Dollar General to build out distribution capacity for fresh foods
- Dollar General is bringing more logistics services in house in order to protect margins and improve service, according to company executives on a recent earnings call.
- Two new warehouses will bolster the company's traditional ground game, but a move into refrigerated trucking in order to better support the company's relatively new fresh produce program — DG Fresh — is the big task ahead for Dollar General in 2019. In the current fiscal year, the discount retailer aims to expand DG Fresh to 5,000 stores and open up to four new DG Fresh distribution centers.
- "We know how to distribute goods, fresh, shelf stable, whatever it may be, controlling our own destiny there gives us high confidence that we can execute at a much higher level than we were seeing across the country," said CEO Todd Vasos on the call.
Creating a fresh supply chain for an already low-margin business may seem like a daunting prospect, but Vasos expressed confidence in both the value of the DG Fresh program and bringing the logistics behind it in house.
The fresh program is already boosting day-to-day traffic as intended, said Vasos. After experimenting with the program in 300 stores, the company is eager to claim back the margin eaten up by distributor fees and localize store assortments.
"We have a series of distributors out there today across the country and those distributors do a nice job for us, but it comes at a cost and that cost is very high as you can imagine," said Vasos.
Margins in the dollar store business are low, and the margins on consumable products like food and cosmetics are some of the lowest in the store. Not only are third party distributors cutting into those margins, but Vasos explained that the complexity of a nationwide fresh distribution program using all third parties is less than desirable.
The company will thus look to add 5,000 to 6,000 stores to the DG Fresh program each year with new warehouses to match.
"We believe that these fresh distribution centers, we will be able to leverage as well some of our dry goods that perhaps we can deliver out of there as well, taking some of the pressure off of our larger DCs, so we believe it's a win-win across the board, which should see substantial P&L ramifications on a positive side, as we move into 2020 and then beyond," said Vasos.
The company is also developing new warehouse processes to deliver more effectively sorted orders to stores, thereby minimizing store labor and increasing in-stock status across product categories.
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