Dive Brief:
- Dollar General will double the scale of its DG Fresh distribution program by the end of 2020 — accelerating growth of the 1-year-old program, CEO Todd Vasos said on the company's Thursday earnings call. By the end of 2020, DG Fresh will increase its warehouse count from five to up to 10 and serve 12,000 stores, up from 6,000.
- The continued investment in building out fresh distribution will be worth it for the future margin gains, executives have echoed for the past year and CFO John Garratt said the program will begin contributing to margins later in 2020. Margins were up very slightly in the fourth quarter year-over-year and for the full year 2019.
- The Fresh initiative is part of the company's effort to be less dependent on third-party carriers in general. In December, Vasos said the company would build its private tractor fleet to 300, adding 100 in 2019 with more additions to come in 2020.
Dive Insight:
A year ago, Dollar General announced it would open four DG Fresh warehouses with the aim of bolstering margins and improving in-stock status for fresh and frozen groceries.
After the first year of building, Vasos made clear the retailer is seeing the returns it was looking for in taking on the difficult and asset-heavy task of insourcing fresh and frozen distribution. Margins maintained during the building phase and the CFO said he sees the path for them to start to build. In-stock status has also improved, though the CEO did not give exact figures as to the degree.
"Historically our in-stock on the frozen refrigerated side of the business has lagged dry by 10 points," the CEO said. "And so we see that as a benefit, as we close that gap."
In-stock status is up across the store, said Vasos, since starting the company's "Fast Track" in-store replenishment program, in which the company optimized operations from truck-loading at the warehouse on forward in order to speed up shelf-stocking and decrease stockouts. The margin increase came from better labor productivity, Vasos explained.
