Chapter 1 Managing the Digital Firm 35 CASE STUDY Dollar General: Heavy on Organization, Light on Systems Dollar General Corporation, head- quartered in Goodlettsville, Tennessee, is an aggressive competi- tor in the deep discount retail indus- try, fighting for position with other dollar stores such as Family Dollar, Fred’s, and Dollar Tree, as well as with retailers such as Wal-Mart, Kmart, CVS, and Rite Aid. Dollar General stores offer a product line of general merchandise that includes house- wares and cleaning supplies, health and beauty aids, clothing, packaged food, stationery, seasonal offerings, and other household consumables. The company has been operating since 1939. Dollar General’s most recent annual sales figures total $6.9 billion, placing the chain at the top of the dollar store category of discount retailers. Somewhat surprisingly, the chain is not achieving its success by following the example set by other successful discount retailers. Whereas competitors such as 99 Cents Only stores consider middle- and high- income customers to be key contribu- tors to their profits, Dollar General caters specifically to customers with low, middle, and fixed incomes. Dollar General has kept away from the big box supercenter store model used by Wal-Mart and Kmart. This type of store is often located on the outskirts of cities or outside of particu- lar towns to draw customers from a broad area. When placing new stores, Dollar General prefers to locate them within communities, often targeting municipalities that are home to fewer than 20,000 residents. In early 2004, over 4,000 Dollar General stores were in such communities. The company believes that filling the role of neigh- borhood store is a big part of its suc- cess. As such, stores follow a fixed, even-dollar pricing schedule with about one-third of all merchandise priced at $1 or lower. The maximum price for a Dollar General product is generally around $35. When it comes to total revenue, the dollar store cannot really keep up with the superstore. Wal-Mart’s most recent annual sales figures were over $250 billion. However, where Dollar General can make its mark is in get- ting the biggest bang for its buck. Many supermarkets struggle to keep up with Wal-Mart because the retail giant earns a higher percentage on each dollar of sales (3.5 cents last year) than most retailers are able to achieve. Last year Dollar General sur- passed Wal-Mart’s benchmark by earning 4.3 cents for every dollar of sales. How Dollar General accomplishes this is by rapidly opening stores and running each store at the lowest operating cost possible. As of the middle of 2004, Dollar General oper- ated 6,930 stores with 57,800 full- and part-time employees in 29 states, with an additional 695 new store openings in 2004 alone. Since 1999, when there were 3,687 stores, the chain has doubled in size. For every day that a new store is open, the company, on average, can expect to add $2,800 in sales and $124 in profit. Across a large scale, these numbers make quite a difference in the key columns of a profit and loss statement at the end of a year. To take full advantage of this strat- egy, Dollar General has developed a system for opening new stores that whittles the procedure down to a scant eight days. Dollar General views this system as so vital to its business that it protects the details of the pro- cedure in the same way that Coca- Cola protects the formula for its lead- ing soft drink. However, Baseline Magazine has been able to reveal the basics of the typical Dollar General store opening, as well as how the operation fits in with the manner in which the store is run after opening. In both cases, a strict budget influ- ences every step from hiring to imple- menting information systems. The average Dollar General retail store occupies 6,800 square feet of space. The company views leasing space as the most favorable financial practice. The majority of stores are placed in either shopping centers (56%) or freestanding buildings (41%), with a handful housed in urban structures (3%). The opening of a new store is a chain reaction of events that begins with a district or area manager hiring a construction team to perform any work necessary for the site to serve as a Dollar General store. This can include putting in new floors or creating access for delivery trucks. As this work begins to wind down, the Goodlettsville office authorizes the purchase of point-of-sale (POS) termi- nals from IBM, with the stipulation that IBM deliver the terminals on the second day of the upcoming store opening process. The POS purchase is the cue for Dollar General headquar- ters to notify its satellite link provider, Spacenet, to schedule an installation at the new store. The satellite link connects the IBM terminals to corpo- rate headquarters so that the store can report sales data. Spacenet is con- tracted to perform the installation on the fourth or fifth day of the store opening process. The opening of Dollar General stores falls under the direction of a store merchandiser, also known as a setter or an opener. Setters coordi- nate the entire process as it happens and their responsibilities include everything from managing employees and installing the IBM terminals to building shelves and stocking the shelves with products. They also test software and link up with headquar- ters. In a way, setters are like hired guns even though they work full-time for Dollar General. They spend most of their time on the road, traveling to different locations (wherever they are needed) to open, close, and reorga- nize stores. Once on-site, setters wield significant power because of their strong operational knowledge. Working beneath the setter, for the time being, is a store manager who will stay on to run the location once the setup process is complete. LAUDMC01_0131538411.QXD 2/1/05 9:51 AM Page 35
Transcript
Chapter 1 Managing the Digital Firm 35
CASE STUDYDollar General: Heavy on Organization, Light on Systems
Dollar General Corporation, head-quartered in Goodlettsville,Tennessee, is an aggressive competi-tor in the deep discount retail indus-try, fighting for position with otherdollar stores such as Family Dollar,Fred’s, and Dollar Tree, as well as withretailers such as Wal-Mart, Kmart,CVS, and Rite Aid. Dollar Generalstores offer a product line of generalmerchandise that includes house-wares and cleaning supplies, healthand beauty aids, clothing, packagedfood, stationery, seasonal offerings,and other household consumables.The company has been operatingsince 1939.
Dollar General’s most recentannual sales figures total $6.9 billion,placing the chain at the top of thedollar store category of discountretailers. Somewhat surprisingly, thechain is not achieving its success byfollowing the example set by othersuccessful discount retailers. Whereascompetitors such as 99 Cents Onlystores consider middle- and high-income customers to be key contribu-tors to their profits, Dollar Generalcaters specifically to customers withlow, middle, and fixed incomes.
Dollar General has kept away fromthe big box supercenter store modelused by Wal-Mart and Kmart. Thistype of store is often located on theoutskirts of cities or outside of particu-lar towns to draw customers from abroad area. When placing new stores,Dollar General prefers to locate themwithin communities, often targetingmunicipalities that are home to fewerthan 20,000 residents. In early 2004,over 4,000 Dollar General stores werein such communities. The companybelieves that filling the role of neigh-borhood store is a big part of its suc-cess. As such, stores follow a fixed,even-dollar pricing schedule withabout one-third of all merchandisepriced at $1 or lower. The maximumprice for a Dollar General product isgenerally around $35.
When it comes to total revenue,the dollar store cannot really keep up
with the superstore. Wal-Mart’s mostrecent annual sales figures were over$250 billion. However, where DollarGeneral can make its mark is in get-ting the biggest bang for its buck.Many supermarkets struggle to keepup with Wal-Mart because the retailgiant earns a higher percentage oneach dollar of sales (3.5 cents lastyear) than most retailers are able toachieve. Last year Dollar General sur-passed Wal-Mart’s benchmark byearning 4.3 cents for every dollar of sales.
How Dollar General accomplishesthis is by rapidly opening stores andrunning each store at the lowestoperating cost possible. As of themiddle of 2004, Dollar General oper-ated 6,930 stores with 57,800 full-and part-time employees in 29 states,with an additional 695 new storeopenings in 2004 alone. Since 1999,when there were 3,687 stores, thechain has doubled in size. For everyday that a new store is open, thecompany, on average, can expect toadd $2,800 in sales and $124 inprofit. Across a large scale, thesenumbers make quite a difference inthe key columns of a profit and lossstatement at the end of a year.
To take full advantage of this strat-egy, Dollar General has developed asystem for opening new stores thatwhittles the procedure down to ascant eight days. Dollar General viewsthis system as so vital to its businessthat it protects the details of the pro-cedure in the same way that Coca-Cola protects the formula for its lead-ing soft drink. However, BaselineMagazine has been able to reveal thebasics of the typical Dollar Generalstore opening, as well as how theoperation fits in with the manner inwhich the store is run after opening.In both cases, a strict budget influ-ences every step from hiring to imple-menting information systems.
The average Dollar General retailstore occupies 6,800 square feet ofspace. The company views leasingspace as the most favorable financial
practice. The majority of stores areplaced in either shopping centers(56%) or freestanding buildings(41%), with a handful housed inurban structures (3%). The opening ofa new store is a chain reaction ofevents that begins with a district orarea manager hiring a constructionteam to perform any work necessaryfor the site to serve as a DollarGeneral store. This can includeputting in new floors or creatingaccess for delivery trucks.
As this work begins to wind down,the Goodlettsville office authorizes thepurchase of point-of-sale (POS) termi-nals from IBM, with the stipulationthat IBM deliver the terminals on thesecond day of the upcoming storeopening process. The POS purchase isthe cue for Dollar General headquar-ters to notify its satellite link provider,Spacenet, to schedule an installationat the new store. The satellite linkconnects the IBM terminals to corpo-rate headquarters so that the storecan report sales data. Spacenet is con-tracted to perform the installation onthe fourth or fifth day of the storeopening process.
The opening of Dollar Generalstores falls under the direction of astore merchandiser, also known as asetter or an opener. Setters coordi-nate the entire process as it happensand their responsibilities includeeverything from managing employeesand installing the IBM terminals tobuilding shelves and stocking theshelves with products. They also testsoftware and link up with headquar-ters. In a way, setters are like hiredguns even though they work full-timefor Dollar General. They spend mostof their time on the road, traveling todifferent locations (wherever they areneeded) to open, close, and reorga-nize stores. Once on-site, setterswield significant power because oftheir strong operational knowledge.Working beneath the setter, for thetime being, is a store manager whowill stay on to run the location oncethe setup process is complete.
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36 Part One Organizations, Management, and the Networked Enterprise
A few weeks before a DollarGeneral store is scheduled to open,the store manager or the district man-ager solicits applicants to populatethe crew for the eight-day openingeffort. This crew normally consists of10 to a maximum of 20 workers.Workers who apply themselves wellduring this period receive considera-tion for full- or part-time employmentwhen the store opens. However, sincethe stores operate with a staff of nomore than 6, continued employmentis hardly a guarantee.
On the first day of setup, the crewunloads, constructs, and installs fix-tures for the store including shelves,counters, display racks, and refrigera-tors. The workers also clean the floorsand windows of the store. DollarGeneral outlines the proper position-ing and placement for all fixtures andproducts in a guidebook known as aplanogram, or pog, for short. Pogs areextremely detailed, right down toinstructing employees that productsmust be positioned so that they areeven with the front edge of a shelf.Corporate headquarters maintainsclose control over every aspect ofoperation. The company distributeshandbooks to employees that directthem how to communicate with eachother and with customers.
Over the next several days, the set-ter receives and sets up the IBMpoint-of-sale terminals, the crew setsup a stock room for surplus inventory,and a small manager’s office is con-structed. By the third day of the setupprocess, approximately 50 percent ofthe store’s opening inventory arrives.On the fourth or fifth day, a Spacenettechnician arrives to install the store’ssatellite dish on the roof and a satel-lite modem inside that connects tothe IBM terminals. Spacenet is receiv-ing $40 million over 10 years to fillthis role for Dollar General.
Once the technician establishes asatellite link with corporate headquar-ters in Goodlettsville, corporate man-agement begins to transmit pricingdata and product codes to the IBMterminals. The store can begin send-ing payroll information back the otherway. Spacenet also tests the point-of-sale software, called Triversity, whichthe store will need to run to authorize
credit and debit card payments andtransmit sales data. Meanwhile, thecrew continues to unpack and shelvemerchandise that has been deliveredby the truckload.
As the second half of the eight-dayopening process begins, the satellitenetwork is up and running and thestore manager can begin to train thestore’s assistant manager and candi-dates for cashier jobs on the IBM cashregister terminals. Bar-code scannersthat lay flat in the cashier counters areinstalled and connected to the regis-ters. Training on the registers also pro-vides the staff the opportunity to testthe system, ensuring that productsscan at the correct prices and thatdetails about the store are properlyentered in the fields of the salesapplication systems.
The last few days of setup involveadditional product stocking, all thewhile taking advantage of every inchof space that the store has. The setteruses a map that was constructedspecifically for this store to fit thethousands of standard items thatDollar General offers into the store.He or she also sets up the space thathas been allotted to special or sea-sonal items. The final few days of theeight-day project are a flurry of activityas perishable goods arrive, the satel-lite network receives a final test, andthe crew finally clears and mops theaisles to make the store bright andclean. If they can get the store readyfor business in fewer than eight days,it could mean a bonus for the setter.
Once a Dollar General store isopen for business, the use of informa-tion systems in the stores is ratherthin. Systems are used to keep costsdown and for very little else.According to Alinean, an Orlando,Florida, technology measurementfirm, Dollar General spends less ontechnology per employee ($3,000annually) than any of its dollar-storecompetitors.
Dollar General does use advancedsatellite technology to communicatewith headquarters, but it was chosenbecause dial-up and high-speed con-nections were unreliable in someareas and stores were not always ableto complete their nightly salesreports. However, individual Dollar
General stores do not use networks tofacilitate operations. The IBM termi-nals include e-mail features, but thestores do not use them, relying on aprivate voice-mail system for commu-nication instead. Managers, both dur-ing setup and operation, use paperon clipboards for tracking cashdeposit logs, employee contact infor-mation, and the arrival of goods intothe stores. Using handheld computer-ized devices for this purpose wouldadd to the company’s technologybudget.
Individual Dollar General storeshave no automated method for keep-ing track of their own inventory.Managers know approximately howmany cases of a particular productthey’re supposed to receive when adelivery truck arrives. However, theydo not scan the cartons or verify theitem count inside the cases (theexception being perishable fooditems, which are generally supplied bylocal sources). Dollar General’s distri-bution centers do use informationsystems, running Catalyst warehousemanagement software, to track theinventory they receive and subse-quently ship to stores. However,recipients at the stores merely checkto see whether the cases are sealedproperly. Inventory managementdepends on the polling data thatheadquarters gathers from store cashregisters each night, which indicateshow many of a product were sold andat what price.
Dollar General has an increasingshrink rate, which refers to the per-centage of total sales that the com-pany writes off as losses resultingfrom theft of product or othermishap. Dollar General’s shrink ratehas grown steadily from 2.6 percentin 1998 to 3.05 percent in 2003. Thecompany’s goal is to keep shrinkrates to no more than 1.75 percentto 2 percent. Store managers believethat most of the company’s lossesare caused by merchandise beingstolen during shipping, which goesundetected because there is noscanning upon receipt, and toshoplifting in the stores.
Corporate headquarters has cho-sen to focus on the employees as theroot of the problem. The measures
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Chapter 1 Managing the Digital Firm 37
that headquarters has taken tocounter the shrink rate includedeploying loss prevention software,which identifies unusual cash registertransactions, and installing video cam-eras to monitor the registers, thestockroom, and even the store man-ager. These measures apparently havenot made a dent in the shrink rate.
While Dollar General continues towatch the bottom line carefully, itsbusiness continues to grow. In 2003,the chain experimented with twolarger, grocery-oriented stores underthe Dollar General Market name. Thecompany intends to open 20 moresuch stores in 2004. At the sametime, the chain has continued toachieve growth through new storesand from increases in same-storesales. The question is, How long canthis strategy work for Dollar General?Can the company keep ramping up its
business without ramping up its tech-nology budget?
Sources: Kim S. Nash, “Dollar General:
8 Days to Grow” and “Roadblock: 4,170
Newbies,” Baseline Magazine, July 2004;
A. Teymour Golsorkhi, “Sales Creep Higher
at Dollar General, Fred’s,” TheStreet.com,
August 5, 2004, www.thestreet.com/stocks/
retail/10176678.html; “Dollar General Sales
Continue Upward Trend,” Nashville BusinessJournal, August 6, 2004, nashville.bizjournals.
com/nashville/stories/2004/08/02/
daily30.html; “Dollar General Reports
Increased July Sales; Opens 61 New Stores;
Announces Second Quarter Conference
Call,” BusinessWire, August 5, 2004,
home.businesswire.com; “Dollar General
Corporation Fact Sheet,” Hoover’s Online,
www.hoovers.com; Dollar General
Corporation 10-K Form, www.sec.gov,
accessed September 10, 2004; and
www.dollargeneral.com, accessed
September 10, 2004.
CASE STUDY QUESTIONS
1. Describe Dollar General’s businessstrategy. Why has the companybeen so successful?
2. Describe the role of management,organization, and technology inDollar General’s business strategy.
3. How well do information systemssupport Dollar General’s businessstrategy? Explain your answer.
4. Does Dollar General miss out onany business opportunities as aresult of its approach to informa-tion technology? If so, what arethese opportunities?
5. Do you think Dollar General cancontinue growing at its currentrate? Explain your answer.
