Dollar General Adding 1,050 Stores: Is it Wise?

"Make hay while the sun shines" is not only a proverb of life but of business. Roughly it means taking advantage of a particular situation while it exists because it may not be around forever.

Through this lens, I analyze an Axios article where Dollar General will add 1,050 stores to its 19,000-store fleet.

(Just for comparison, Walmart's figures put Walmart Stores at nearly 5,000 stores in the US.)

Making hay while the sun shines sounds great, in theory. The challenge is simple -- once you build a store, it's more or less built "forever." And that includes while the sun is shining, when it's raining or snowing, and at night when the sun is hidden.

Dollar General takes advantage of two huge short-term and long-term trends.

The short-term trend is inflation and the upcoming slowing of the economy, encouraging shoppers to "trade down" and shop more at the discounter. Even if you don't think we are in a recession right now and "everything is fine," it doesn't mean that "many things are different" is not also true at the same time. Particularly if you look at category-by-category data (which you need to understand what's happening).

The second trend benefiting Dollar General is the much longer-term trend in the United States: the middle and lower classes are losing economic clout compared to the top 1% since the 80s. This tends to give a value chain like Dollar General a tailwind.

Dollar General is doing one smart thing for sure -- adding fresh groceries. Fresh and replenishable items encourage repeat visits, which can lift the entire store's sales over the long term. It also means that Dollar General could be attempting a broad low-end disruption of Wal-Mart. Something that I'm sure is not lost on the firm.

The big challenge is -- how much hay is too much? What if it over-reaches the supply of horses consuming the hay? Or the workers shoveling the hay?

In this case, the management team seems to realize this with its category expansion and is using that as a hedge to keep consumers coming back, even as it expands.