Dollar General Makes 3 Changes to Self-Checkout Strategy

Actions to help combat the increased shrink felt in Q4 and FY2023
Marian Zboraj, Progressive Grocer
Dollar General Self-Checkout
Dollar General will make changes to its self-checkout to help combat shrink.

Dollar General Corp. revealed during its fourth-quarter earnings (see below for Q4 highlights) call on March 14 that it plans to make three changes to its self-checkout strategy this year. The discount retailer currently has self-checkout options available in more than 14,000 stores. 

Its first action, which has already begun, is to convert some or all self-checkout registers to associated assisted-checkout options in approximately 9,000 stores. 

“This is intended to drive traffic first to our staffed registers, with assisted-checkout options available as second or third options to reduce lines during high-volume times,” explained CEO Todd Vasos.

The second course of action applies to all remaining stores with self-checkout. Here, Dollar General is starting to limit self-checkout to transactions consisting of five items or fewer. A similar move was recently made by Schnuck Markets Inc.; self-checkout lanes in all of its stores are limited to customers who have 10 items or fewer.

For its third course of action, Vasos said that over the first half of the year, Dollar General plans to completely remove self-checkout from more than 300 of its highest-shrink stores. According to research from Grabango, self-checkout machines are contributing to shrink in a major way, with losses totaling 3.5% of sales, or more than 16 times more loss than traditional cashier lanes. In fact, shrink was attributed to Dollar General’s drop in gross profit in Q4. Gross profit as a percentage of sales was 29.5%, a decrease of 138 basis points.

Vasos said that all of these steps are in line with what the customer prefers more personal engagement at the store. 

“Although adoption rates for self-checkout have been high, we believe there's truly no substitute for an employee presence at the front end of the store to greet customers and provide excellent customer service, including at checkout,” he noted.

Beyond changes to self-checkout, Dollar General is also executing a variety of other actions to reduce shrink this year, including inventory reduction efforts, additional shrink incentive programs for store managers to encourage and foster a greater sense of ownership, SKU rationalization, and the use of high-shrink planograms, whereby Dollar General will remove certain high-shrink items from high-shrink stores to target the greatest opportunity for improvement.

Regarding SKU rationalization, Dollar General has already begun actively reducing the number of SKUs that it carries in stores through its planogram reset process, and it expects net reduction of up to 1,000 SKUs in stores by the end of 2024.

“While we anticipate a continuing headwind from shrink early this year, we believe our actions will have a significant mitigation impact in the back half of the year and into 2025,” said Vasos. “Overall, we believe these actions in our stores will drive improvements in customer satisfaction, including customer service and on-shelf availability and convenience; enhance the associate experience in our stores, including improved employee engagement and retention; and drive improvements in financial results, including sales and shrink."

Dollar General Employee
Dollar General is offering shrink incentive programs for store managers, to encourage and foster a greater sense of ownership.

Q4 Highlights

For its Q4 ended Feb. 2, Dollar General's net sales decreased 3.4% to $9.9 billion, compared with net sales of $10.2 billion in last year's fourth quarter. This decrease was primarily driven by lapping sales of $678 million from the 53rd week in fiscal 2022. Net sales performance was highlighted by accelerating market share growth in both dollars and units in highly consumable product sales, as well as market share growth and dollars in nonconsumable product sales.

Same-store sales grew slightly by 0.7%. The increase was driven by growth of nearly 4% and customer traffic.

SG&A was 23.6% as a percentage of sales, an increase of 189 basis points. This increase was primarily driven by retail labor, including the remaining $50 million of the company’s targeted labor investment, as well as store occupancy costs, depreciation and amortization, repairs and maintenance, and other services purchased. 

Operating profit for Q4 decreased 37.9% to $580 million. As a percentage of sales, operating profit was 5.9%, a decrease of 327 basis points. 

Finally, EPS for the quarter decreased 38% to $1.83, which was at the higher end of its internal expectations. For the full year, EPS decreased 29% to $7.55. 

Dollar General expects a comp-sales increase of 1.5% to 2% in the first quarter of 2024, with EPS in the range of approximately $1.50 to $1.60.

Meanwhile, Dollar General continues to make advancements in its fresh initiative: It now has nearly 30 doors per store on average, with ongoing opportunities to add cooler doors and frozen and refrigerated items.

The retailer had fresh produce in more than 5,400 stores at the end of FY2023, and is targeting up to 1,500 additional stores for produce in 2024. 

[RELATED: Dollar General Positions Itself as Serious Competitor to Traditional Grocers]

Regarding store growth, the retailer executed more than 3,000 real estate projects in 2023, including 987 new stores, 129 relocations and 2,007 remodels. 

The company expects to build on this momentum in 2024, as it plans to execute approximately 2,385 projects, including 800 new store openings, 1,500, remodels and 85 relocations. The store-opening plans include 30 pOpshelf  stores and up to 15 stores in Mexico.

Goodlettsville, Tenn.-based Dollar General operates 20,000 Dollar General, DG Market, DGX and pOpshelf stores across the United States, and Mi Súper Dollar General stores in Mexico. The company is No. 16 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.

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