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Dollar General is Opening Full-Sized Grocery Stores

CBSNews -- Watch out, Safeway (SWY) and Walmart (WMT). There's a new grocer in town, and it could very well turn the whole sector on its head.
Watch out, Safeway (SWY) and Walmart (WMT). There's a new grocer in town, and it could very well turn the whole sector on its head.

Dollar General (DG) has quietly entered the grocery business, building a new prototype store in 100 locations around the country. These aren't your typical dollar stores, either. Instead, they're full-sized grocery stores selling Gatorade, Jif peanut butter and Dasani water -- with prices that are very low, The Tampa Tribune reports.

In Florida, Dollar General's grocery stores are beating Walmart, Stop & Shop, Aldo and Target (TGT) on price, according to market researcher Kantar Retail and reported by the Tribune. The stores look better than the basic dollar store as well, with neatly organized shelves, bright colors and polished concrete floors, the paper reports.

Chains like 99 Cents Only have been moving further into grocery as well, selling such perishables as dairy, fresh produce and loaves of bread.

Could we see more dollar stores expanding into full grocery, with prices that beat just about everyone else? Dollar General and 99 Cents only are paving the way, and while they don't have the vast selection of a typical Kroger (KR) store, for example, they certainly fall in the "good enough" category for many shoppers on a budget.

Dollar General has been riding high this year, reporting solid profits propelled largely by cigarette sales at its more than 11,000 locations. Profit rose 14 percent in the fiscal third quarter, the company said. 

Dollar General began selling tobacco for the first time this year in its stores,Forbes reports, but people aren't just going in for a "smoke and a Coke."

CEO Rick Dreiling told analysts that when the company started selling cigarettes, only about a third of those sales were to shoppers who bought other items as well. But that grew to 44 percent in the third quarter, according to Forbes. Conversely, the percentage of shoppers who bought cigarettes and nothing else is on the decline.

Dollar General shares have gained about 39 percent this year to top the $61 mark. Goldman Sachs (GS) last week upgraded the stock to "conviction buy," from "buy," giving it a price target of $71.
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