Dollar General says it completed the first phase of its DG Fresh overhaul, and the program could be a game-changer for its fresh grocery dreams

• Dollar General has completed its DG Fresh rollout across all stores.
• DG Fresh allows the company to distribute frozen and refrigerated items in-house.
• The initiative could also unlock fresh produce for the dollar store giant.

Dollar General has completed the initial phase of a key strategic initiative, one that the company hopes will drive down costs and open up the possibility for fresh produce in stores.

In 2019, the dollar store giant introduced DG Fresh, a project that sought to "reduce product costs in our frozen and refrigerated items" by bringing the distribution of frozen and refrigerated foods in-house. Now, DG Fresh is operational across the entire chain.

CEO Todd Vasos said that Dollar General completed the rollout six months ahead of schedule, and that the company is "very pleased" with the savings so far. Through DG Fresh, Dollar General is delivering frozen and refrigerated items to its fleet of around 17,500 stores from 12 facilities.

"DG Fresh continues to be the largest contributor to the gross margin benefit we're realizing from higher inventory markups, and we expect additional benefits going forward as we continue to optimize our network and further leverage our scale," Vasos said.

The CEO said that DG Fresh has been delivering on boosting sales and driving up in-stock levels. Edward Jones analyst Brian Yarbrough told Insider that DG Fresh could temporarily set up Dollar General to get bogged down with the "headwinds of freight shipping costs and higher input costs." But he added that he expects the initiative is "going to be a tailwind going forward."

"It's positive from the standpoint of it was expensive to have a distributor," Yarbrough said. "So that is very nice from a margin standpoint."

Dollar General has also been vocal about the possibility that DG Fresh could unlock the category of fresh produce for the dollar store. Fresh food offerings could score political points for the chain as well, as the issue of food apartheid and inequality continues to follow dollar stores as a whole.

"While produce was not included in our initial rollout plans, we believe DG Fresh provides a potential path to accelerating our produce offering in up to 10,000 stores over time, as we look to further capitalize on our extensive self-distribution capabilities," Vasos said.

Dollar General's related cooler expansion program is slated to equip stores with approximately 65,000 cooler doors in 2021. Vasos said that the majority fo the doors are for "high capacity coolers" that will allow the company to adopt "an even wider product selection."