Analysis: Dollar General is winning the US value retail battle

Such desirable results were thanks to uplifts in both customer traffic and average transaction value.

Consumables remained Dollar General’s leading category, delivering 11.9% year-on-year growth driven by confectionary and tobacco.

The category now accounts for approximately 76% of total net sales. The retailer, like other discount stores, enjoys a strong position in consumables because it is very hard to beat on price.

Seasonal and home products each delivered 7.3% growth. While clothing and footwear sales increased by 2.4%, growth slowed because of the company’s planned - and sensible - reduction in inventory. Elsewhere, Dollar General experienced a slowdown in sales growth because of Walmart lowering prices to remain competitive and in an attempt to win back the savvy shoppers lost to the discount stores.

Its outperformance of rival discount stores suggests Dollar General has the more appealing proposition. It seems it is not just about the lowest price, but quality and range of products. That means Dollar General is well placed to beat not just rival discounters but to give Walmart and Target a run for their money by attracting shoppers looking for the lowest prices.

The pace of new store development remains unrelenting. The retailer plans to open about 700 shops in 2014. Of real interest are Dollar General’s plans for full-sized grocery stores. To date, Dollar General has built 100 of these nationwide, and 14 are in Florida. This puts it in the heart of the most competitive grocery market in the US, dominated by Publix, Walmart and the soon-to-be merged Winn-Dixie and Sweetbay.

Dollar General plans to use this prototype for new, renovated and relocated stores, so the fresher formats are likely to become commonplace. This is sure to help attract and retain shoppers.There’s one potential fly in the ointment. Now consumers are feeling flusher, they might return to their preferred stores. However, in focusing on value credentials and developing a more desirable shopping environment, Dollar General is well placed to keep hold of the customers wooed during the recession, and attract those looking to save money without sacrificing quality.