Walmart (WMT) has a massive brick-and-mortar presence that makes it very easy for customers. No matter where in the U.S. you might be, you're never that far from one of the chain's locations, and that's a huge edge over its competitors.
It's an advantage Target (TGT) has as well. Walmart has 5,343 U.S. locations while Target has 1,926. Both chains cover an awful lot of ground and are readily accessible to an awful lot of Americans, according to comments from Thomas J. Holmes of the Federal Reserve of Minneapolis.
"For most people in the United States, a Walmart is literally just down the road. The median distance to a Walmart in the United States is 4.2 miles, and to a Target, five miles," he said. "So the typical person doesn't have to go far to shop at either place."
That's not the full story. What Walmart and Target don't have -- or really where they aren't -- opens a big door for Dollar General (DG).
"Distances are larger for people in rural areas. For example, for those areas of the country with less than 5,000 people within a five-mile radius, the median distance to a Walmart is 14.3 miles, and to a Target it's 34.8 miles," he said.
Those remarks were made in 2006, but Walmart and Target remain focused on larger-population areas. Target has rolled out a few dozen smaller-format stores, but neither chain has made rural areas a priority.
That's where Dollar General has become a brick-and-mortar giant. The chain has been willing to go where its customers are and that means expanding into underserved areas.
Dollar General Keeps Expanding
Dollar General, which is a discount chain and not a dollar store, serves a customer base that lives within walking distance of its stores. The chain has 18,130 locations and 75% of its stores serve communities of 20,000 people or less.
Essentially, Dollar General strives to put the word "convenience" into the convenience-store model, even though its stores are more small-format grocery than they are typically convenience. The company lays out its philosophy on its website.
At Dollar General, we are proud to be America’s general store and offer everyday essentials at affordable prices from right around the corner. We strive to make shopping hassle-free and convenient with easy-to-shop stores and deliver everyday low prices on frequently-needed items including food, snacks, health and beauty aids, cleaning supplies, basic apparel, housewares, seasonal items, paper products and much more from America’s most-trusted brands, and products, along with high-quality private brands.
That sounds like typical corporate speak, but Dollar General has delivered on the "right around the corner" promise. It has added roughly 1,000 stores every year since 2017 and it expects to continue that in 2022.
"The company is also reiterating its plans to execute 2,980 real estate projects in fiscal year 2022, including 1,110 new store openings, 1,750 remodels, and 120 store relocations," it said in its Q4 earnings report.
Dollar General Goes Fresh to Rival Walmart, Target
Walmart and Target sell fresh food as any traditional grocery chain does. That's not something discounters or convenience stores generally do, which either forces customers to make unhealthy choices or make trips to full-service grocery chains.
Dollar General has been working to change that with its "DG Fresh" initiative.
"We completed the initial rollout of DG Fresh across the entire chain in Q2, and are now delivering to more than 18,000 stores from 12 facilities," Chief Operating Officer Jeff Owen said during the chain's third-quarter earnings call.
"The primary objective of DG Fresh is to reduce product costs on our frozen and refrigerated items. And we continue to be very pleased with the savings we are seeing as DG Fresh remains a meaningful contributor to our gross margin rate."
The discount chain sees offering fresh items, and adding more coolers to its stores, as a way to better serve its customers and further grow sales.
"Going forward, we expect to realize additional benefits from DG Fresh, as we continue to optimize our network, further leverage our scale, deliver an even wider product selection and build on our multiyear track record of growth in cooler doors and associated sales," the COO said.
"With regards to our cooler expansion program, during the first three quarters, we added more than 52,000 cooler doors across our store base. In total, we expect to install approximately 65,000 additional cooler doors in 2021. The majority of which will be in high-capacity coolers."
