Dollar General is piloting same-day delivery from approximately 75 stores as the discount retailer hopes to atone for some of its slip-ups earlier this year and regain market share among its middle-income consumers.
The dollar store currently has an existing delivery partnership with DoorDash, whose driver network delivers goods from 16,000 of its more than 20,000 stores. That collaboration started as a pilot program across 600 stores in summer 2021.
But the new same-day pilot will be from a different undisclosed third-party delivery company. Like the DoorDash partnership, the new third-party service will offer its own drivers, which means no added labor for current Dollar General employees.
Customers can access the DG Delivery option via Dollar General’s mobile app, and get products delivered in as little as one hour, at the same price as in-store. The program also accepts digital coupons and offers cash back rewards.
“The learnings from that initiative and our own customer work have provided the foundation from which to test our own delivery offering with our unique customer base,” said CEO Todd Vasos in a third quarter earnings call. “We believe this offering will even further enhance the convenience of our customers expect from Dollar General, while still providing the value they need. We are quickly learning and refining our process and over time we believe we can have delivery through the DG app available the same number of stores as our DoorDash offering, which we expect to continue expanding over time.”
Vasos stated that the goal of the delivery test is to drive greater customer loyalty within the digital platform, while ultimately increasing market share and accelerating growth.
“Eventually, I believe it could be in thousands of stores,” Vasos said.
Although the CEO alluded to the fact that the program would increase costs at the discount retailer, he noted that same-day delivery brought new margin potential for Dollar General’s retail media business, since customers would engage with the app more frequently when placing orders.
Same-day delivery, albeit a larger expense, could help Dollar General better compete with Walmart, which has seen its own delivery capabilities scale drastically in recent years. The retail giant’s e-commerce sales soared 27 percent in its third quarter, all while cutting U.S. delivery costs year-over-year by roughly 40 percent in three straight quarters.
During a Goldman Sachs retail conference in September, Vasos acknowledged that some of the retailer’s middle-income cohort was floating more toward mass merchants in the prior quarter that ended Aug. 2.
“While we gained share in that middle-income cohort, we gained it at half the rate we did in Q1,” Vasos said. “And it was obvious to us through the data where the other half went, and it went to mass [merchants]. And I think [during that call], we called out that the guys in Bentonville took a little bit larger piece of that.”
While net sales increased 5 percent to $10.2 billion in the third quarter, same-store sales for locations open for more than a year only increased 1.3 percent. Net income totaled $196.5 billion.
With $32.7 million in hurricane-related expenses throughout the quarter, Dollar General narrowed its full-year net sales guidance and downgraded the upper end of its expected diluted earnings per share range.
In the Thursday call, Vasos also revealed the retailer would be remodeling 4,250 stores and opening 575 new locations in 2025, and went into wider depth of the company’s supply chain.
Dollar General improved its on-time, in-full (OTIF) truck delivery levels in the third quarter, which is the company’s top supply chain priority, according to Vasos. The OTIF metric measures both the products arriving at the retailer at the scheduled delivery time (on-time), and the number of products that are ordered successfully arriving at the retailer (in-full).
On-time deliveries improved 4.7 percent from the year prior, while in-full rates improved 9 percent.
And Dollar General is currently in the middle of a distribution optimization, exiting four distribution centers (DCs) in the third quarter for a total of 15 within the past 12 months. The plan was set in motion began after the 2022 third quarter, when the discount retailer incurred more than $40 million in added supply chain costs.
The Tennessee-based company still expects to close three more facilities in 2025, which will help improve efficiency in the supply chain and reduce costs, Vasos said.
At the same time, the retailer recently opened up two new DCs, one each in Aurora. Colo. and North Little Rock, Ark.
By the end of this year, Dollar General anticipates these efforts will result in year-over-year reductions in delivery miles of approximately 4 percent or greater in both the company’s traditional and grocery supply chains.
Within the Arkansas facility, Dollar General has implemented automated storage and retrieval systems, an expansion of the first automation project that took place in a South Carolina DC last year.
And earlier this year, Dollar General began the first full-scale refresh of its sorting process within its DCs since 2017.
“As a reminder, the ultimate goal of this effort is to enable our store teams to stock shelves more quickly, which should drive greater on shelf availability for our customers and ultimately support ongoing sales growth,” said Vasos. “We have made significant progress on this front and as planned, we are on pace to complete this work by the end of the year.”
