SM_Final_Presentation_Dollar_Tree

Market Analyst: Julie Bergman

Strategy Analyst: Emilie Dalavai

Financial Analyst: Andrew Dibert

Operations Analyst: Maddie Ledbetter

COMPANY HISTORY, MISSION, VISION AND

COMPANY OBJECTIVES

COMPANY HISTORY

K. R. Perry opened a

Ben Franklin variety

store

Brock, Perry, and

Compton started

Only $1.00

with 5 stores

Only $1.00 Company

changed to

Dollar Tree Stores

Dollar Tree went

public on the

NASDAQ exchange

at $15 a share.

The First Distribution

Center opened

Dollar Tree acquired

Dollar Express

(DollarTree.com)

MISSION AND VISION

• Mission: We will operate profitably, empower our associates to share in its opportunities,

rewards and successes, and deal with others in an honest and considerate way.

• Vision: Dollar Tree is focused on potential growth through increasing our relevance to

customers. They plan to continue expanding the business by providing even more value to

a broader range of customers.

• Objectives for 2014:

• 375 new stores and 75 relocations for a total of 450 projects across the U.S. and

Canada.

• Expand in the areas of Stationery, Candy, Health and Beauty Care, Frozen and

Refrigerated products, Home and Household Products, and Seasonal and Party

products

• Expand geographical reach and add channels of distribution

(Dollar Tree About Us, Dollar Tree Annual Report, 2013)

STRATEGY SELECTION

OVERVIEW

DEVELOP THE DOLLAR DOME

Strategy: Market Development

Explanation: Create a Dollar Tree vending machine that will be in college dorms.

The “Dollar Dome” will hold toiletry, travel size and convenience items for a dollar

or less

• 40 vending machines will be installed on each of the 5 Midwest college

campuses that partner with Dollar Tree.

• Dollar Tree anticipates making $20 million in revenue by the fifth year

(Hoovers)

DOLLAR DOME

M&A TARGET: AMERICAN VENDING MACHINES

• American Vending Machines is a privately held

company that provides vending machines, vending

equipment and vending machine parts.

• Founded in 1997

• About 15 employees

• Located in St. Louis, Missouri, American Vending

Machines is well positioned to drop ship to

anywhere in the United States

• The company earns about $1.5 million in sales

(AmericanVendingMachines.com)

INTERNAL SCAN: FINANCIAL ANALYSIS

INCOME STATEMENT AND BALANCE SHEET(IN MILLIONS)

2013 2012 2011

Income Statement

Gross margin 35.58% 35.87% 35.87%

Net sales $7,840 $7,395 $6,631

Cost of sales $5,051 $4,742 $4,252

Operating income $970 $920 $782

Balance Sheet

Cash and cash equivalents $268 $400 $288

Long term debt $757 $257 $250

COMPETITOR ANALYSIS

Ratio Family DollarDollar

GeneralDollar Tree Industry

Net Profit Margin 4.24% 6.47% 7.61% 3.06%

Gross Margin 34.21% 31.05% 35.58% 23.98%

Current Ratio 1.72 1.77 2.10 .97

Market Cap 8.93 B 19.67 B 12.76 B

Earnings per Share $3.83 $3.57 $2.87

INTERNAL SCAN:

PRODUCT/SERVICE ANALYSIS

BCG MATRIX AND ANALYSIS

High Low

High

Low

Mark

et

Gro

wth

Rate

Relative Market Share

• Dollar Tree is a star because it is still in a growth market. With smaller stores growing in

popularity, Dollar Tree still has potential growth.

(DollarTree.com)

GE Matrix

(Hoovers, Walmart and Yahoo! Finance)

Strong Average Weak

Low

Me

diu

mH

igh

Ind

ustr

y

Att

racti

ven

ess

Competitive Position

Phased

WithdrawalWithdrawal

Double or

Quit

Try HarderProceed

with CautionPhased

Withdrawal

Cash

GenerationGrowthLeader

GE MATRIX AND ANALYSIS

VRIO CHART

Valuable Rareness Imitability OrganizationCompetitive

Implications

Economic

Implications

Dollar Tree Yes++ Yes++ Yes YesSustained

AdvantageAbove Normal

Family

DollarYes Yes Yes No

Temporary

AdvantageNormal

Dollar

GeneralYes Yes Yes No

Temporary

AdvantageNormal

• Dollar Tree’s fixed price of $1 for every single item in the store differentiates their brand from the

competitors and gives then a competitive advantage.

(Mergent)

4 P’S OF MARKETING

Marketing Mix Variables Dollar Tree Family Dollar Dollar General

ProductConsumable merchandise, variety

merchandise, and seasonal goods

Consumable merchandise, variety

merchandise, and seasonal

goods

Consumable merchandise, variety

merchandise, and seasonal

goods

Place Retail; online Retail Retail; online

Promotion Advertising; coupons Advertising; coupons Advertising; coupons

Price Everything for $1 Low Cost Low Cost

Strength/Weakness

Strengths: customer can always count

on products to be $1

Weakness: buyers are highly price

sensitive; similar products to

competitors

Strengths: low priced products

Weakness: buyers are highly

price sensitive; similar products to

competitors

Strengths: low priced products

Weakness: buyers are highly

price sensitive; similar products

to competitors

Market Position: Dollar Tree differentiates itself from other discount variety store competitors by offering all products for $1. Unlike Family Dollar, Dollar

Tree also sells their products online. Buyers are highly price sensitive so a better deal at a competitor may take away some of Dollar Tree’s business.

Market Segmentation: Dollar Tree targets low income to middle class consumers. These consumers value low costs over quality of products.

(Mergent)

PRODUCT LIFE CYCLES

ale

s

Intro Growth Maturity Decline

• Dollar Tree’s seasonal goods do not follow the typical product life cycle that

their consumable and variety products follow.

(DollarTree.com)

Seasonal Goods

Consumable &Variety Goods

DOLLAR TREE’S BUSINESS

MODEL

Efficiency Model:

• Dollar Tree sells low-cost household items to consumers

• Who it serves: low to middle income Americans

• What it provides: low-cost household items

• How it makes money: buy large quantities cheaper than sells individual units

• How it differentiates and sustains competitive advantages: combines

convenience of drugstores and supermarkets with low prices

• How it provides its products/services: in retail stores and online

(Dollar Tree About Us, Dollar Tree Annual Report and Marketline)

DOLLAR TREE’S BUSINESS

MODEL

Strengths:

• Extensive retail network across the US with well supported logistics and

distribution infrastructure

• Efficient pricing structure sustains business: single price point $1

• Retail technology systems to support Dollar Tree's business model

Weaknesses:

• Low customer loyalty

• Smaller operations in size compared to other competition

(Dollar Tree About Us, Dollar Tree Annual Report and Marketline)

VALUE CHAIN ANALYSIS FOR INTERNAL

OPERATIONS: PRIMARY ACTIVITIES

Inbound Logistics:

• Dollar Tree’s supply chain relies on strong vendor partnerships

• Its inbound transportation utilizes PowerTMS

Operations:

• China accounts for 80% of all the company’s imports, making it dependent on outsourced manufacturers.

Marketing and Sales:

• The Dollar Model - “Everything’s $1” slogan draws customers hunting for deals and savings.

• In-store events, specials, seasonal promotions, and featured products through its website

Outbound Logistics:

• The company operates 10 distribution centers across 48 states.

• Great direct relationships with manufacturers

(Dollar Tree 10-K, Dollartreeinfo.com, Forbes and Social Science Research

Network)

VALUE CHAIN ANALYSIS FOR INTERNAL

OPERATIONS: SUPPORT ACTIVITIES

Firm Infrastructure:

• Strategy for primary growth involves same-store sales and new store openings

• Shifting merchandise mix to more consumables with the addition of frozen and refrigerated foods

HR Management:

• Half of the company’s 2,300 employees who submitted online employee reviews are unsatisfied with wages

• Manager in Training (MIT) Program that runs from 7-8 weeks

Technology Development:

• investments in its inventory management system

• Dollar Tree Direct

Procurement:

• About 80% of Dollar Tree’s imports are from suppliers in China

• Competitors also obtain most imports from China, lessening Dollar Tree’s opportunity for supplier exclusivity

(Indeed.com, Marketline, S&P Capital IQ and Social Science Research Network)

DOLLAR TREE DIRECT

(DollarTree.com)

IFAS TABLE: STRENGTHS

Internal Factors:

StrengthsWeight Rating Weighted

Score

Comments

Well supported logistics and distribution

center0.08 5 0.40

The company has an extensive retail network across the US with efficient,

well-functioning distribution centers

Supply chain management and cost control 0.07 3 0.21 Excellent as evidenced by current ratio of 2.01

Sustained discount pricing structure 0.10 5 0.50By purchasing goods in huge quantities, maintaining strong relationships with

vendors and suppliers, and by purchasing manufacturers' over-runs

Tailored information technology (IT)

infrastructure0.04 3 0.12

Investments in its inventory management system have enhanced supply

chain efficiency and merchandise flow and increased inventory turnover

Best industry operating margin 0.04 3 0.12This is due to a significant portion of its product mix consisting of

discretionary goods

• The company’s logistics and distribution center contribute heavily to its profitability

• The discount pricing structure is a powerful marketing tool that brings in many customers

seeking deals

(10-K, Dollartree.com, Marketline, Mergent, S&P Capital IQ)

IFAS TABLE: WEAKNESSES

Internal Factors:

WeaknessesWeight Rating Weighted

Score

Comments

Lack of global penetration 0.04 1 0.04 Despite strong presence in the United States

Lawsuits concerning wage violations 0.07 1 0.07 The company has been involved in litigations from thousands of employees

Lack of scale compared to competitors 0.05 3 0.15Operations are smaller in size compared to Dollar General (10,557 stores in 40

states)

Lack of quality products due to pricing

strategy0.09 4 0.36

Dollar Tree does not draw in some customers simply because some of its

products are not great quality

Smaller revenue than others in industry 0.06 3 0.18Revenue was about $9.5 million less than competitor Dollar General, who

outperformed them in many categories

Decrease in fixed asset turnover of 10.7%

from 2011 to 20130.05 3 0.15

Decrease indicates that new assets have not generated as much revenue as

assets previous years

• Dollar Tree does not draw in customers because some of its $1 or less products are not great quality

• Good relationships with its suppliers and vendors allows buying at inexpensive prices

(10-K, Dollartree.com, Marketline, Mergent, S&P Capital IQ)

EXTERNAL SCAN: INDUSTRY

ANALYSIS

PORTER’S FIVE FORCES

+ indicates high power

- Indicates low power

Supplier

Power

Customer

Power

New Entrant

Power

Substitute

Product

Power

Competitive

Rivalry

Seasonal Goods - + -- + -

Consumable and

Variety Goods- + -- ++ -

Family Dollar - + - ++ +

Dollar General - + -- + +

• Bargaining Power of Suppliers: Low

• Bargaining Power of Customers: High

• Threat of New Entrants: Low

• Threat of Substitute Products: High

• Competitive Rivalry Within the Industry: Low

(Dollar Tree About Us, Dollar Tree Annual Report, 2013, Marketline)

INDUSTRY AND ECONOMIC TRENDS

Highlighted Opportunity:

• Recessions happen every 5-10 years

Highlighted Threats:

• Inflation: A problem because of our fixed price scheme

• Minimum wage: recent strikes are raising awareness among politicians

Industry Trend:

• Convenience involves fast-paced shopping and on-the-go tactics meant to

save the consumer time.

• Dollar Tree’s smaller store format can take advantage of this trend because

people need to get in and out of the store fast. Larger stores such as

Walmart take longer to shop because the store is so big.

(Aboutnews, Bloomberg, USA News)

EXTERNAL SCAN: COMPETITIVE

ANALYSIS

SNAPSHOT OF COMPETITION IN INDUSTRY

• Dollar Tree is in the basic discount consumer goods market, a market highly competitive in price, store location,

merchandise quality, assortment and presentation, in-stock consistency, customer service.

(Dollar General, Family Dollar, Dollar Tree)

Market Cap: 19.67 Billion

Employees: 100,000 +

Stores: 11,000 +


Employee: 50,000 +

Stores: 8,000 +


Employees: 87,000 +

Stores: 5,000 +

DOLLAR TREE V. COMPETITORS

Company 2013 2012 2011

Dollar Tree $7.8 $7.4 $6.6

Dollar General $17.5 $16 $14.8

Family Dollar $10.4 $9.3 $8.5

Sales

Profit MarginCompany 2013

Dollar Tree 8%

Dollar General 6%

Family Dollar 4%

(Dollar General, Family Dollar, Dollar Tree)

in Billions

BCG MATRIX: COMPETITORS

High Low

High

Low

Ma

rke

t G

row

th R

ate

Relative Market Share

Dollar Tree

Family Dollar

Dollar General

Walmart

(Hoovers, Walmart and Yahoo! Finance)

EFAS TABLE

External Factors Weight Rating Weighted

Score

Comments

Opportunities:

Expansion of the store network

0.3 5 1.5Dollar Tree has the smallest number of stores compared to Dollar

General, Family Dollar and Walmart, so there is room for growth

Recessions 0.05 3 0.15People try to save money during these times which allows Dollar Tree

to market as a cheap alternative

Growing E-commerce market 0.3 5 1.5Dollar Tree can capitalize by its improving online store, Dollar Tree

Direct

Customer focused shopping experience 0.06 4 0.24Dollar Tree is working to differentiate itself by enhancing the ‘shopping

experience’ for its customers

Threats:

Inflation0.02 3 0.06 Could become a problem because of the fixed price scheme

Rising labor wages in US and Canada 0.1 5 0.5Increased labor costs can lead to high operating costs

Walmart, Dollar General, Family Dollar and CVS/Walgreen/Rite

Imports from China 0.1 3 0.3

Dollar Tree imports approximately 40% to 42% of its merchandise from

China. Steady economic growth and increased employment has

increased the wage levels in China in the last two decades. This threat

will lead to an increase in sourcing cost of imports coming from China.

(Marketline)

Not as convenient as competitors 0.07 4 0.28 Aid have a larger market share than Dollar Tree

STRATEGY SELECTION AND

DESCRIPTION

STRATEGY SELECTION: DEVELOP DOLLAR

DOME

• Strategy: Market Development

• Explanation: Create a Dollar Tree vending machine that will be in college

dorms. The “Dollar Dome” will hold toiletry, travel size and convenience items

for a dollar or less.

• Strengths: Entering into a new market with little to no competition. College

students value convenience, and will not have to drive to get good deals on

commonly used items. Vending machines provide steady income and are

easy to operate

• Weaknesses: Potential problems from university bookstores that sell similar

items

• Opportunity: Customer-focused shopping experience

(Hoovers, AmericanVendingMachine.com)

STRATEGY SELECTION: DEVELOP DOLLAR DOME

• Rationalization: – Provides long-term consistent, measurable and profitable growth – Focuses on potential to grow through increasing our relevance to

customers– Follows the trend of convenience especially among college-aged

demographic

• Expected Outcomes: Increased annual income, increased market share, new customer base

• TOWS Alignment: Strength/Opportunity Strategy– Strengths- well supported logistics and distribution centers, sustained

discount pricing structure, and supply chain management and cost control


• Dollar Tree follows a Cost

Leadership Strategy on Porter’s

Generic Strategies

• Target Scope: Dollar Tree

offers a variety of products for

every age and gender

• Advantage: Dollar Tree sells

everything for under $1

• The Dollar Dome allows Dollar

Tree to try to make our low-cost

items easily available to college

students on university campuses

COMPETITIVE ADVANTAGE OF DOLLAR DOME

AMERICAN VENDING MACHINES PURCHASE

PRICE

• Hoovers estimates that American Vending Machines had $1.5

million in sales in 2013

• Using the average of larger vending machine companies the

average EV to Sales multiple of 3.0 results in acquiring

American Vending Machines for around $5 million

– This company can give us a start to start selling on college

campuses, but since it is so small we can acquire another

company


EXTERNAL SCAN: FINANCIAL

ANALYSIS

ONE TIME ACQUISITION

• One time Purchase Price: $5 Million

• American Vending Machines is a vending machine provider that serves the continental

United States.

– $1.5 million in sales

• Funding Methods

– Pay $5 million in cash

In Millions

American Vending Machines Operating Costs 2013 2014 2015 2016 2017 2018

AMV Operating Costs 25% 0.3 0.4 0.5 0.6 0.6 0.6

One Time M&A Price 5


SYNERGISTIC COST

SAVINGS

• Restructuring Savings

– Dollar Tree will save money by cutting about 12 of the current 15 employees at American

Vending Machines including eliminating employees from marketing and accounting

departments (about $400,000 in savings).

– American Vending Machines’ marketing and accounting departments will be absorbed into

Dollar Tree’s departments.

Cost of Sales 2013 2014 2015 2016 2017 2018

COGS Ongoing 60% 4,704 4,986 5,286 5,603 5,939 6,295

AMV COGS 50% 0.75 0.83 0.91 1.00 1.10 1.21

AMV Cost Synergies (Economies of Scale) (0.5) (0.5) (0.5) (0.5) (0.5)

New Strategy COGS 60% 0.3 0.5 1.0 1.5 1.9

Synergistic Savings (Restructuring) (0.4) (0.4) (0.4) (0.4) (0.4)


REVENUE PROJECTIONS

Revenue Projections for Vending Machines 2014 2015 2016 2017 2018

Vending Machines Installed 200 600 1,000 1,400 1,800

Growth Rate 200% 67% 40% 29%

Sales per Machine (in Thousands) $10.80 $10.80 $10.80 $10.80 $10.80

Revenue (in Millions) $2.16 $6.48 $10.80 $15.12 $19.44


OPERATIONAL COSTS...FIX!

• Dollar Tree will acquire American Vending Machines, and therefore acquire the company’s operational costs. Dollar Tree will pay American Vending Machines to keep the vending machines stocked.

– Dollar Dome operational costs are estimated to be around $300,000 the first year.– The cost for Dollar Tree to stock the machines will increase steadily as American Vending

Machines installs more vending machines on college campuses (approximately 5 campuses the first year and 10 additional campuses every year following the first).

• Servicing and maintenance are potential and probable operational costs. Maintenance expenses will include the cost of the parts needed to fix the vending machine.

• Dollar Tree will pay 5% of commissions to each university as royalty payments.

New Strategy Operating Costs 2014 2015 2016 2017 2018

New Strategy Marketing Costs (sales team, promotion) 0.0 0.0 0.0 0.0 0.0

New Strategy Operational Costs 0.3 0.5 0.5 0.7 0.9

(Hoovers, AmericanVendingMachine.com, Franchise Direct)

MARKETING COSTS.. FIX!

• By acquiring American Vending Machine, Dollar Tree will absorb their marketing costs

• With the acquisition of American Vending Machine, cost of goods sold will be 60.0%

• We estimate an increase in total cost of sales by $1,591 million over five years

Cost of Sales 2013 2014 2015 2016 2017 2018

COGS Ongoing 60% 4,704 4,986 5,286 5,603 5,939 6,295

AVM COGS 50% 0.75 0.83 0.91 1.00 1.10 1.21

AVM Cost Synergies (Economies of Scale) (0.5) (0.5) (0.5) (0.5) (0.5)

New Strategy COGS 60% 0.3 0.5 1.0 1.5 1.9

New Strategy COGS?? 0.75 0.62 0.89 1.47 2.06 2.65

Total Cost of Sales 4,705 4,987 5,287 5,604 5,940 6,296


FINANCIAL MODEL

• Since vending machines do not have

good profit margins and have high initial

costs the initial financial numbers are

low.

• NPV is positive so the strategy is

profitable.

• After vending machines are in place only

costs will be stocking and repairing

machines which will lead to greater

profit.

WACC 10.48%

NPV 4 million

IRR 31%

Payback

Period

3 years

(Hoovers)

FINANCIAL SUMMARY

• Income from American Vending Machines will steadily increase.

• The new strategy will start off with negative income but will steadily increase to be positive after two years.

• While this strategy does not boost income a lot, it does improve it and gets Dollar Tree into the vending machine industry.

2013 2014 2015 2016 2017 2018

American Vending Machines Operating Income 1.00 1.21 1.40 1.40 1.56 1.73

American Vending Machines Operating Margin 43% 73% 77% 70% 71% 72%

New Strategy Operating Income (0.11) (0.08) 0.15 0.27 0.40

New Strategy Operating Margin (21.7%) (9.4%) 9.1% 11.2% 12.2%


STRATEGY IMPLEMENTATION AND

FEEDBACK

FinancialTo succeed financially, Dollar Tree will increase revenue growth.

• Dollar Tree will increase its revenue growth through the “Dollar Dome” strategy by increasing product sales by getting them closer to our customers through vending machines.

Internal Processes

To succeed internally, Dollar Tree will evaluate American Vending Machines’ corporate culture as well as its own to efficiently and effectively streamline business operations.

• This will be accomplished by changing the top management American Vending Machines and gaining synergistic savings.

CustomerTo achieve customer satisfaction, Dollar Tree must ensure that its customers as well as American Vending Machines’ customers are satisfied with the changes after the acquisition occurs.

• This will be accomplished through talking toAmerican Vending Machines’ customers and ensuring that their needs are met under the new management.

Learning & GrowthTo learn and grow, Dollar Tree must understand the vending machine industry and how to succeed.

• This will be accomplished employee training, and sharing information as Dollar Tree and American Vending Machines integrate.

Vis

ion

& S

trate

gy

BALANCED SCORECARD

(BalancedScorecard.org)

KEY RESULT AREAS

• Strategy

– Complete the acquisition and merger of American Vending Machines within 2 years

– Stabilize and grow the Dollar Dome product line

• Financial

– Increase revenue of vending machines by $1 million by end of year 2

– Reduce costs of new vending machines by 30%

• Market

– In the first year the Dollar Dome is implemented, earn $400,000 in sales

– Retain 100% of all University accounts throughout the fiscal year

– Increase the number of vending machines sold from 150 in the first year to 300 in the second

year

• Operations

– Vending machines will break even within 6 “active” college months after installation

– Introduce 25 vending machines on 5 college campuses within the first year

(Franchise Direct)

Dollar Tree Gantt Chart

Highlights11/1412/14 1/15 2/15 3/15 4/15 5/15 6/15 7/15 8/15 9/15 10/1511/1512/15 1/16 2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16

Integration of Dollar Tree and AVM

Let go of unnecessary employees

Raise funds for project through stock

Unify companies’ distribution practices

Rollout Dollar Dome (Pilot Program)

Install vending machines in dorms

Set up accounts for Dollar Dome

Clearly brand machines as Dollar Tree’s

Communicating with universities to

form ties

Hire employees to restock machines

Reach out to new universities to grow

GANTT CHART HIGHLIGHTS

(Franchise Direct)

QUESTIONS?

SM_Final_Presentation_Dollar_Tree

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