•Unprecedented amount of inflation (both product & fuel) has slowed down customers quite a bit.
•However, gainfully employed customers have been able to largely absorb product inflation, gasoline, rents & upcoming heating costs. Before inflation set in, consumers were well situated working 40 hrs/week at an additional $1/hr. vs. the previous year.
•Management believes the consumer could weather this economic storm if they remain employed even though it will be difficult for the next quarter or so.
•In any case, post-inflation customers are frequenting more often & buying less on each occasion because they don’t know what the next week will hold. Customers will not invest & buy in anticipation of their family’s needs for the next week.
•Core customers are running out of money at the 3-4 week mark of the month & require the $1 price point to bridge them until the next paycheck.
•As DG’s customers never gave them the green light to raise prices off the dollar, leadership believes that not only does it need to foster that $1 price point but needs to offer more merchandise at that price level.
•While the ‘08 financial crisis drove trade-down during ‘09 & ‘10, the current economic environment is different given a high inflation rate.
•This time around, Dollar General added higher-income customers post-covid ($50k – $60k vs. core customers earning <$40k/year) that continue to frequent.
•Further, DG is currently reporting trade-in from the $75k – $100k cohort which also initially trialed the chain during covid & came to appreciate its diverse offerings.
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