Dollar General Strategic Overview

Address:100 Mission RidgeGoodlettsville, TN 37072615-855-4000www.dollargeneral.comSales: $6.10 billionStores: 6,192OperationsAs of February 28, 2003, the Company operated 6,192 stores in 27 states, primarily in the southern, eastern and midwestern United States.The Company has experienced a rapid rate of expansion in recent years, increasing its number of stores from 2,059 as of January 31, 1995, to 6,192 as of February 28, 2003. In addition to growth from new store openings, the Company recorded same-store sales increases of 5.7%, 7.3% and 0.9% in 2002, 2001 and 2000, respectively. In 2002, 2001 and 2000, the Company opened 622, 602, and 758 new stores, and remodeled or relocated 73, 78 and 237 stores, respectively. The Company currently expects to open approximately 650 new stores, close 50 to 70 stores, and remodel or relocate approximately 145 stores in 2003.The Company serves the consumable basics needs of customers primarily in the low- and middle-income brackets, and customers on fixed incomes. Research performed by an outside service on behalf of the Company in 2001 indicated that approximately 55% of its customers live in households earning less than $30,000 a year, and approximately 36% earn less than $20,000. The Company's merchandising and operating strategies are designed to meet the need for consumable basics of the consumers in this group.The Company's 2002 same-store sales increase of 5.7% was due to a number of factors, including but not limited to: the introduction of approximately 400 new items in the highly consumable category; a strong performance of seasonal merchandise in the first half of 2002 due in part to the introduction of new outdoor items and the staging of warm weather items in our stores earlier than in prior years; an increase in the number of stores offering perishable products from 411 at the end of 2001 to 1,367 at the end of 2002; and improved ordering practices by our store employees.The average Dollar General store has approximately 6,700 square feet of selling space and serves customers whose homes are usually located within three to five miles of the store. As of February 28, 2003, the Company had more than 3,900 stores serving communities with populations of 20,000 or less. The Company believes that its target customers prefer the convenience of a small, neighborhood store. As the discount store industry continues to move toward larger, "super-center" type stores, which are often built outside of towns, the Company believes that Dollar General's convenient discount store format will continue to attract customers and provide the Company with a competitive advantage. The typical Dollar General store has approximately 6,700 square feet of selling space and is operated by a manager, an assistant manager and two or more sales clerks. Approximately 58% of the Company's stores are located in strip shopping centers, 39% are in freestanding buildings and 3% are in downtown buildings.The Company currently expects to open approximately 650 new stores, close 50 to 70 stores, and remodel or relocate approximately 145 stores in 2003. In 2002, the average customer purchase was $8.50. The average number of items in each customer purchase was 5.7, and the average price of each purchased item was $1.48.MerchandisingThe Company is committed to offering a focused assortment of quality, consumable basic merchandise in a number of core categories, such as health and beauty aids, packaged food products, home cleaning supplies, housewares, stationery, seasonal goods, basic clothing and domestics. Because the Company offers a focused assortment of consumable basic merchandise, customers are able to shop at Dollar General stores for their everyday household needs. The Company distributes quality, consumable basic merchandise at everyday low prices. Its strategy of a low-cost operating structure and a focused assortment of merchandise allows the Company to offer quality merchandise at highly competitive prices. As part of this strategy, the Company emphasizes even-dollar price points. The majority of the Company's products are priced at $10 or less, with approximately 33% of the products priced at $1 or less. The most expensive items are generally priced around $35.The Company's merchandising initiatives are designed to promote same-store sales increases. In recent years, the Company has increased its emphasis on the highly consumable category by adding items in the food, paper, household chemicals, and health and beauty aids categories. In 2001, the Company began offering perishable products. This perishable program, which includes a selection of dairy products, luncheon meats, frozen foods and ice cream, was expanded from 411 stores at the end of 2001 to 1,367 stores at the end of 2002. The Company maintains approximately 4,075 core stock-keeping units ("SKUs") per store. AdvertisingThe Company does not run weekly advertising circulars but does advertise to support new store openings. Advertising expenses are less than 1% of sales. Advertising costs are expensed as incurred and were $7.1 million, $6.6 million, and $7.0 million in 2002, 2001, and 2000, respectively.The Company, through its affiliate, Dollar General Intellectual Property, L.P., has registered the trademarks Dollar GeneralÆ, Clover ValleyÆ, DG GuaranteeÆ and the Dollar General price point designs, along with certain other trademarks, with the United States Patent and Trademark Office. The Company attempts to obtain registration of its trademarks whenever possible and to pursue vigorously any infringement of those marks.The Company records vendor rebates, primarily consisting of new store allowances and volume purchase rebates, when realized. The rebates are recorded as a reduction to inventory purchases, at cost, which has the effect of reducing cost of goods sold, as prescribed by Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16").

Dollar General Strategic Overview

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