Dollar General 2010 Annual Report Download - page 106

10-K
environment with heightened economic challenges and uncertainties. Consumers are facing very high
rates of unemployment, fluctuating food, gasoline and energy costs, rising medical costs, and a
continued weakness in housing and credit markets, and the timetable for economic recovery is
uncertain. Nonetheless, as a result of our long-term mission of serving the value-conscious customer,
coupled with a vigorous focus on improving our operating and financial performance, our 2010 and
2009 financial results were strong, and we remain optimistic with regard to executing our operating
priorities in 2011.
At the beginning of 2008, we defined four operating priorities, which we remain keenly focused on
executing. These priorities are: 1) drive productive sales growth, 2) increase our gross margins,
3) leverage process improvements and information technology to reduce costs, and 4) strengthen and
expand Dollar General’s culture of serving others.
Our first priority is driving productive sales growth by increasing shopper frequency and
transaction amount and maximizing sales per square foot. Our category management processes allow us
to identify opportunities to add more productive items and remove unproductive items in a timely
manner and have allowed us to continue expanding our consumables offerings while also improving
profitability. We raised the shelf height in our stores in three phases from 2008 through 2010 in order
to utilize the space in our stores more productively. We are adding a fourth phase in 2011. In addition,
we believe we have significant potential to grow sales through new store growth in both existing and
new markets. We opened 600 new stores in 2010 and plan to open approximately 625 new stores in
2011.
Our second priority is to increase gross profit through effective category management, the
expansion of private brand offerings and increased foreign sourcing, shrink reduction, distribution
efficiencies and improvements to our pricing and markdown model, while remaining committed to our
everyday low price strategy. We constantly review our pricing strategy and work diligently to minimize
vendor cost increases as we focus on providing our customers quality merchandise at great values. In
our consumables category, we strive to offer the optimal balance of the most popular nationally
advertised brands and our own private brands, which generally have higher gross profit rates than
national brands. In 2011, we expect increased product costs. We saw the costs of certain commodities
(including cotton, wheat, corn, sugar, coffee, resin) and the costs of diesel fuel begin to escalate in our
2010 fourth quarter. The market prices of these commodities, including the cost of diesel fuel, are
outside of our control. However, we will be diligent in our efforts to keep product costs as low as
possible in the face of these increases while still working to optimize gross profit and meet the needs of
our customers.
Our third priority is leveraging process improvements and information technology to reduce costs.
We are committed as an organization to extract costs that do not affect the customer experience.
Examples of ongoing cost reduction initiatives include the installation of energy management systems,
continued preventive maintenance with the goal of reducing overall repairs and maintenance costs, and
recycling of cardboard to reduce waste management costs. Our real estate team continues to seek out
opportunities to negotiate favorable lease renewals. We are focusing our information technology
resources on improving systems to create greater efficiencies in merchandising and retail store
operations, evidenced by our intention to implement a new store staffing module in 2011 to better align
store labor hours with our customer’s shopping needs. In 2010, we centralized our procurement system
which we expect to aid us in reducing the cost of purchases throughout the company in 2011 and
beyond. We plan to continue our diligent efforts with regard to our cost reduction initiatives in 2011.
Our fourth priority is to strengthen and expand Dollar General’s culture of serving others. For
customers this means helping them ‘‘Save time. Save money. Every day!’’ by providing clean,
well-stocked stores with quality products at low prices. For employees, this means creating an
environment that attracts and retains key employees throughout the organization. For the public, this
means giving back to our store communities. For shareholders, this means meeting their expectations of
an efficiently and profitably run organization that operates with compassion and integrity.
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