If you had told investors 10 years ago that Dollar General (DG -4.27%) would nearly double its store count by 2020 and rattle retail titans like Target (TGT -3.04%) and even Walmart (WMT 0.08%) in the process, they probably would have snickered. Walmart firmly came out of the 2008 global recession, finally fully leveraging its massive size. Had you told those investors that Dollar General would do so by doing several things exactly the opposite of the way Walmart does them, they might have outright cackled.

Dollar General's store count of more than 16,700 locations is nearly twice its count of 8,800 from late 2010.

The thing is, Dollar General still has a long growth runway in front of it.

Stacks of banded $100 bills.

Image source: Getty Images.

Distinctly different

Shoppers of both readily recognize the differences. The typical U.S. Walmart supercenter covers on the order of 180,000 square feet, with non-grocery locations still covering more than 100,000 square feet. There are 4,700 of these stores in the U.S. alone, plus another 600 Sam's Club shopping warehouses. Acres of parking spaces surround each store. Dollar Generals, on the other hand, average 7,300 square feet, with room to park a couple dozen cars at each location. None of them can carry the assortment any Walmart store does. Even with far fewer stores, Walmart's annual sales of around $340 billion dwarf Dollar General's 2019 top line of $27.8 billion.

Growth is relative though, and Dollar General just offers more of it than Walmart does.

Last year, before the COVID-19 pandemic came on the scene, Dollar General's overall sales grew 8.3% on same-store sales growth of 3.9%. Walmart's results for the same period? Same-store sales growth of 2.8% in the U.S. and a 2.7% improvement in overall revenue after adjusting for currency fluctuation. Dollar General's superior numbers have been similarly superior for a while now.

Deliberately different

The growth differential is rooted in Dollar General's differentiation strategy -- it doesn't want to be like Walmart in several ways.

For one thing, it builds its stores in very different locations. To support multimillion-dollar facilities, Walmart has to set up shop in densely packed areas, or in areas that serve as a rural region's traffic hub. Not Dollar General: About three-fourths of its stores are found in communities with populations of 20,000 or less. Dollar General's smaller (though more numerous) stores, however, are far more shoppable than a sprawling Walmart. The retailer boasts that 75% of Americans live within five miles of a store, and touts the fact that shoppers can be in and out of a store with purchase in hand in less than 10 minutes. A patron can spend 10 minutes just waiting to check out at a Walmart during busy times.

Dollar General isn't limiting its differentiation strategy to store size and location. It's been slowly but steadily wading into grocery waters that other neighborhood-minded retailers like Big Lots (BIG -5.48%) and Dollar Tree (DLTR -3.88%) (which also owns Family Dollar) aren't. In August the retailer announced plans to build three more distribution facilities that allow Dollar General to sell frozen and refrigerated consumables. More than 9,000 of its 16,700 stores now sell dairy, deli, and frozen products that provide consumers a way to avoid a trip all the way to and through a full-blown grocery store.

It still doesn't sell everything Walmart offers, but it sells goods most consumers need the most often.

And in a bigger, philosophical sense, the retailer is responding to a convergence of themes including the nation's shrinking middle class and cost-cutting becoming cool. At the same time, Dollar General has demonstrated its ability to reframe the public's perception of its name. What's left of that shrinking middle class is now more likely to live near, and shop at, a store that wasn't even part of their world a decade ago.

It's a buy

Yes, Dollar General has the potential to help get ordinary, middle-class investors' portfolios over the million-dollar mark.

Dollar General may not offer everything Walmart does, but if offers enough -- now including perishables at thousands of stores -- to keep its customers coming back. Convenience counts. Ironically, Walmart may have gotten too big for its own good. With fewer than 17,000 neighborhood-oriented Dollar Generals peppered across the nation, though, the same can't be said of it. Neighborhood Scout says there are more than 70,000 neighborhoods in the U.S., many of which could easily support more than one small discount store. It will take time. But the underpinnings for continued progress are well established.