Dollar General 2011 Annual Report Download - page 107

10-K
increases in the annual number of shopping trips that our customers make to our stores as well as the
amount spent during each trip.
To attract new and retain existing customers, we continue to focus on product quality and
selection, in-stock levels and pricing, targeted advertising, improved store standards, convenient site
locations, and a pleasant overall customer experience.
Our Suppliers
We purchase merchandise from a wide variety of suppliers and maintain direct buying relationships
with many producers of national brand merchandise, such as Procter & Gamble, Kimberly Clark,
Unilever, Kellogg’s, General Mills, Nabisco, Coca-Cola and PepsiCo. Despite our broad offering, we
maintain only a limited number of SKUs per category, giving us a pricing advantage in dealing with our
suppliers. Approximately 8% and 7% of our purchases in 2011 were from our largest and second
largest suppliers, respectively. Our private brands come from a diversified supplier base. We directly
imported approximately 8% of our purchases at cost (12% of our purchases based on their retail value)
in 2011. Our vendor arrangements generally provide for payment for such merchandise in U.S. dollars.
We have consistently managed to obtain sufficient quantities of core merchandise and believe that,
if one or more of our current sources of supply became unavailable, we would generally be able to
obtain alternative sources without experiencing a substantial disruption of our business. However, such
alternative sources could increase our merchandise costs or reduce the quality of our merchandise, and
an inability to obtain alternative sources could adversely affect our sales.
Distribution, Transportation and Inventory Management
Our stores are currently supported by ten distribution centers located strategically throughout our
geographic footprint, including a new distribution center in Bessemer, Alabama which began shipping
to stores on March 11, 2012. We lease additional temporary warehouse space as necessary to support
our distribution needs. In addition, we have leased a distribution facility in Lebec, California which we
expect to be operational in April 2012. Over the past few years we have made significant investments in
facilities, technological improvements and upgrades, and we continue to improve work processes, all of
which increase our efficiency and ability to support our merchandising and operations initiatives as well
as our new store growth. We continually analyze and rebalance the network to ensure that it remains
efficient and provides the service our stores require. See ‘‘—Properties’’ for additional information
pertaining to our distribution centers.
Most of our merchandise flows through our distributions centers and is delivered to our stores by
third-party trucking firms, utilizing our trailers. Our agreements with these trucking firms are based on
estimated costs of diesel fuel, with the difference in estimated and current market fuel costs passed
through to us. The costs of diesel fuel are significantly influenced by international, political and
economic circumstances, and were considerably higher throughout 2011 than in 2010. If such increased
prices remain in effect, or if further price increases were to arise for any reason, including fuel supply
shortages or unusual price volatility, the resulting higher fuel prices could materially increase our
transportation costs.
We believe that there remains opportunity to improve our inventory turns. Initiatives in process
include operational efforts to optimize presentation levels, improve in-stock levels and decrease excess
quantities shipped to our stores. We continue to focus on SKU optimization in an attempt to ensure
that we can meet customers’ demands for our most popular products as well as ensure appropriate
product assortment. We are also in the process of implementing an improved supply chain solution to
assist in ordering, monitoring and tracking inventory from purchase order to receipt to maintain
efficient levels of inventory. We turned our inventory approximately 5.3 times over the most recent four
quarters.
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