Sweet Value at Dollar General
May 1, 2005
Sweet Value at Dollar General
This fast-growing chain of more than 7,500 stores is where many of the nation’s low-income consumers—and other smart shoppers—go to find a deal on candy. Customer representative Ken Smith is committed to giving these discriminating clients what they want—quantity and quality at a bargain price. By Mary Ellen Kuhn
Ken Smith understands the psyche of the low-income consumer. That understanding is one of the things that comes across most clearly in the course of a conversation with the likable and straight-talking candy category manager for Dollar General Corp.
Category manager is not Smith’s title, by the way, despite the fact that he handles purchasing for candy as well as other food and beverage products. His title is customer representative, a term that reflects the emphasis that this fast-growing Goodlettsville, Tenn.-based retail chain places on serving its core constituency—consumers of modest means.
“Our main focus here is on the low-income consumer, and that drives most of our decision processes,” says Smith, “because we know that if we can service that consumer, then we can service any consumer.
“The low-income consumer has to be one of the most savvy consumers you’ll ever meet because they spend more time thinking about what they can do without,” he explains. “They may need $10 worth of merchandise, but they’ve only got $8 to spend, so every time they go into a store, they’re making a decision on ‘what I don’t have to have.’ That makes them savvy. They know who has the best price everyday. So if we can service that consumer, well, then the rest is easy.”
Servicing that consumer affects the candy assortment and the way it is merchandised. For example, you will find only a few novelty/interactive candy SKUs in Dollar General stores. Instead, the candy assortment is focused on peg bags, laydown bags and candy bar multi-packs.
Smith presents the following hypothetical scenario by way of explanation. “The low-income consumer—if she has a dollar, would her decision be to purchase one item for her child or would her decision be to spend that dollar on a bag of something that she can share with that child and the rest of the family? It becomes a matter of taking care of multiple people vs. taking care of one.”
What is more, Smith explains, “Most of our business is done by the female shopper on her way to work, on the way back from work, or on her lunch hour; you don’t have the assistance of the child on the purchase decision.”
As it does in many categories at Dollar General, private-label represents an important piece of the chain’s candy business.
Dollar General has a two-tiered private-label candy assortment. The Clover Valley label is used on national brand equivalent (NBE) products—a rating that is measured in a rigorous program of annual consumer testing that Smith oversees.
Non-NBE private-label candy is sold under Dollar General’s American Value label.
Everyday low prices and a straightforward pricing structure are key components of Dollar General’s approach to retail. This too is designed to accommodate the typical money-conscious Dollar General patron.
“To a low-income consumer, there is nothing more embarrassing than getting to the register and not having enough money,” says Smith. “Pre-pricing helps them [avoid that]. We’ve got easy price points. They can add it in their head. And they don’t have to worry about dealing with the embarrassment of showing up at the register and not knowing how much the product is.”
Dollar General has just 17 standard price points ranging from 4/$1 to $20, with stops in between at $2/3, $2/5, and $10, to cite just a handful of them. Vendors are strongly encouraged to pre-print prices on their packaging.
Of course, just because Dollar General shoppers tend to approach candy purchasing pragmatically doesn’t mean that they are immune to its impulse appeal.
A candy destination? Not necessarily
“My personal opinion is that I don’t think that anybody comes to our stores just to buy candy,” says Smith. “I think they buy candy as an impulse item. And that’s the way I’ve gone at my assortment— packaging, everything. It’s just my opinion, but I think that as long as I maintain that view, it will force me to try to offer even more value to the consumer.”
Dollar General showcases candy bars and impulse single SKUs at the front of the store on a four-sided wire display fixture. Offerings range from candy bars priced at either 2/$1 or 3/$1, candy in theater boxes priced at $1, and even kids’ items like lollipops that are 10 for $1.
The chain also makes use of the occasional display shipper, particularly if it can be used as a sidewing. Due to space constraints, there’s little room for anything else, although Smith is doing what he can to take advantage of the marketing muscle that major vendors are putting behind their brands.
For example, he notes, “We’ve just started doing some limited edition products. We’re trying to be more creative in creating sidewing displays and things like that to take advantage of the tremendous amount of marketing that manufacturers are doing and to kind of ride that wave.”
In addition, he continues, “We have taken advantage of suggestive selling programs in our stores that have done extremely well—where the clerk would suggest to the consumer, ‘Would you like a Snickers bar? or Would you like a Hershey’s bar?’”
Working within limits
Just as the vast majority of the consumers it serves are living their lives under financial constraints, Dollar General buyers operate under constraints as well—particularly when it comes to space and pricing.
The average size for a Dollar General store is just 6,800 square feet, so there’s simply not a lot of room to showcase an endlessly enticing assortment of candy.
Still, the chain manages to accommodate an everyday mix of approximately 250 candy SKUs in line and at the front end, with an additional 200 to 300 seasonal items stocked each year.
“There are a lot of things that we would like to do that we can’t do,” Smith concedes. “When you’ve got a small box, you don’t have the luxury of saying, ‘I can do all of this stuff, and I can take a chance.’ I’m looking for the best of the best. If a manufacturer has five SKUs, then maybe I only want the one best-selling SKU.
“Space is always an issue, so we have to be more innovative as to how we can display more product.”
As for the pricing constraints, Smith shares the following example. “Let’s say a manufacturer takes a price increase on an item that I’ve been retailing for $1. In most worlds, they go up a dime, you go up a dime so your margins are the same. I don’t have that option.”
Moving the price up to the next Dollar General price point of $1.50 (i.e. 2/$3) wouldn’t make sense, of course. “So what you end up doing is saying, “Hey, Mr. Manufacturer, how can we come up with a package that will give me the same cost per ounce, but it’s a different package size? And that is how a lot of product development comes about. Fixed price points make you walk away from a lot of things that you would do—if the manufacturer isn’t flexible and willing to listen and adjust.”
Fortunately, Smith observes the significance of the once humble but now increasingly powerful dollar channel is no longer lost on most vendors. “Between when I started in candy [six years ago] and today, it’s 360 degrees [different],” he reflects. “There are manufacturers who wouldn’t even want to come for an appointment, and now they’re beating down the door. Everyone has recognized the potential of the dollar industry, and most of the majors have set up dollar-specific teams.”
Fast Facts About Dollar General
Headquarters: Goodlettsville, Tenn.
Annual Sales: $7.7 billion
Brief History: Founded as a wholesale business in 1939, Dollar General pioneered the dollar store concept in 1955 with stores in which everything was sold for $1.
Strategic Mission: Supplying low-income and lower-middle-income consumers with "consumable basics"—merchandise that is frequently used and replenished such as food, snacks, health and beauty aids and cleaning supplies in addition to a selection of apparel, housewares and seasonal goods—all sold at everyday low prices.
Surprising Statistic: Households with incomes in excess of $50,000 represent the fastest-growing segment of Dollar General shoppers, despite the fact that the chain remains focused on its core lower- and lower-middle-income customers.
Getting to Know Ken Smith
For 10 years before joining the Dollar General team in 1992, Ken Smith worked in operations for McCrory Corp., the now defunct five-and-dime-store chain. It was a fitting preparation, given that for many lower-income consumers residing in small towns and rural settings, the dollar store fills a niche similar to the old five-and-ten-cent stores—supplying an affordable shopping experience for life’s necessities—and the occasional sweet treat.
Smith joined Dollar General in operations, working first as district manager and later moving to the corporate office. He has been buying candy for Dollar General for about six years.
Family: Wife, Cheryl; she and Ken will be married 20 years in July. Two daughters, Brandi, just graduating from high school; and Kayla, who will start seventh grade in the fall.
Words to Live By: "Nothing is worth more than it comes to." They are the words of Dollar General co-founder Cal Turner Sr. What it means, Smith explains, is "that the consumer makes the decision about the worth of an item."
Best Part of the Job: "Having grown up a low-income consumer, knowing that I can help make decisions to deliver more value to that person who needs value [is meaningful.]"
Time Management Strategies: "There’s not a day that I do not have 10 things on my plate that are all equally important. So you have to prioritize a whole lot. There is very little routine in our days."
Management Philosophy: "I am a firm believer that a leader is no better than all the people on his team."
Outside Interests: Old cars, fishing, team sports, and, occasionally, horticulture.
FAQs on Vendor Relationships
As Answered by Ken Smith
How do you get to be a Dollar General vendor?
"There is no one formula, no written formula, if you will, for doing business with Dollar General. Pretty much, if you have a quality product and you have great pricing and you’re willing to listen, then the door’s open.
"The people that tend to have the hardest time doing business here are the ones that come in and basically say, "This is what I have, take it or leave it. Usually, we don’t do a lot of business with those people."
What’s the key to a successful retailer/vendor partnership?
"I think the key [to sucess] in our private-label as well as in our branded business is where we’ve partnered with manufacturers—they to learn our business and me to learn their business. We learn where we can be the most efficient in helping each other. If you look at it as a partnership, then that changes the whole playing field…the potential for growth is boundless."