Dollar Stores Face Critics

The bargain stores take heat from some city officials and community leaders.

July 23, 2019

ALEXANDRIA, Va.—Dollar stores are sweeping America, and they are facing challenges from critics who claim the discount chains suppress local competition and limit access to healthy food for residents of low-income neighborhoods.

According to a CNN report, dollar stores have never been more popular; however, some municipalities have passed laws curbing the expansion of both Dollar General and Dollar Tree, which together have more than 30,000 U.S. outlets. By comparison, Walmart, America’s largest retailer, has 4,700 U.S. stores.

Opponents of dollar stores claim the chains intentionally cluster multiple stores in low-income areas, a strategy they say discourages supermarkets from opening and threatens existing mom-and-pop grocers.

“The business model for these stores is built on saturation,” said Julia McCarthy, senior policy associate at the nonprofit Center for Science in the Public Interest and a critic of dollar stores. “When you have so many dollar stores in one neighborhood, there’s no incentive for a full-service grocery store to come in.”

Critics charge that dollar stores don't offer fresh produce, but instead sell snacks, drinks, canned foods and vegetables, along with household supplies and personal care products. The dollar stores counter by saying they benefit communities by offering shoppers convenient places to grab food and essentials at low prices.

“In rural places without existing grocery stores, having a Dollar General might be viewed as an asset,” said Christopher Merrett, director of the Illinois Institute for Rural Affairs at Western Illinois University. The stores bring in new sales and property tax revenue for towns, create jobs and expand shopping options for customers, he noted.

But lawmakers around the country are pushing back. Recently, the city council in Birmingham, Alabama, unanimously approved legislation that would prohibit new dollar stores from opening within a mile of their existing locations.

“While dollar stores proliferated across our community, healthy food options dried up,” said Mayor Randall Woodfin of Birmingham, adding that the new measure aims to attract and retain grocers in the city's food deserts.

Oklahoma City and Tulsa, Oklahoma, along with Mesquite, Texas, near Dallas, also have passed legislation limiting new dollar store openings, and officials in New Orleans, Cleveland and Fort Worth are exploring similar plans to restrict dollar store growth.

“While the economy is doing very well, our core customer continues to struggle,” said Todd Vasos, CEO, Dollar General. The chain’s core customers earn around $40,000 a year or less, which is $20,000 below the median income.

Dollar General caters mainly to low-and-middle-income customers in rural and suburban areas. Dollar Tree targets suburban, middle-income shoppers, and Family Dollar focuses on lower-income urban and rural customers. Dollar General looks to build in rural areas that are at least 15 to 20 miles from a big box retailer. Around 75% of Dollar General stores are in towns of 20,000 or fewer people. The chain has its biggest footprint in southern states.

Dollar stores can open quickly in new areas because they are small and have lower operating costs than groceries. Dollar General stores are 7,400 square feet on average, compared to 40,000 square-foot supermarkets and employ just a handful of workers to stock aisles, making them less expensive to operate.

But critics insist that dollar stores’ unchecked growth harms local communities. “Some communities see that dollar stores are very serious competitors to their local retail and grocery,” said David Procter, director of the Rural Grocery Initiative at Kansas State University.

Family-owned grocery stores operate at razor-thin profit margins, and dollar stores can challenge them with lower prices, experts say. Although most dollar stores don’t sell fresh groceries, they offer many of the same household products and daily essentials as grocers, which can hurt a mom-and-pop’s bottom line.

Burnell Cotlon, owner of the Lower 9th Ward Market in New Orleans, said his grocery store suffered when Family Dollar opened in the neighborhood and his store lost valuable detergent, toothpaste and toiletry sales.

“I had to push harder on other items to stay afloat,” said Cotlon. When the Family Dollar recently closed, customers returned to Cotlon's store. “As soon as they closed down, my toiletry items jumped back up,” he said.

Dollar General is trying to fend off criticism. The chain has added about 125 "better for you" items to approximately 3,400 stores and plans to reach 6,000 stores by the end of 2019. Many products appear under Dollar General’s Good & Smart house brand, but the stores also carry name-brands like Annie’s, Back to Nature and Kashi. The chain is offering fruit and vegetables for the first time at around 500 stores, too. Vasos said last year that Dollar General can “drive a tremendous amount of traffic” by adding produce in rural and urban food deserts.