No. of Recommendations: 7
There is thread going on at ValueInvestorClub highlighting DG as a short. The gist of it is there are multiple headwinds (reduced SNAP benefits, cannot spend SNAP on junkfood, etc.) but the main one is WMT is a)cheaper per unit for most products b) now delivers into rural areas cost-effectively. Hence their core customer can spend at WMT for cheaper and more conveniently than before (prior, the core customer had to drive ~50miles to WMT whilst DG was 5mi away). WMT gave a successful example of this capability in a small town in Texas (Leonard with 2K population) - the bread and butter for DG. Signs like the departure of Vasos are indicative of this thesis.
No. of Recommendations: 13
That could be true, but the “Walmart spread” sounds overblown, at least to me. I haven’t followed Wally in several years, but even so it seems unlikely that they have added enough stores in the hinterlands to make this kind of dent in DG’s primary business model.
Anecdotal evidence, not worth much I know: I have 3 WalMarts within reasonable driving distance, defined as 30 minutes or less. (Closest is 15). I pass 2 DGs (or similar) on the way to each of them - and this has not changed in over a decade.
Meanwhile, I drive the hinterlands of Tennmessee pretty often, going to art festivals, buying stuff off FB Marketplace, etc. and I pass DGs (or similar) all over the place and in depopulated areas where a Walmart would starve to death.
The secret sauce in DG, besides inventory selection and container-size to keep pricing down, is *location*. They started as the resurrection of the rural General Store, albeit with a price promise in the name. From that they have launched tens of thousands of stores, so they were obviously doing something right.
The biggest flaw is that there is barely any moat. Anybody can throw up four walls and put a sign out front (and several have: Family Dollar, Dollar Stores, 5 Below, etc) leading to a glut. Now, I presume, it’s a battle of business: outlasting and outflanking the other guys to be the king of the hill. Efficiency. Merchandising. Supply chains, that sort of thing. McDonalds vs Burger King vs Wendy’s, if you will.
For the record over the past 5 years Walmart has closed almost 200 of it’s “small format” (read: rural) stores and opened just 30. Doesn’t sound like a big threat, eh?
I suspect there’s room for all, unless there’s something going on with DG that I’m not aware of (certainly possible). All that said, short? Maybe. It would have to be a lot more compelling than “Walmart is opening stores nearby” because I don’t see it.
No. of Recommendations: 4
I used to live in Tennessee and had offices throughout the southern US (five in
Alabama alone). I also used to bicycle through Tennessee, Alabama, Georgia, and
Mississippi. My observation was that Walmart and Dollar General stores somehow
coexist even in the smallest communities. I recall one Dollar General store in
Alabama that was literally (yes, in the literal sense of the word ;-)
a stone's throw from a Walmart Supercenter.
<< The biggest flaw is that there is barely any moat. >>
I think the moat, such as it is, may be the logistics infrastructure: small
stores, high frequency delivery, hub-and-spoke distribution. It helps that they
limit the number of products and focus on high-demand, consumable stuff (e.g.
cleaning products.)
Compared to Walmart, DG has faster restocking cycles and less idle inventory.
But I confess admiration for the shorts brave enough to place their bets.
-Rubic
