Will Dollar General harvest big returns by taking perishables in-house?

Building on its fresh foods initiatives, Dollar General is plotting a multi-phase shift to self-distribution of perishable goods, primarily fresh and frozen.

Last week on its fourth-quarter conference call, Todd Vasos, Dollar General’s CEO, said one benefit of the program, called DG Fresh, will be reducing product costs. He said, “We have a series of distributors out there today across the country and those distributors do a nice job for us, but it comes at a cost.”

A second benefit is improving in-stock levels of perishables, and a third is being able to “control our own destiny in fresh foods” to expand offerings.

“Today, there are many items we cannot cost-effectively procure through our current model,” said Mr. Vasos. “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.”

DG Fresh has been launched with approximately 300 stores in the Northeast from a new cold storage facility owned by the retailer in Pottsville, PA. By the end of the current year, the goal is to expand the program to up to 5,000 and expand chain-wide within three to four years.

The initiative will impact expenses in the near term, but be “meaningfully accretive” to sales and operating margin over time.

The strategy also builds on a number of other consumables initiatives. These including Dollar General’s expansion of coolers in stores, which Mr. Vasos described as “one of the biggest traffic drivers and one of our biggest comp drivers that we’ve seen.”

Better For You, a program to expand healthier food options, is also being expanded to significantly more doors in 2019. Dollar General is incorporating the Good & Smart private brand launched last year into the Better For You range after some success.

Dollar General closed out another strong year with a four percent same-store sales gain in the fourth quarter but indicated margins are being hurt by the greater emphasis on food offerings.

• Dollar General Corporation Reports 4.0% Same-Store Sales Growth for Fourth Quarter 2018 – Dollar General Corporation
• Dollar General Corporation (DG) Q4 2018 Earnings Conference Call Transcript – Motley Fool
• Dollar General shifting to self-distribution of fresh and frozen – Supermarket News
• Dollar General is adding fresh food and market share, but margins suffer – MarketWatch