Dollar General: 8 Days To Grow

Dollar General: 8 Days To Grow

Kim S. Nash

Today’s dollar store is a five-and-dime shop, adjusted for inflation. It’s what Sam Walton envisioned when he created Wal-Mart in 1962: a neighborhood store selling affordable necessities to people who can’t pay top prices for soap and toilet tissue.

Now that Wal-Mart pushes wide-screen TVs and vacation packages along with its low-priced detergent, there’s room underneath for chains devoted only to small-ticket goods. Not everything at a dollar store costs just a buck. But the combination of $1 shampoo, $3 bug killer and $7 area rugs is big business. Shoppers spent $16.6 billion last year at the top five dollar stores, up from $12.2 billion in 2002.

Dollar General is the king of that market, generating $6.9 billion a year in sales in 29 states from 6,930 stores.

That’s more outlets than even Wal-Mart. Check again a week from now, and 14 more will have been born. The company is adding 695 stores this year, on top of 1,300 launched in the last two years.

Successfully opening two stores a day is more than a matter of precision logistics: It’s crucial to Dollar General’s bottom-line results. Each day it can slice off the opening process means $2,800 in added revenue and $124 in profit at a typical store. Where the company 10 years ago took weeks to launch a new store, it now has the process down to eight days, or fewer.

And each additional day of operation is another day added to Dollar General’s surprising success at out-retailing Wal-Mart itself. Wal-Mart last year earned 3.5 cents on each dollar of its $256.3 billion in sales. But Dollar General made 4.3 cents on each dollar of sales, making it 12% more profitable than the world’s biggest retailer.

Store-level frugality “is where their profit margin comes from,” says Ben Ball, an analyst at Dechert-Hampe & Co., a consumer products consulting firm in Northbrook, Ill. “The technology strategy reflects that to a T.”

Sure, the headquarters office in Goodlettsville, Tenn., offers on-site day care and dry cleaning. Yes, its seven distribution centers sport radio-frequency scanners and a raft of warehouse management and logistics software.

But the stores are spare. There is no network. No e-mail. No local servers keeping track of inventory. Aside from word of mouth, the only way information on each day’s sales gets back to headquarters is when headquarters asks for it. A Hewlett-Packard Superdome mainframe computer in Goodlettsville polls each store’s IBM cash registers via satellite network every night, recording how many of which items were sold and at what price.

The company spends less on technology per employee every year—about $3,000—than any of its dollar-store competitors, according to Alinean, a technology measurement firm in Orlando, Fla.

That may keep store operating costs low, but there are consequences. About 3% of sales disappeared last year due to theft and loss. Items are bar coded, but store employees don’t have readers or software to verify shipments and check in products as they hoist hundreds of cartons off delivery trucks every week. There is no store-level inventory system.

“You have to know when to apply I.T. at stores, how to use it there to further your goals,” says Greg Buzek, an analyst at IHL Consulting Group, a retail technology consultancy in Franklin, Tenn. “I’m not sure Dollar General knows that yet. They’re too focused on growing.”

So critical is speed-to-market for Dollar General that company officials decline to talk about the store-opening process. They consider it a homemade competitive weapon against Dollar Tree, Fred’s, 99 Cents Only and especially Family Dollar, which, at $5 billion in sales and 5,200 stores, is the next-biggest chain.

Yet as Dollar General marches to 7,400 stores by the end of the year, Baseline uncovered the company’s setup method and found it to be equal parts information technology, paper pushing and strong biceps.

If you need a blueprint for profiting quickly from building new stores—and backing them up with lean systems—you could do worse than imitate Dollar General. But you may not want to mimic its controls.

Dominoes in a Row

Months before a new store opens, a district or area manager must arrange for builders to prepare the site. Construction can include anything from ripping and replacing floor tile to installing a bathroom to cutting curbs outside so Dollar General’s 53-foot tractor-trailers can maneuver through the parking lot.

When property managers at headquarters get word that construction is finishing, a corporate buyer orders two to five point-of-sale terminals online from IBM. Then IBM arranges to deliver them by Day 2 of an eight-day store-opening cycle.

The cash register order kicks off an electronic alert to Spacenet, the company that will provide a satellite hookup between those registers and Dollar General headquarters. A Spacenet installation manager receives an e-mail with the phone number of the new store. Knowing when the registers are due, he then schedules an installer to arrive at the new store on Day 4 or Day 5, replete with gear to make the links.

When physical setup of a store starts, a “setter” keeps the process moving as the on-site project manager. A setter’s formal title is store merchandiser. His task is to deliver a just-in-time store, steering a crew of about 20 unpackers, stockers, sweepers and fix-it people.

Setters, also called “openers,” erect shelves, install the point-of-sale registers, oversee the creation of the satellite uplinks, put up signs and put out merchandise. They coordinate deliveries from suppliers and technology vendors, test accounting software, handle inquiries from headquarters and sweep the floors when they’re dirty.

“Each ball shoots another down the line,” says New York setter Mark Rambus. “Bing, bing, bing. Cause and effect.”

Day 1 – The Gang of 17

Setup team arrives

Lights, shelves, signage unloaded

“Pog” hell

A setter is on the road at least 20 days per month opening, remodeling, moving or closing stores. Rambus, from Rome, N.Y., can eyeball a handrail in a Dollar General bathroom and tell you if it’s an inch farther from the commode than the maximum 18 inches required by federal law.

When a setter is on premises, even a district manager will defer to him about when to build the clothing racks or how to handle building inspectors. That speaks volumes at a company with an onion-peel hierarchy of thousands of clerks, lead clerks, assistant store managers, store managers, district managers and area managers.

When Rambus gets to the Colonial Shopping Center in Whitesboro, N.Y., on the morning of March 25, he finds himself in charge of a typical opening. As it usually does, Dollar General has leased space in a strip mall in the low-income town. The reasoning is writ in the numbers: The company paid $5.41 per square selling foot in rent last year on average. Ultimately each of those square feet brought in 28 times that in sales.

The Whitesboro building, a former auto parts store, is flanked by ShowBiz Video on the left and Cut & Curl Hair Designs by Yvonne on the right. Inside sits Ethel Longway, a store manager in her 50s who has transferred from a nearby Dollar General store to manage this new one. The company likes experienced managers to help get new stores going.

Longway and 17 locals hired temporarily for setup await the fixture truck, an 18-wheeler loaded with metal shelving, coolers, racks, counters and hanging displays that must be screwed together and placed in predetermined spots around the store. Before setup ends, the crew will lift a few thousand 20- , 30- and 40-pound boxes of material and merchandise. They will stock hundreds of feet of display shelves, mop 6,800 square feet of floor and squeegee floor-to-ceiling storefront windows.

Unloading fixture pallets alone takes five hours. Then come the pogs.

Detailed booklets called planograms, or “pogs” in Dollar General parlance, have to be read and understood on the fly. They show how and where to assemble the clothing racks, food coolers, toy shelves and greeting card displays just the way Corporate wants. Paper cups next to toothpicks next to feminine hygiene products. Bakeware near small appliances. Cleansers next to pet food next to cat carriers.

Computer-printed labels with item names, prices, stock-keeping unit numbers and bar codes must be attached to the appropriate spots on the right shelves. The crew must “face” the products. That is, items must be pulled forward flush with the shelf’s edge.

In Whitesboro, it’s 45 degrees outside, but inside these people are sweating. Those who perspire, but do so with the best attitude, may win full-time positions as cashiers and clerks when the store opens. It’s an audition.

Corporate managers allow a store manager to hire up to 20 people for setup, but lots of openings happen with as few as 10. Shallow pools of potential workers in the downtrodden small towns where Dollar General prefers to put its stores can be an obstacle. But the motivation is clear: a paycheck. As Rambus notes, these jobs are minimum wage for maximum effort, with no promises after Day 8.

“People don’t want to work for that kind of money temporarily,” he says. “They’re not gamblers. They don’t want to take the risk.”

Four of his 17 helpers leave before the last day. Six are eventually hired.

Day 2 – A Midstream Shift

IBM cash registers arrive

More shelves to build, an office to outfit

“Little Debbie” on the wall

With checkout counters finished on Day 1, a FedEx van arrives by noon with two to five Model 4694 point-of-sale terminals from IBM. Setters such as Rambus take charge of the machines, unpacking them and planting them on counters.

The registers come loaded with a simple piece of command-line-driven sales-tracking software from Triversity in Toronto. A graphical application was voted down a few years ago partly because the Microsoft Windows operating system was deemed too slow and complicated to reboot after a power outage—a frequent problem for Dollar General in rural areas in the South and Midwest.

The IBM machines are capable of e-mail but Dollar General doesn’t use it. Instead, managers broadcast voice mail to employees on the company’s private telecommunications system from Sprint.

Today the crew organizes a stockroom for excess inventory that will inevitably accumulate as distribution centers truck goods—sometimes too many—out to stores every week. The room is usually in the back of the store, behind a wall of shelves full of laundry detergent (Arm & Hammer, $4; Tide with Bleach, $5). “Chemicals” are one of Dollar General’s biggest sellers.

A manager’s office also takes shape. Hooks are screwed into the walls of Ethel Longway’s small office in Whitesboro to hold the 15 clipboards that will track employee contact information, store sales, cash deposit logs and the arrival of items as varied as sewing notions and Little Debbie snack cakes. Longway’s spartan gray-metal desk takes up most of the space.

Dollar General operates top-down, with senior executives at headquarters controlling nearly every aspect of how field staff work. Planograms dictate how a store looks, and handbooks tell employees how to communicate. A monthly calendar mailed from Tennessee includes corporate phone numbers for everything from tracking the status of a bonus check to reporting an open safe. As one Pennsylvania clerk puts it, “There’s a department and a process for everything.”

Even so, plans deviate.

The opening of a new store in Jersey Shore, Pa., is pressed ahead four weeks, from June to May, because the setter in this area, Mike Koehn, as well as district manager John Anzor are available.

Never mind that local staff isn’t yet hired.

To help, Anzor drafts Valerie Hallstrom, a reliable manager he knows from another Dollar General store in nearby Williamsport. “John called me Saturday,” Hallstrom says. ” ‘I need you,’ he tells me.”

While assistant managers fill in for her in Williamsport, Hallstrom spends her weekend hanging help-wanted signs and calling in an ad for the Sunday paper to recruit helpers for the opening. At 7:45 a.m. Monday, Hallstrom gets to the Jersey Shore store to find a dozen job seekers waiting. Eight hours later, she has hired 20 people to set up a store that isn’t her responsibility.

“That’s how it is,” laughs Hallstrom, who has been with Dollar General for 15 years. “I know how to get these things done.”

Day 3 – Checking In, Kind Of

Half of the store merchandise arrives

Shrink rates a problem

Is all the toilet paper there?

The first of three truckloads of merchandise rolls in with 3,500 to 4,500 cartons of detergent, clothing, pet food and domestics such as sink mats and shelf paper.

Koehn in Jersey Shore happens to have two other openers there. They were free at the time, so Corporate put them to work. The three speed the crew through unloading the boxes.

They don’t validate the contents of the cartons off the truck; they can’t.

While warehouse management software from Catalyst tracks inventory received and put away at distribution centers and goods packed into trucks bound for specific stores, the stores themselves lack any electronic means to monitor what comes through their loading bays.

“We know roughly how many cases we’re supposed to get,” Anzor explains. While cases get counted, individual products do not. As a carton skips down metal rollers from the trailer to the store loading dock to the hands of a crew member, no one truly knows whether it contains all the Scott toilet paper (eight rolls for $5) or Rid A Bug insecticide ($3 per can) that a new store is supposed to get.

“We take their word for it and just check to verify whether the seals have been tampered with,” Anzor says.

Dollar General’s shrink rates—the percentage of sales written off to product theft and loss—have grown steadily since 1998, from 2.6% to 3.05% last year. The 2002 shrink rate of 3.5% was nearly twice the company’s goal of 1.75% to 2%.

A Loss Prevention application from NSB Group installed in 2002 to flag unusual cash register transactions hasn’t seemed to make a dent. Corporate honchos routinely install video cameras at “watch stores” with high shrink, the lenses pointed at registers, the stockroom and the manager’s office. Senior executives clearly believe employees are the risk.

But some store managers say the big problem is check-in. Without scanners and software to check incoming goods, anything can happen to cartons after they’re put on outbound trucks. And software that produces exception reports for activities at the registers does nothing to catch people stealing cases en route from the distribution center or shoppers stuffing Nutty Nougat candy bars into their pants.

Day 4 – Goodlettsville to Go

Satellite dish installed

Point-of-sale software tested

Pricing files downloaded

As Jersey Shore workers unpack and stock $8 girls’ dresses and Good Tuff freezer bags ($2 for a box of 45), a Spacenet installer arrives to set up the satellite link.

Pulling a ladder off his truck, the installer zips up to the roof of the store and mounts a 2.5-foot antenna and a dish that looks like one used at home for satellite television. The indoor equipment is a satellite modem the size of a large dictionary and cables to connect to each IBM register.

“We connect, make sure our hub in Washington, D.C., sees this dish, it lights up,” says Randy Anders, the senior account manager at Spacenet who closed the 10-year, $40-million deal with Dollar General in 2001. The IBM registers are connected to the network, and the store’s coordinates are added to Spacenet’s pre-established connection with Goodlettsville. The work takes three to four hours.

When the contract was signed, Dollar General had 5,000 stores. But it did the deal for 7,500 stores. “They knew their growth,” Anders says.

Once the satellite network is humming, headquarters can start to send pricing files and product codes to the registers. Spacenet tests each piece of the Triversity point-of-sale applications, such as nightly polling and authorization of payments by bank and welfare debit cards. Also flung over the satellite are weekly payroll hours, uploaded from the registers.

In Whitesboro, Spacenet doesn’t come until Day 5 because of other commitments. Dollar General allows the vendor a two-day window after the IBM delivery.

Dollar General chose satellite communications after balky dial-up connections and spotty broadband coverage in small towns prevented 5% to 8% of its stores from connecting to headquarters each night for mandatory sales reporting, Anders says.

The discounter also wants to avoid mixing communications technology, says Bruce Ash, vice president of information and administrative services. “If you have three or four different networks, it takes people with all those skills to manage them,” Ash says. “It’s been a philosophy here: Do things as simply as possible.”

Day 5 – Embedding Scanners

Cashier training begins

Satellite network tested

Thunderblast stain remover, at last

With the satellite network in place, Hallstrom begins training Jersey Shore’s assistant manager and prospective cashiers in how to work the IBM registers. Flatbed scanners from Symbol Technologies are encased in the counters to read product bar codes. The scanners feed data to the registers.

Prices scan well, but not everything is right. Checkout receipts say the store is in Tennessee, not Pennsylvania. The lines for phone number and manager’s name contain generic placeholders. That happens sometimes because the registers come preloaded with sales software but not with the identification of the individual store.

That will be fixed by grand opening the following Saturday, Hallstrom says.

One key lesson in register work is to scan each item separately, no matter if the customer is buying several of the same. Otherwise Dollar General’s automatic replenishment program will have the distribution center ship the wrong merchandise.

For example, a clerk sees 10 bottles of Suave shampoo on the counter and punches in “10 @” while scanning one bottle, Hallstrom explains. But five of them might be Suave Fresh Mountain Strawberry and the other five Suave Milk & Honey. “That would mess up inventory,” she says. “Every unit that goes out, we have to get back in.” In the “10 @” scenario, the store’s next delivery would include 10 bottles of Suave shampoo, but five of them would be the wrong scent.

Meanwhile, a second truck brings another 3,500 to 4,500 cartons of core merchandise such as snacks, candy, paper goods and fast sellers such as Thunderblast stain remover ($2 per bottle).

Jersey Shore is Koehn’s 12th opening this year. As at the previous 11, he orchestrates stocking by following a map created by a computer-aided design technician in Goodlettsville a month earlier. The key design point is the store’s square footage. Headquarters wants paper towels, cleansers, potting soil, soups and 4,245 other core items in each store, and getting all those in is enough of a puzzle.

But the layout specialist also includes space for non-core merchandise that, according to daily and monthly operating reports, is selling well at stores nearby. It might be plastic lawn chairs or Chinese knockoffs of popular Bratz dolls. Dollar General warehouses carry 20,000 products at any one time.

Headquarters allows two basic layouts. Older Dollar General stores sport the traditional plan, where most shelving cuts horizontally across the store in two groups, one on the left side and one along the right. In a “midway” between the groups sit stacks of “red hot buys” and seasonal merchandise—holiday wreaths in winter, kiddie pools in summer.

New stores are designed front to back. Shelves run vertically, giving cashiers up front a view down each aisle (the better to catch shoplifters). The midway for special merchandise becomes the wide horizontal path between where the shelving ends and the row of checkout lanes begins.

In Whitesboro, Longway displays 19-inch Brocsonic color televisions in the midway. The $50 sets are this year’s grand opening special purchase. Each new store gets 50 units of whatever the special is. Last year it was a $35 microwave oven.

Rambus bought two, one for a gift and one for himself. A $35 microwave? “It’s a good microwave,” he insists. “I use it all the time.”

Day 6 – Tug of War

More product stocking

Customers hover

Closer to the Bahamas

Clerks practice on the registers. Others load skin cream and diapers onto shelves and clip small stuffed animals onto heavy display string dangling in the toy aisle.

“Grand Opening” signs are already up in Whitesboro’s windows, although the official event won’t happen until April 17. Rambus, chatting on his cell phone on the sidewalk, must turn eager customers away. “We’re not open yet. Just setting up. Open Friday,” he tells an elderly woman who tries to walk in.

All 50 Dollar General setters meet once a year to hear management’s expectations for openings and learn new procedures. At January’s meeting, Rambus and Koehn heard about this year’s incentive to keep openings as efficient and inexpensive as possible. A cruise to the Bahamas will go to whoever sets up a new store this year in the shortest time using the least amount of payroll.

It’s a tug of war between time and money. Rambus gets Whitesboro done with 17 workers in eight days. Koehn opens Jersey Shore in just seven days but it takes three more people, a total of 20.

Day 7 – Filling In

Where to put the “automatics”

Packing trucks twice as fast

Plugging in coolers

A final truck arrives with seasonal and special-buy items, including the Brocsonic TVs from Japan, $10 lava lamps and $20 rolling kitchen carts. Dollar General calls those goods “automatics” because they’re automatically sent to all stores without having been ordered.

In Jersey Shore, the kitchen carts go in a knick-knack area toward the front, near the clothing. “That’s the kind of stuff that a browsing-type customer is going to look at,” Hallstrom explains. No sense putting products that call for contemplation near items that purposeful shoppers want to grab quickly, such as milk or detergent, she says.

Also on the third truck is any fill-in merchandise that was missing from the first two deliveries. That happens when the closest warehouse is temporarily short. The goal is to have all stores within 250 miles of a warehouse. To help stock the Southeast, where the most Dollar General stores are concentrated, the company plans to spend $70 million to build an eighth facility in Jonesville, S.C., next year.

At two of its other distribution centers, dual-sorting systems—two parallel conveyor belts from the floor to the loading dock—pack trucks twice as fast as single conveyors can.

Back in Whitesboro, Longway has contacted local food companies to schedule delivery of milk, bread, cheese and other perishables. She now takes charge of setting up three refrigerated coolers. The job is generally done on the last or second-to-last day of setup to avoid smelly food spoilage.

Perishables come from local vendors, and prices aren’t as uniform across all stores as with Dollar General’s own merchandise. A gallon of Lehigh Farms whole milk goes for $3.45 in Jersey Shore. In Whitesboro, a gallon of Meadow Brook milk is $2.50.

Also unlike Dollar General’s own products, cooler items get counted and verified on arrival at stores. The delivery truck driver will bring in boxes and place his quarts and gallons of product on racks in the cooler, while a store manager or assistant manager checks off line items on paper orders.

More new stores will offer more perishable food than ever. Plus, the chain also this year will open 20 Dollar General Market stores, which are double the size of a regular outlet and focus on supermarket-style products.

“Food is the direction,” Anzor says.

Day 8 – Mop and Go

Paper checklists

Last satellite tests

Sweets for the sweats

Crews rush to fill the last shelves, racks, pegs and strings. Koehn and Rambus carry around batches of paper—building permits, store maps, planograms—and, with paper and pen, check off jobs completed. Dollar General won’t spring for personal digital assistants. But Rambus says he doesn’t want one anyway. “I like a Day Planner to record it all,” he says.

As district manager, Anzor fetches money from a local bank to fill Jersey Shore’s two registers for making change on opening day. Dollar General headquarters wires funds a day or two before opening.

The satellite network gets a last test run.

If setup ends on a Friday, the store manager may elect to buy a box of celebratory doughnuts for the crew in keeping with Dollar General’s “Donut Friday” reward program. For all their sweat, they get a single doughnut each.

“Recovery” is the last step, which means picking up garbage from aisles, mopping floors and polishing counters. “They stress a lot of lighting and to keep it clean,” Longway says. “Customers don’t want to walk into a dark store and trip on dirt.”

Hallstrom is a stickler for bringing all items to the edge of the shelves. “I tell the clerks when I hire them, ‘You’re not going to hang out in the front of the store on register all the time.’ We need to be 100% recovered.”

Those who aren’t staying on as permanent cashiers and clerks take their last paycheck. The full-timers go home to rest for the next day’s “soft opening,” where the store unlocks its doors to what is often a waiting public. That’s ahead of an official grand opening slated for a week or so later.

Opening Up, Moving On

Longway gets a mix of browsers and buyers her first day in business. Sales are “pretty good” in Whitesboro, she says, but declines to cite a figure. She’s got a Family Dollar store two miles away to compete with.

Jersey Shore takes in more than $4,300 its first day. Dollar General is the only chain store in this town of 4,482, save for a newly opened Curves exercise club franchise. The new Dollar General, says one elderly woman with crackers and paper towels in her cart, “is the best thing to happen to this town in a long time.”

Grand opening is an event. Special signs and plastic banners are hung, and mayors and fire chiefs have been known to attend. But by then, openers like Rambus and Koehn are gone to the next site. Koehn travels 22 days per month. “If I didn’t have my dog to come home to, I’d sell the house and live out of a suitcase,” he says.

After finishing Whitesboro in April, Rambus opened Linesville, Pa., in early May. He was due to close down Dollar General’s poor-performing store in Enola, Pa., at the end of May, and knew he would be opening a store in Mayville, N.Y., at the end of June.

“I’ll be at places in between, I’m sure,” Rambus says.

They won’t let him rest for long.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.