Market Overview

Dollar General Ramps Up Grocery Stores to Challenge Big Retailers

Dollar General Ramps Up Grocery Stores to Challenge Big Retailers

Discount retailer Dollar General (NYSE: DG) has thrown its low-price hat into the grocery ring; by challenging the supermarkets and big-box retailers in the produce business.

The Tennessee-based company opened its 11,000th store this past October. And, according to The Tampa Tribune, DG has quietly established about 100 grocery stores nationwide – including 14 in the very competitive Florida market.

And the newspaper says Dollar General is giving some big-name firms a run for their money, when it comes to prices on groceries. The Tribune quotes data from the Kantar Retail market research firm, showing DG beat out Wal-Mart (NYSE: WMT), Famliy Dollar (NYSE: FDO), Stop & Shop, Aldi and Target (NYSE: TGT) in pure price data.

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“The reputation of a dollar store comes with the territory, but we are actually not really a dollar store,” company spokeswoman Crystal Ghassemi told the Tribune. A lot of people are starting to realize that we carry a lot of the most-popular brands on the shelf.”

Analyst and investor perception of Dollar General is also starting to evolve. Its share prices have been on the upswing since its better-than-expected third quarter results, announced last week.

Goldman Sachs recently upgraded the company to CL-Buy from Neutral – noting DG's “myriad initiatives and ability to gain share as a leading low-cost operator should continue to power top- and bottom-line growth despite our cautious view across food retail.”

FBR & Co. noted that, despite recently share price volatility, they believe Dollar General “is well positioned in the current consumer environment and that its strong business trends should continue. For FY14, we are modeling positive comps (driven by continued positive traffic trends and a tobacco benefit) but slightly shrinking operating margins.”

And BMO Capital Markets rates Dollar General stock at Outperform. While observing that about one-third of the company's transactions involve cigarettes, those tobacco-only purchases are reportedly declining. “So DG is beginning to convert the cigarette customer into a shopper,” it adds, “which bodes well for FY14 .”

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