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Dollar General A Case Solution

Solution Id Length Case Author Case Publisher
2585 1405 Words (6 Pages) Willy Shih, Stephen P. Kaufman, Rebecca McKillican Harvard Business School : 607140
This solution includes: A Word File A Word File

The dollar store industry of the US has grown tremendously over the last few years. This growth can mainly be attributed to the changing demographics of the country, increasing a number of US households in lower or fixed income brackets as well as the new bargain and convenience based mentality of consumers. Dollar General is the leading store in the US dollar store industry. The product assortments and store layout of Dollar General has specially been designed in a way to offer convenience and a price advantage to customers belonging from the lower income classes. Just like the dollar store industry, Dollar General Stores have also seen a significant growth in the last few years with total number of stores increasing from 6273 to 8260 in 2007. However, the management is now facing difficulty in managing the current growth rate and is looking at strategic options to achieve sustainable growth along with long term profitability.

Following questions are answered in this case study solution

  1. How has Dollar built its cost advantage?

  2. Should Dollar compete directly against Wal-Mart?

  3. What recommendations would you provide to Dollar regarding its strategic alternatives?

Case Analysis for Dollar General A

1. How has Dollar built its cost advantage?  

Being one of the leading and successful stores in the US dollar store industry, Dollar General has taken several measures to build its cost advantage over time. The Dollar General stores primarily target as well as serve convenience seeking and price-sensitive customers belonging to the low, middle, or fixed income class brackets. These customers typically belong to southern, eastern, south-western, and mid-western parts of the United States. In order to effectively serve these customers, the organization has built its business strategy in a way through which Dollar Store provides and offers a focused assortment of basic consumable merchandise in a small store format that offers convenience at a fair price. 

Since Dollar General operates in a small store format, the average Dollar Store has around 6900 square feet of selling space and contains around 4900 SKUs. These SKUs belong to the basic categories of consumable merchandise such as home cleaning supplies, basic clothing, housewares, health and beauty, packaged food, stationery, etc. However, Dollar Store does not stock every brand, size, color, or SKU in these core categories. The store only focuses its inventory on the fastest selling and high-quality SKU in each category as part of its cost saving strategy. The selected SKUs are also smartly priced in a way that the majority of the products available at the Dollar General store have prices below or equal to $10 with approximately 30% of the SKUs from this category priced below or equal to $1. The Dollar Store has also ensured that apart from offering products at fair and lower prices, the quality of the products does not get compromised as well. For this purpose, around 30% of the products sold at the Dollar Store are by big brands such as Tide, Campbell’s Soup, Dove, Kellogg’s Cereal, etc. whereas 12% products are by Dollar General’s own private label brands.

Moreover, Dollar General Stores have also strategically selected their locations and sizes to save costs. Since the stores operate on a small store format with 6900 square feet of selling space, the cost is naturally saved. Dollar General has also built stores in second tier locations for lower costs. Thus, this strategy along with renting stores on short term leases has built on Dollar General’s cost advantage. Lastly, the stores also have extremely low advertising costs and the stores mostly rely on word of mouth marketing that goes well with its cost saving strategy and low cost business model.

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