David vs. Goliath: Compete Like A Dollar Store

Walmart is a retail Goliath. The company operates:

  • 11,000 stores in 27 countries,
  • E-commerce websites in 10 countries,
  • 630 U.S. Sam’s Club warehouse stores,
  • And grocery stores through 3,267 Supercenters and 322 Neighborhood Markets.

Enter the dollar store. It doesn’t look like much from the outside (a “no-frills box,” as Dollar General CEO Richard Dreiling described it to the NY Times a few years ago). Yet something (besides a flagging economy) is propelling dollar stores to become some of the fastest growing retailers in the country. How are dollar stores successfully battling the low-cost market giant Walmart?

Focus on the right competitive advantage

How does DG compete with Walmart on price? They don’t. DG isn’t delusional; it knows that going head-to-head only on price with Walmart is a losing proposition. True, DG does strive towards low costs, but their true competitive advantage is convenience. Maintaining a competitive position focused on convenience requires selecting its store locations, size, product selection, and pricing accordingly (more details below).

You can start to see the subtle but important differences between Walmart and DG by looking at their taglines (and also check out this). Walmart’s tagline is “Save Money. Live Better.” But moreover, here’s a line from a weekly ad circular: “Get it all in one trip.” Dollar General’s (DG) tag line is so similar, you might miss it: “Save time. Save money. Every day!” So, DG is looking to lure customers who are looking to make a few quick purchases, not do their weekly shopping all in one go.

Choose your position, then own it

DG and other dollar stores compete with big box stores by making it easier for consumers to buy everyday, popular brand items at a low price. With ease of purchase as the main customer value proposition, dollar stores own the category by:

  • Building small, no frills stores in residential areas along routes consumers travel frequently to and from work.
  • Carrying a low variety of products, mostly essential non-perishable items consumers need weekly (laundry detergent, toilet paper, snack food, and basic toiletries).
  • Reducing the number of brands and price points in each category.

The result is that dollar store shoppers spend less than 10 minutes inside the store. Contrast this to a usual Walmart shopping experience. If you need toilet paper, milk, and dish soap, would you rather spend a half hour meandering through a cavernous Walmart and comparing prices on 20 brands, or run into the Dollar General? This is another reason it’s common to see dollar stores located in the same shopping centers as a Walmart. While both stores draw cost-conscious customers, the dollar store picks off those who’d prefer an easier, quicker low-cost shopping trip. It doesn’t matter that Walmart actually has the lowest prices.

Hit them where it counts

The dollar store lesson is simple, but not easy: Know what your competition is capable of, and define your market carefully given what you know about your competition and customers. Define it for the specific problems you’re helping specific customers solve. Don’t try to be all things to all people. Strive to be the right things to the right people. Your well-defined market position is your weapon; take aim and hit your competition where it counts.

The ability to do this—whether you’re up against a market Goliath or creating a new market from scratch—will determine your fate in the short and long term.