ALEXANDRIA, Va.—Dollar stores are opening new locations at a faster clip than other retailers, as the channel is fueled by demand for cheaper groceries and goods from inflation-weary customers, reports the Wall Street Journal.
Dollar General and Dollar Tree combined plan to open more than 1,300 net new stores by the end of the fiscal year that ends in late January. Five Below, another discount retailer, and TJX Cos. also plan to open more than 100 new stores next year.
According to Peter Keith, a senior analyst for financial-services company Piper Sandler, the expansion of dollar stores shows they can be a success in rural areas that aren’t an attraction for big-box retailers. Dollar stores are able to bring national buying power to places where the cost of labor and operations is lower than more urban and suburban areas, he told the Journal.
“It’s about providing convenience and value to customers that live in more remote areas,” Keith told the Journal. “They really can outcompete the local grocer in a smaller market.”
According to Dollar General CEO Jeff Owens, the company is benefiting from price-conscious consumers, and even customers who make $100,000 a year have been shopping at its stores. Coresight Research surveys show that millennials and Gen Z are becoming more price conscious and prefer to save on retail and household goods instead of spending more on services and experience-based purchases.
Dollar General is the fastest-growing retailer in the country by store count, according to Coresight. The company now has about 18,800 stores in the U.S., compared to the 5,000 it had in 2001. Dollar Tree has more than 16,000 locations, including Family Dollar stores, which the company acquired in 2015.
John Mercer, head of global research at Coresight, told the Journal that shoppers are also looking at dollar stores for groceries. Coresight finds that Dollar General and Dollar Tree stores are consistently among the most popular retailers for grocery purchases—ranking alongside Walmart, Target, Amazon and Kroger.
Earlier this year, Dollar General announced that all of its locations now offer healthy food options, including assorted dairy items, frozen vegetables, proteins, canned fruits and vegetables, grains and more as part of an increased investment in its health and wellness offerings.
“With approximately 75% of the U.S. population living within five miles of a Dollar General, the company recognizes the unique access it provides to often-underserved communities,” wrote Dollar General in a statement. “While Dollar General is not a grocer, many DG stores serve communities without other retail options, and the variety of foods in DG stores reflect customers’ demand.”
(NACS offers resources for c-store operators to gain new ideas for increasing sales and meeting consumer demand for healthy food choices.)
Dollar General is also expanding its Popshelf concept, which is the company’s attempt to attract wealthier, suburban shoppers impacted by inflation. The company plans to open 300 new Popshelf locations in 2023, 1,000 in the next three years and potentially 3,000 total locations. Mini Popshelf shops are also being testing in some Dollar General stores.
“The fact that we have such great value across a lot of these categories gives our customers at Popshelf an opportunity to really treat themselves at a time where they may have a difficult time doing that in other locations,” Dollar General Chief Merchandising Officer Emily Taylor told CNBC.
Popshelf is meant to generate higher sales and profits than Dollar General stores, and each Popshelf location is expected to have between $1.7 million and $2 million in sales annually and gross profits of more than 40%.
Owens believes the dollar-store channel can add another 16,000 stores in the coming years. The biggest risk to dollar stores’ expansion would be competitors opening nearby stores, such as Walmart, according to Brandon Svec, national director of U.S. retail analytics for data firm CoStar Group Inc. He told the Journal that dollar stores seem to have lowered the risk of competition by targeting rural areas.
“The competitive threat isn’t as great for Dollar General in these tertiary markets,” Svec said. “In a lot of these markets, good luck getting next-day Amazon delivery.”
NACS Magazine offers tips for retailers battling with dollar stores for market share in “The Buck Stops Where?”