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Dollar General is starting to look a lot like Wal-Mart

CNBC logo CNBC 3/17/2017 Krystina Gustafson

As investors question whether Dollar General (DG)'s footprint is getting too large, the retailer needs to prove that new stores aren't the only way it can grow sales. To do so, the chain is taking a few pages straight out of Wal-Mart's playbook.

Following another slowdown in sales at its established shops, Dollar General on Thursday outlined its strategy to drive the business forward.

While that plan includes the addition of 1,000 locations this year, it also incorporates investments that should boost performance at its existing stores.

Here's what the company is doing:

Doling out pay increases to managers

It's no longer enough for retailers to compete on price alone. To improve the cleanliness and availability of products in its stores, Dollar General will take a 16 cents per share hit to boost compensation for its managers and ramp up their training.

In the stores where it's already rolled out these changes, Dollar General has seen lower turnover among managers and hourly employees, CEO Todd Vasos said on the company's earnings call. It's also seen higher sales in those locations.

This decision follows Wal-Mart's $2.7 billion investment into better training and pay for its employees, which it has credited for higher customer service scores.

Investing in lower prices

There's an all-out price war happening across retail. That includes both Dollar General and Wal-Mart.

Shortly after Wal-Mart said it would move faster to lower prices, Dollar General rolled out price cuts on hundreds of items across 17 percent of its stores. These locations have performed better than the chain average ever since, Vasos said.

While the company will continue monitoring prices, it doesn't anticipate further price cuts at this time, the CEO said.

Bringing in fresh produce

Dollar General's food offering has traditionally skewed toward packaged goods. But as its customers ask for healthier options, the retailer sees more opportunity in perishable items.

The company is already testing fresh produce in some of its stores, including the 41 locations it purchased from Wal-Mart last year after it shuttered the Express format. Dollar General will now expand that pilot to some of its smaller shops.

Wal-Mart has made fresh produce a key piece of its turnaround plan, as it drives more frequent visits from shoppers. While Vasos acknowledged there's stiff competition in fresh food, he said the company's massive fleet and small shops give it a competitive advantage.

Going smaller

Dollar stores are already a fraction the size of a Wal-Mart Supercenter. But as Dollar General peppers the U.S. with new shops, it's making those locations smaller.

The company plans to open an additional 160 small shops this year. At 6,000 square feet, these locations cater to central metropolitan and rural areas. That will bring the total number of these shops to 250. Meanwhile, Dollar General is testing an even smaller 3,600-square-foot store that serves millennials living in urban areas.

The expansion of these stores comes as Wal-Mart grows its Neighborhood Market footprint.

Making a bigger bet on digital

Dollar General lags much of the retail industry when it comes to digital commerce, but the chain is putting a bigger emphasis on technology. Though Vasos was mum on specifics, the decision comes as more low-income consumers purchase mobile devices, the CEO said.

Becoming more digitally savvy should also help Dollar General attract millennial shoppers, whom Vasos says are playing a bigger role in its sales.

Wal-Mart has also been rolling out upgrades to its website and mobile technologies, including the ability for shoppers to pay directly from its app.


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