Business and Corporate Level Strategies of Dollar General - Example

Business and Corporate Level Strategies of Dollar General Business and Corporate Level Strategies of Dollar General Introduction The retail industry has become highly competitive and global in recent years. In an effort to raise the necessary financial capital to compete on a national and international scale, many corporations within the industry are increasingly going public in order to establish the necessary foothold that they need to expand and be profitable. Dollar General is one such corporation that saw fit to turn from a private company into a publicly traded one. There are numerous reasons that a corporation such as Dollar General decides to go public, and along with those reasons come inherent advantages and disadvantages to doing so. In the end, the decision is one that should be based on long term strategies, both at the business and corporate level, designed to enhance the image of the company and increase the likelihood that it will earn sufficient revenue to please investor and create an expansionary environment. Business Level Strategies As a business, Dollar General has operated within the United States since 1939. Uniquely, the company began private, went public, private again, and then has resumed its status as a publicly traded company in 2009. While the corporation itself is based in Goodletsville, Tennessee, it has grown over the years to be composed of over 11,500 stores in 40 states throughout America. Over the years, they have expanded their operations by making a conscious business decision to buy up certain competitors, such as in 1983 when they bought 280 stores from the P.N. Hirsh Division of Interco, Inc. In addition, in 1985, Dollar General bought 206 stores and a large central warehouse from Eagle Family Discount Stores. As one can imagine, such acquisitions did not come cheap, so the company has viewed part of its business strategy as it becoming necessary to be a public traded company. This has translated into record growth, as it recently surpassed the $16 billion mark in revenue, equating to an operating income of just under $1.7 billion. Through its various business level activities and operations, the company has $10.7 billion in total assets, and generates a net income of nearly $1 billion annually. This has made it an attractive choice for many investors in the NYSE. The business strategy of Dollar General is to offer both name brand and generic merchandise to customers at very low prices. Many of these items consist of off-brand goods, in addition to closeouts offered by some name brand competitors. The concept is to offer all of these items in one physical location at one of their thousands of stores across the country. It should be noted that the concept of Dollar General is not to be confused with the dollar store brand, as not all items are priced at only a dollar. In essence, however, the business strategy is to price all items at dollar points to make it easier for the customer to know the cost of their total purchase. The company itself is marketed to the budget consumer, particularly families. One would typically see Dollar General stores in rural areas where the population cannot sustain a larger mass-retailer, such as Walmart. The concept of the business itself is similar to the chains of Family Dollar and Dollar Tree, and various other smaller operations that are on a regional scale. In recent years, Dollar General has branded into having a selection of grocery food items in order to compete with supermarkets in the area, and they have even created their own namesake of ‘Dollar General Market’ to promote this concept. In the end, the company has developed a niche market for the budget conscious consumer that is paying dividends for investors. All indicators promote to continued sustained growth moving forward. Corporate Level Strategies The corporate strategy at Dollar General has long been focused on slow expansion and the buying of smaller regional franchises that would threaten its own customer base. To accomplish this, the company has long issued a strategy of remaining a publicly traded company, infusing necessary financial capital as needed and enabling a more aggressive marketing a public relations campaign as well. There are many reasons why the corporate strategy at Dollar General involved going public. The initial reason was quite common, as the corporation desire to attain financing away from the traditional banking system, and at the same it wanted to reduce its debt (Davis, 2013). Going public also serves to reduce the overall cost of financial capital and provides the company with a more focused and reliable reputation when going to banks to negotiate lower interest rates for their credit needs. While Dollar General struggled for years with the concept of going public, even opting to remove itself from the stock listings at one stage, it has determined its future corporate strategy to be better aligned with being a public company. Becoming a large organization, with a presence in 40 American states, likely precipitated this shift in strategy. The main reason why most companies decide to go public, and Dollar General is certainly no exception to this, is to raise a tremendous amount of money that is needed to support expansionary and growth efforts (Veldman, 2013). In addition, it becomes desirable to spread ownership of a large corporation, such as Dollar General, amongst a large group of shareholders. The reason this is a popular strategy is that is serves to spread the risk of ownership as the company grows exponentially. The original shareholders in Dollar General would like, as this occurs, to begin to realize some of the profit windfall that has been generated by record revenues through the years, while still retaining some rights to ownerships by retaining a vested interest in the company. Being listed on the stock exchange (the NYSE in the case of Dollar General) also serves to increase the visibility of the company and gives it a sense of reputation when compared to the competition. In the case of Dollar General, there were other corporate level strategies at play when deciding to go public. To being, the company was able to raise additional funds through issuing more share of stock in the company. They were also able to offer securities that they could then use to acquire other companies, such as those mentioned in the previous section. As the company continues to grow, Dollar General has also seen it beneficial to offer stock and stock options to employees, which makes the company more attractive, particularly at the upper management levels. Competitive Environment The retail industry in itself is highly competitive. The average consumer, while developing loyalty to a brand, is much less willing to depend on one particular store to satisfy his or her shopping needs (Sale, 2011). The number of retail stores targeting the budget consumer in the United States has sky rocketed in recent years, creating an environment that is often difficult for many franchises to navigate effectively. Dollar General seems to have become successful, and has survived in the wake of countless other failures within the industry, because of an ambitious yet measured plan of growth and expansion. Rather than attempt to compete in already saturated market in some regions of the country, for example, the corporation set out to buy competitors out. This plan has paid dividends, as Dollar General now enjoys name recognition throughout the nation, and buyers frequently stop in when passing through towns and cities outside of their own home region. Dollar General has purposefully chosen not to compete with the big-box discount retailers, such as Wal-Mart and Target. Instead, they have opted to keep each of their stores relatively small and manageable, while focusing on providing brand name quality merchandise within a particular genre. As such, their main competitor appears to be Dollar Tree which, like Dollar General, has a domestic presence throughout America. Like Dollar General, Dollar Tree made its name by providing merchandise that consumers want at an extremely low price. Their business level strategy is to have strategically place distribution centers throughout the country in order to get merchandise to stores quickly and efficiently, no matter where they might be located. The company began as Dollar Store and morphed into Dollar Tree as simple economics dictated that their original model of providing all goods in the store for only $1 was no longer feasible. The company has expanded to 5,000 stores throughout the country and has gone public in a similar fashion to Dollar General. The corporate level strategy for this company differs from Dollar General in that they focus on buy real estate and building their stores from the ground up, as opposed to the former’s strategy of more measured growth by buying out existing companies. In the end, it would appear that, while both companies appear poised for future success, Dollar General is the more likely of the two to continue its expansion and success in the long term. Dollar Tree simply has too much money invested in building its infrastructure, whereas Dollar General has been built up over time by focusing on expansion in a multitude of different ways. In addition, one could argue that there is no long room for two major budget type companies on a national scale, given the entrance of other competitors over the years, such as TJ Max and Trader Joe’s. Dollar General and Dollar Tree combined have nearly 17,000 stores across more than 40 states, which would indicate a saturation of the market. Of the two, Dollar General is better positioned to continue its growth and profitability. This decision would be the same, regardless of whether the current market was slow-cycle or fast-cycle. Conclusion The modern business find itself in an increasingly global and competitive environment. Mergers and acquisitions are commonplace, and access to credit is become more restricted and tightened. As such, it is increasingly important to consider business and corporate level strategies when thinking about the long-term, as decisions made today may not have their impact felt until years down the road. Deciding to go public, for example, is not a cut and dried decision as the risk involved is enormous, and the reputation of the company is at stake. The retail industry itself is ripe with both success stories and accounts of failure. Because of this, it is important that companies such as Dollar General continue to refine their business and corporate level strategies to maximize opportunities for success in the future. References Davis, G. (2013). After the corporation. Politics and Society, 41(2), 283-308. Sale, H. (2011). The new ‘public’ corporation. Law and Contemporary Problems, 74(1), 137. Veldman, J. (2013). Politics of the corporation. British Journal of Management, 24(S1), 18-30. Read More