Dollar General vs. Amazon

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“Amazon and the internet are putting me out of business!” claimed a local small business owner. I listened as this small business owner lamented the current retail climate and the future. I had heard this refrain before, when Walmart was expanding at an exponential clip in the 1980s and 1990s and changing the retail landscape. The reality is that no one factor forces a small business owner out of business. What Amazon and the big box retailers are doing is giving customers a choice. Your customers will not put you out of business, as long as you are their best choice.

The successful small retail business understands what it means to compete against an Amazon or a “category killer”. The one key trait that I see over and over again in the successful small business is the willingness to change. John Kennedy said, “Change is the law of life. And those who look only to the past or the present are certain to miss the future.” The retail landscape is not the same as five years ago and will not be the same five years from now. How a small retail business executes in delivering best practices is the cornerstone of success and thriving in the exciting world of change and competition.

One retail story I continue to watch is the Dollar General story. Its business model is to go to the smallest and poorest markets in rural America and some urban settings. Dollar General’s buildings and store layouts are uniform in design for efficiency and to maximize profits. The average store is 8,000 sq. ft. Dollar General only started using refrigerators and freezers in its stores in the last 10 years. During slow times during the day, the stores may be staffed by only two people.

The company has become on of the most profitable retailers in the United States. Dollar General has been profitable every year for the last 27 years. Its $22 billion market value is larger than the Kroger Grocery Store chain. They continue to grow and plan to add thousands of new stores over the next several years.

Dollar General has found its market niche with families that earn less than $40,000 per household. The leadership at Dollar General believe’s their niche market is less susceptible to Amazon and other online grocery stores. It has priced popular items in small packaging for less than 10 dollars. Dollar General goes into the market where Walmart will not go.

The company’s decision making is data-driven, with a relentless focus on controlling costs. It has recently opened smaller, 4,700 sq. ft., stores that can be profitable wit fewer than 1,000 homes in its target area. Dollar General is competing in a market space that most “business experts” would claim is ripe for failure, but they continue to succeed.

The lesson to be learned from Dollar General is that when there is a laser focus on key elements, lowering costs, understanding customers’ key preferences and choices, and a willingness to change and try new things, a foundation for success is built.

Dollar General chooses to compete in a market space in which few would think there could be success. It is relentlessly focused on controlling costs and providing the key products its customers want. They are a prime example of being their customer’s best choice.