DOLLAR STORE RETAILERS SEEK VENDOR PARTNERSHIPS

ELLIOT ZWIEBACH

LA JOLLA, Calif. -- Dollar store retailers are seeking customized offerings from consumer packaged goods companies to improve the efficiencies of their supply chain, Jeffrey Sims, vice president, distribution, Dollar General Corp., Goodlettsville, Tenn., said here last week.

"We're searching for every leverage to lower costs and make our supply chain more efficient, and we want vendors to move with us," Sims told the 2004 Information Systems and Logistics/Distribution Conference, sponsored by the Grocery Manufacturers of America, Washington.

"All of us are in transition in terms of understanding the need for mutual reliance on each other. Now we must work together to use the information that's available to us. We haven't been on the leading edge of that movement, but we are starting to get there," Sims said.

As Dollar General seeks to customize its offerings, it is hoping to form partnerships with suppliers to resolve issues concerning replenishment techniques and packaging, Sims said.

"We need packages with clear marketing capabilities and crisp price points that are easy to ship, handle and stock," he said. "We also need partners who will maintain replenishment standards.

"Right now, less than 80% of invoices match what comes in, due to the fact our execution and [that of vendors] is not what it should be. So, we're starting to establish vendor-performance standards to reduce costs on less-than-perfect orders."

Sims said Dollar General also hopes it can develop greater flexibility with suppliers on seasonal opportunities.

"We also need to shift our internal thinking away from net margins to reducing landed costs," he said. "We need to stop thinking about making money when we buy the product and figure out how to make money when the customer buys it."

Dollar General is also seeking to drive value at its stores by developing a private-label brand, Sims said, "and we're looking for suppliers to work with us to customize those products."

The company's primary focus is figuring out how to understand its fulfillment requirements five years down the road, Sims said, "and we're working with technology companies to get greater leverage from our existing technologies."

Part of that process involves mining customer information from point-of-sale systems to enable Dollar General to customize its stores and assortments, leading it to seek help from CPG companies "one partner at a time," Sims said.

Dollar General operates more than 6,800 stores averaging 6,700 square feet in 27 states, including 140 opened since Feb. 1 and 535 more due before the end of next January, with combined annual sales exceeding $6 billion, Sims said. It plans to expand this year into Arizona, New Mexico and Wisconsin.

Sims said the company operates seven distribution centers, each of which serves an average of 950 stores, with an eighth facility scheduled to open this year in Union City, S.C.

Each Dollar General store offers only 17 different price points, with the highest-priced item at $30, Sims said, "so when a customer comes in, she knows everything will be available in $1 increments to make the shopping experience easy. That means we may require special packaging to enable us to stick with those even price points.

"Furthermore, except for grand openings, we don't do any radio or TV advertising, so the shelf impact is critical to move that product, and we need items with clear marketing capabilities right on the package."

In terms of distribution, "95% of the stores we operate don't have receiving docks," Sims said, "and the stores can't handle full pallets, so we order in individual cases and ship products a carton at a time -- 13,000 to 16,000 cartons per hour at our distribution facilities."

Sims said the average Dollar General store does about $1 million in sales per year, "so we can't get the leverage from technology larger operators can. The technology we use has to work for us."

He said the company is interested in adapting radio frequency identification technology, "but we don't think reading shelf tags will be feasible in our stores, so we'll look for different uses of the technology -- maybe having a reader at the entrance of the store and another that can read the middle of the store rather than multiple shelf readers. Our plan is to test RFID till it works for us."