Dollar General Sees Early Tobacco Sales as Promising

GOODLETTSVILLE, Tenn. -- Convenience stores still reign supreme when it comes to tobacco sales. However, the industry is facing increased competition from other retail sectors -- with dollar stores making a strong showing.

During Dollar General's earnings call Monday, Chairman and CEO Rick Dreiling said tobacco sales came in about 33 percent higher than expected as the company continues to add cigarettes to the mix at more than 10,500 locations. A third of those sales, according to The Tennessean, involve customers buying only cigarettes or other tobacco products (OTP), he said.

"We view that as a person stopping into the store for the first time," Dreiling told analysts while reporting 2012 fourth quarter and fiscal year financial results. "We're seeing a nice comp (comparable sale) increase and a nice increase in (customer) traffic."

Dollar General began testing tobacco products in Nevada in 2011 and brought them into Florida stores in 2012. The company found that the average purchase per customer was $14 in stores where tobacco was sold vs. an average of $11 otherwise, as CSNews Online previously reported.

The Goodlettsville, Tenn.-based company plans to add cigarettes and OTP to the product mix at the majority of its U.S. stores by the middle of this year. Its decision came on the heels of a similar move by competitor Family Dollar, which added cigarettes to its inventory in 2011.

And Dollar General's tobacco reach could grow. According to the company, it plans to open approximately 635 new stores in 2013, including approximately 20 Dollar General Market stores and 40 Dollar General Plus stores. In addition, it plans to remodel or relocate a total of approximately 550 stores. Square footage is again expected to increase by approximately 7 percent. Dollar General expects its new Pennsylvania distribution center to be fully operational in the first quarter of fiscal 2014.