Dollar General Grows

The chain plans to open 1,000 new stores in 2020.

December 12, 2019

ALEXANDRIA, Va.—Dollar General is one of the fastest-growing chains in the United States, luring customers in with low retail prices on snacks and household products. According to CNN, the company is so confident in its strategy that it plans to open 1,000 new stores in 2020, just as it has for the past several years.

Dollar General tightened its grip on shoppers during the most recent quarter, increasing sales at stores open for at least a year by 4.6% compared with the same period a year ago. It marked the chain’s fastest quarter of sales growth in five years, growth that is nearly unrivaled at a time when many brick-and-mortar retailers are closing stores. The company’s stock has rallied more than 50% over the last two years.

Dollar General currently has more than 16,000 U.S. stores that cater mainly to low- and middle-income customers in rural and suburban areas. Meanwhile, its rival, Dollar Tree, targets suburban, middle-income shoppers. Family Dollar focuses on lower-income urban and rural customers. Dollar Tree bought Family Dollar in 2015 but has struggled to absorb the chain into the company.

Despite the strengthened U.S. economy in recent years, dollar stores remain popular. Wages have grown only modestly for many Americans, and those living paycheck to paycheck have been a boon to Dollar General, whose core customers make around $40,000 a year. Dollar stores also have reached higher-income shoppers seeking discounts.

"We see [the typical customer] about where we have the last couple of quarters," said Todd Vasos, Dollar General’s chief executive on a recent call with analysts. "She still has a little bit of extra money in her pocket, continues to be employed at a pretty high rate. But, always remember, our core customer is always a little stretched."

Gary Philbin, CEO of Dollar Tree, has noted that low-income consumers are often "one doctor bill or one car repair bill away from not being in such good shape."

Last week, the Trump administration unveiled a ruling that will require more food stamp recipients to work to receive benefits, a change that could result in 688,000 people losing assistance, according to the U.S. Department of Agriculture.

Dollar General has said a little under 5% of its sales come from the Supplemental Nutrition Assistance Program, or SNAP, as the food-stamp program is formally known. "We don't see this as a material impact next year," CEO Vasos said. "We've continued to see a long-term trend of reduced benefits over time gradually. But over that time, our share has grown as well."

In recent years, there has been a backlash against dollar stores, with some cities and towns passing laws curbing store expansion. Birmingham; Oklahoma City; Tulsa; Mesquite, Texas, and others have passed laws limiting new dollar store openings, while Cleveland and Fort Worth are considering similar legislation.

Critics of dollar stores claim that the chains intentionally cluster multiple stores in low-income areas, a strategy that discourages supermarkets from opening and threatens existing mom-and-pop grocers. They also express concerns that most dollar stores don't offer fresh produce.

"We are disappointed that a small number of policymakers have chosen to limit our ability to serve their communities," said a spokesperson for Dollar General. "We believe the addition of each new Dollar General store represents positive economic growth for the communities we serve."

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