Dollar General shifting to self-distribution of fresh and frozen

Dollar General Corp. is taking the expansion of perishables at its stores into its own hands.

CEO Todd Vasos yesterday unveiled DG Fresh, a new initiative for Dollar General to migrate to self-distribution of perishables, mainly fresh and frozen food. In a conference call on fiscal 2018 results, he said the deep-discount chain began the effort early this year and is now distributing perishable items to about 300 stores in the Northeast from a new cold storage facility the company owns in Pottsville, Pa.

“By the end of this fiscal year, our goal is to be serving as many as 5,000 stores from up to four new DG Fresh distribution facilities,” Vasos told analysts on the call. “Beyond 2019, our goal is to fully implement DG Fresh initiatives chainwide within three to four years as an annual rollout phase, similar to what you see in 2019.”

Vasos and Chief Financial Officer John Garratt acknowledged that DG Fresh’s startup costs will create an expense headwind this year. However, they noted that the program will be accretive to sales and operating margin over time.

Besides helping Dollar General trim product costs and boost in-stock levels for perishables, DG Fresh will “allow us to control our own destiny in fresh foods,” according to Vasos.

“We can carry more of the fresh products and brands our customers want,” he said. “These include Better For You items and national brands. Today, there are many items we cannot cost-effectively procure through our current model. In addition, self-distribution will allow us to offer a wider selection of our own private brands to provide our customers with even more compelling value. Overall, we expect DG Fresh to allow us to do a better job of tailoring our product selection to fit the needs of our customers, particularly in rural areas.

Related:Study: Produce quality same at dollar and grocery stores

“While our initial focus is on distributing the types of fresh and frozen products we already carry, this approach also provides a potential path forward to expanding our produce offering to more of our stores in the future,” he added.

DG Fresh dovetails with a pair of other key consumables initiatives already under way: Better For You and refrigerated space expansion.

Launched last year, Better For You brought healthier food and beverage choices to more than 2,700 stores. Dollar General now plans to introduce Better For You items at roughly 6,000 stores by the end of 2019. About three-quarters of that product portfolio is slated to include items from the retailer’s Good & Smart private label.

“We are pleased with the initial customer reception and the performance of this product set,” Vasos said in the call. “Our new Good & Smart private brand has gained traction with our customers, and we are positioning it as a core product line in Better For You.”

Related:More food in the mix at Dollar General

This year, Dollar General aims to install over 40,000 more cooler doors across its store base. That effort will entail the ongoing conversion of more stores to the Dollar General Traditional Plus (DGTP), which accommodates a larger cooler count. Stores targeted for the DGTP remodels have fewer than 12 cooler doors, compared with the chainwide average of around 20.

“Our most impactful merchandising initiative continues to be our cooler door expansion. As we head in to 2019, this remains a significant opportunity. Coolers are a great traffic driver, and they allow us to offer even more of the products our customers want,” Vasos said.

Dollar General’s traditional remodel stores house about 22 cooler doors and realize an average comparable sales lift of 4% to 5% after the first year. “DGTP remodels with approximately 34 cooler doors deliver a 10% to 15% comp lift on average in year one. DGTPs with produce are at the high end of this range,” he said.

For fiscal 2019, Dollar General expects to open 975 new stores, remodel 1,000 mature stores and relocate 100 stores. About 500 of the 1,000 planned remodels will be DGTP conversions, and 200 stores will add produce. Approximately 450 stores currently offer produce. This year, the company also plans to open around 10 DGX stores, which are about half the size of a conventional Dollar General store.

Another new initiative is dubbed Fast Track, aimed at bolstering labor productivity, customer convenience and on-shelf availability in stores. Vasos said the effort also will help the company execute a click-and-collect service pilot planned for the second half of fiscal 2019 as well as expand self-checkout. About 250 stores currently have a kiosk that enables customers to skip the checkout line by scanning items as they shop using the DG Go! mobile app.

“Self-checkout will allow customers to scan and pay for their items with little to no assistance needed from our associates. Dollar General is known for value and convenience, and our customers have told us that speed at checkout is vitally important to their in-store experience,” Vasos told analysts. “Ultimately, Fast Track should help boost on-shelf availability and free up labor hours that we can dedicate to other in-store priorities, such as customer experience. Our goal is to pilot Fast Track in several of our distribution centers and select stores during 2019. Following the pilot, we will determine the best plan for a broader rollout.”

For its fiscal 2018 fourth quarter ended Feb. 1, 2019, Dollar General reported net sales of $6.5 billion, up 8.5% year over year. Same-store sales rose 4%. Full-year net sales climbed 9.2% to $25.63 billion, with comp-store sales rising 3.2%.

Goodlettsville, Tenn.-based Dollar General finished the fiscal year with 15,370 stores in 44 states, compared with 14,534 a year earlier.