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What happened when Dollar General went where Walmart wasn't

Business Insider logo Business Insider 5/28/2020 Mary Hanbury

a yellow sign with black text © Jim Young / Reuters  

Dollar General reported blockbuster first-quarter earnings results Thursday.

Same-store sales surged by 21.7% during the quarter and net sales were up 27.6%, far outpacing both its rival dollar store chains and grocery and big-box leaders such as Walmart and Target. 

While the chain benefited from an industry-wide trend for shoppers flocking to stores to stockpile on items during March and early April, analysts say it was able to be able to grow at a faster pace than its rivals because of the location of the majority of its stores. 

"Having products that are much in demand is one thing, but it doesn't fully explain why Dollar General grew at a much faster pace than the groceries market overall," Neil Saunders, managing director of GlobalData Retail said in a note to clients on Thursday.

He continued: "From our data, this comes down to the location of the stores which are mostly situated in rural or suburban areas which are underserved by other operators."

The majority of Dollar General's 16,500 stores are located in rural and suburban parts of America in small towns or close to neighborhoods. 

When the company started to expand in the early 2000s, its strategy was to go where Walmart wasn't, opening stores that were 40 miles from a Walmart. 

According to GlobalData Retail, 75% of the US population is now within five minutes of a Dollar General store. Meanwhile, 37% live within five minutes of a Walmart store, and 90% within 15 minutes of a Walmart. 

Saunders said its "localness" has been a major advantage during the pandemic. 

"Many households were reluctant to travel too far and some were nervous about visiting big box stores where it is very difficult to reduce dwell time.

"The dynamic was particularly strong for top-up purchases after households had done their initial bulk buy of essentials – which is why Dollar General continued to perform well once the initial period of stockpiling had subsided," he said.

Related video: Where Dollar General has Dollar Tree beat (provided by The Street)

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Experts also say that having stores in predominately rural areas could stand Dollar General in good stead in the future as shopping increasingly shifts online during the pandemic. 

"Retailers that service predominantly lower-income rural areas with lower price points, where the awareness and risk might be lower and options for obtaining essential goods is fewer, might be able to maintain business as usual," Calvin Carter CEO and founder of digital consultancy agency Bottle Rocket, said in an email to Business Insider, when discussing whether retailers with no online presence have a future in a post-COVID-19 world.


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