This is an excerpt from Thursday’s (3/25) Point of Sale retail supply chain newsletter sponsored by ArcBest.
Facing higher transportation costs at a time of surging demand is prompting the nation’s leading discount retailer to bring more of its transportation in-house. After successfully moving 20% of its freight via private fleet in 2020, Dollar General is seeking to step up its own fleet to mitigate soaring freight costs. Dollar General’s profit and gross margin expanded year-over-year in the latest quarter but higher shipping rates weighed on the bottom line, the company said.
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In a recent McKinsey survey of CPG companies, 80% said they did not expect transportation costs to decrease this year from 2020’s elevated levels.
The expansion comes as Dollar General is increasing its store network in the U.S. and building up its DG Fresh program, which aims to shift distribution of refrigerated goods to the company’s own trucks, COO Jeff Owen said in a March 18 earnings conference call.
Dollar General has expanded its private fleet substantially since its inception in 2016. According to the WSJ, the private fleet has grown to more than 700 trucks and 550 drivers and handles 13% of the company’s outbound dry transportation and 48% of its outbound transportation of fresh products. Owen expressed DG’s plans to expand its private fleet by 20% over the 2020 year-end totals.
Volatility in trucking markets has prompted shippers to assess different ways of securing reliable capacity. For DG, that means more reliance on in-house transportation, but that’s certainly not the only option. Some retailers are looking to diversify their transportation partners to avoid delays and secure truck space. Others are debating streamlining their transportation needs by signing over their private fleets to logistics specialists. J.B. Hunt, KAG and other dedicated trucking companies have seen the pipeline begin to fill with potential fleet-conversion customers.
While the pandemic likely played some role encouraging the trend away from private fleets toward dedicated or contract carriers, the real motivating factors for retailers are the simple realities of running trucks. It’s not easy and it’s definitely not cheap. But Dollar General believes it has what it takes to scale and manage a larger fleet. And if the past five years say anything about its future, I’d say its move is founded on solid performance. While Dollar General was ramping its private fleet over the past five years, the company has also been opening stores left and right and expanding margins.
One potential headwind: There seems to be a train departing from the DG supply chain division, and it’s leaving with some meaningful passengers. Mike Kindy, Dollar General’s top supply chain executive, plans to retire from the company on April 15, Dollar General said last week. Also, DG’s senior director of supply chain strategy and planning left the company this month to help solve bigger supply chain problems at Peloton.
Want to keep up with how retailers are managing elevated freight rates? Try Point of Sale, my twice-weekly retail supply chain newsletter: https://freightwaves.com/pos