Dollar General builds new DCs as trucking rates rise

Dive Brief:

Dollar General is building two new distribution centers (DC) to help offset the effects of high fuel costs and freight rates, CEO Todd Vasos told investors in a recent earnings call. Both centers are expected to open in 2019.
The company is also expanding its private fleet and "growing and diversifying our carrier base," Vasos said. Dollar General is on track to expand its fleet to 200 this year, up from 80 at the end of fiscal 2017.
The retailer spent $39 million on "distribution and transportation related projects" in the first quarter of 2018, according to a company news release.

Dive Insight:

The freight and fuel headwinds blowing in the face of Dollar General are the same ones facing many retailers and brands.

While some retailers can raise the price of their products to offset freight costs, passing costs onto the consumer isn't an option for Dollar General (unless it's willing to rebrand its stores as Two-Dollar General).

Instead, the discount retailer is looking at its supply chain to get closer to stores and consumers, reducing transport distances, trucking and fuel costs as a result.

"Our 16th and 17th distribution centers are currently under construction in Longview, Texas and Amsterdam, New York," Vasos said. "We anticipate that both of these DCs will open in the 2019 calendar year and then we will see relatively quick and positive impact on stem miles."

In addition, the retailer is making moves to rely less on third party carriers and more on its own private fleet, Vasos said. "Over time, we believe this will give us added flexibility and help insulate us from future carrier rate fluctuations."

The retailer is actively recruiting drivers, enticing them with a promise of an annual salary up to $90,000. While several carriers are offering incentives to recruit drivers, Drew McElroy, CEO of Transfix, told Supply Chain Dive the move won't actually solve the trucking capacity crisis.

"It's a smart move for the individual carrier, but that's going to help them recruit drivers from other people," he said. "It's not going to bring new drivers into the industry."