How Dollar General is adapting to a more cautious consumer

Dollar stores may have their value proposition spelled out in their names. But that doesn’t mean they can rest on their laurels when it comes to getting increasingly cautious consumers in the door.

Dollar General CEO Todd Vasos told shareholders on Thursday that “softness in sales” in Q1 reflected “continued pressure” on its core consumers. He added that shoppers are “very value-oriented,” which was evident from an uptick in sales of private label brands and items priced at or below $1.

But the discount chain isn’t just waiting around for shoppers to get their mojo back. While rival Dollar Tree is making big moves such as shutting down hundreds of stores and acquiring hundreds more from the recently bankrupt 99 Cents Only, Dollar General is working behind the scenes to adapt its operations with the goal of attracting cost-conscious customers.

Cutting inventory: CFO Kelly Dilts said the company continues to cut back on inventory, reducing its nonconsumable stock by 19.1% compared to last year, which is freeing up cash for the business and mitigating the risk of shrink. She added that shrink continues to be “our most significant headwind.”

This goal relates to another ongoing initiative at Dollar General: a commitment to achieve a net reduction in 1,000 SKUs by the end of the year. Vasos said the company is “well on our way to meeting that goal,” and that he expects demand for lost SKUs to transfer to remaining products.

In addition, the company is making progress on removing self-checkout options from the majority of its stores. In Q1, it eliminated self-checkout from 3,000 stores, on top of the 9,000 stores it transitioned last quarter.

Focus on remodels: Dollar General is also tweaking its expansion plans by shifting resources away from new construction into additional remodels.

“We now expect to remodel approximately 1,620 stores this year compared to our previous expectation of 1,500 remodels,” Dilts said. “To facilitate this increase in remodels, we're reducing the number of planned new stores to 730 compared to our previous expectation of 800 new stores.”

More ad revenue: On Friday, the company announced that it’s partnering with commerce media company Criteo to develop new ad offerings based on its first-party and in-store sales data.

“Our partnership with Criteo is an extension of our commitment to our customers, particularly those in hard-to-reach, rural areas, creating more meaningful connections to better serve the communities in which we operate,” Charlene Charles, head of operations at the Dollar General Media Network, said in a statement.