

A new mix of non-consumables for new consumers

The second most influential driver has been Dollar General’s Non-Consumable Initiative and rethinking the planograms to better reflect what shoppers want, he said.

“I believe that is one of the reasons why we’ve had nine consecutive quarters of non-consumable same-store sale growth,” he said, adding that much of this came before COVID.

Digital marketing appeals to higher income shoppers

The third driver – and the one likely initially attracting the most higher income shoppers – is Dollar General’s stepped up digital marketing, Vasos said.

“Our digital programs are reaching a whole new customer base that we knew was out there, but we quite frankly weren’t tapping into them through the old analog way that we went to market through advertising and brand awareness. Now, with digital, we’re able to tap into that and we’re seeing [higher income consumers] come into the store and we’re seeing multiple purchases,” Vaso said.

He pointed to credit card data to support that while some new higher income consumers might have initially stopped by as a “trial” they are now coming back over the last few months because they are finding what they need and at prices about 20% less than grocery and 40-44% less than drug.

“That gives us great confidence as we think post-COVID, whenever that will be, that we got a consumer that is engaged in the brand and it will be up to us here at Dollar General to make sure that we continue to engage her and keep Dollar General top of mind to the consumer,” Vasos said.

He added that he is confidence the retailer can do that because it hammered out the “the playbook for that” during the 2008-2009 recession.

Looking forward, he added, Dollar General has “digitized, if you will, that playbook … and we are ready to pull the trigger on that when we believe the time is right” to keep new consumers engaged.

He explained now is the not the time, however, because many shoppers are still in a pandemic mindset and are looking for convenience and to keep their pantry filled. “But, as we get to the back end of this, and hopefully sooner than later, we’ll be able to start to put those pieces out there to keep Dollar General top of mind."