Sharpening the focus in merchandising
Todd Vasos, COO , Dollar General
With their arrival in early 2008, the new leaders of Dollar General began a massive but methodical transformation of the chain’s critical merchandising and marketing functions. The goal: to tighten up and rationalize a store presentation and product mix that had drifted and lost focus, while boosting turns, shelf productivity and profitability.
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Leading the charge were new CEO Rick Dreiling and his former, Longs Drug Stores veteran Todd Vasos. Armed with their combined experience in drug store and supermarket retailing, the new executives immediately launched an urgent campaign to apply new retail disciplines to Dollar General’s merchandising and marketing strategies.
“For example, when I got here, we had 16 ft. of candles,” said Dreiling. “Today we have four — which left us with 12 ft. for something else.”
Dealing in a limited mix of just 10,000 SKUs in stores averaging approximately 7,500 sq. ft. of selling space, Dollar General’s merchants have become adept at squeezing the most from the shelves. “What you learned in the grocery business was about SKU productivity,” said Dreiling. “And here, SKU productivity has to be right. If a SKU doesn’t produce, you’ve got to be smart enough to get it out and get in something that does. We do a really good job of turning things fast.”
Even before Dreiling arrived, he told then KKR principal and Dollar General director Mike Calbert that it was critical that the chain rein in and rationalize its merchandise mix with the kinds of retail disciplines he had sharpened at Duane Reade, Safeway and other companies. “That was one thing I told him we had to get done,” he said. “We had allowed a very eclectic store base, in terms of its size and shape, to turn into an eclectic offering. Merchandise selection was inconsistent across the store base.”
In the previous era, “While there were planograms being done, there were really no analytics attached to it. It was the old category management style of vendor-managed categories, driven by category captains,” Vasos explained.
“We called it the treasure hunt, but what that really meant was you didn’t know what you were going to get,” Dreiling added. Some of the items on the shelves, he said, “were in one store and not in another. And 25% of every store was what was called flex space, meaning it was up to each individual store manager on how to merchandise,” said the CEO.
“There was a lot of flex space in the store, and not everything was programmed,” Vasos agreed. “So the [new] team brought a real discipline into category management, and instituted what we would consider some best-in-class category management systems and tools, leveraging company-specific movement data from Nielsen, as well as our own analytics.”
“What’s really important about that [Nielsen] data is that it’s only based on our history; it doesn’t take into account a lot of other segments,” said Vasos. “We’re really better off, especially in a limited-SKU environment like ours, to hone in on our core customer. What does he or she really want? We rate that a 10 on a scale of 1-to-10.”
To get the answers, Dollar General also has invested heavily in information systems and powerful analytical software to not only track item-by-item and store-by-store product movement, but to give its buyers and category managers the tools to respond to — and anticipate — its customers’ purchasing preferences far more effectively and quickly.
Rethinking health and wellness
Under Dreiling’s and Vasos’ leadership, Dollar General also has dramatically redefined its approach to merchandising health, wellness, personal care, beauty and food. “In ’08 and ’09 we only had 3 ft. of health-related items in our store. It was an end cap,” said Vasos. “And beauty was only around 12 ft., including products like shampoo and deodorant.”
“We recognized right away that we had to gain legitimacy with the consumer, especially in the health arena, but also in the beauty arena,” he continued. “We brought in lines that would give us legitimacy, but also enhance our private-brand program.”
Across categories, private brands specific to Dollar General have become critical to the company’s success and renewal in recent years. “In private brands, we now have over 3,000 everyday SKUs,” said Vasos. “It’s a big piece of the mix, and we’ve more than doubled our private-brand sales in the last six or seven years.”
A major component of Dollar General’s expanding private-brand business is the Rexall line of health and beauty aid products, which Vasos called the “cornerstone” of its efforts to expand and legitimize its commitment both to wellness and private label. “We were able to obtain that Rexall brand and really make it a stand-alone brand on its own. And it’s now an over $200 million brand at Dollar General.”
“That’s how important the health mission is to us for our consumer,” he added. “And the reason we saw that as a real opportunity and went after it — and we did it very methodically, not right away but 4 ft. here, another 8 ft. the next year — was that [our consumer] doesn’t go to the doctor as often as [consumers in higher income brackets]. The doctor is a last resort because it costs money.”
Also undergoing significant expansion at Dollar General under Dreiling, Vasos and other new leaders since 2008 has been the consumables category. Vasos called Dollar General’s food mix “very aggressive,” and compared it with the mix of consumables offered by Longs Drug Stores. “We copied the playbook from there as we went into the food business here,” he offered.
In consumables, as well as wellness, private label has become a key component of the mix, said Vasos. Indeed, private brands now account for 24% of total food sales, according to the COO.
Those store brands help keep prices down. So, too, does Dollar General’s expanding ability to source product globally.
“Today, we’re importing out of 27 countries, whereas seven or eight years ago we were sourcing out of just four countries. We have ... a main office in Hong Kong and a Dollar General sourcing presence in more than 10 other countries. We continually bid for items in these countries.”
‘She knows she can trust us’
At its core, said the COO, Dollar General strives to be “a convenient general store” offering consistently low prices storewide. In terms of its overall pricing, said Vasos, “we’re at par with mass, on average 20% or so lower than grocery every day on the shelf, and 40% lower than drug every day on the shelf. To do that, we have to keep our costs down.”
“The company is 75 years old, and it’s always been built on serving the underserved,” Vasos added. “Everything we do is to delive