America Turns to Dollar Stores as Prices Rise

With inflation hitting a 40-year high of 8.6% in May, consumers are looking for cheaper groceries and private labels.

June 10, 2022

Dollar General Market Store Exterior

ALEXANDRIA, Va.—Dollar stores are seeing more customer visits, including many first-time shoppers to the channel, as the rising cost of goods and fuel impacts how Americans are spending their money, reports CNN.

Back in 2008 during the Great Recession, struggling Americans turned to dollar stores, and a similar pattern is appearing in the face of $5-a-gallon gasoline prices and the fastest growing inflation in four decades. Looking to past periods of economic turmoil, U.S. households adapt, and one 2008 study found that when gasoline prices were high then, consumers increasingly substituted cheaper brands when shopping. This time, consumers may head to dollar channels and private labels.

The Consumer Price Index hit a 40-year high of 8.6% in May, driven by skyrocketing energy and grocery costs, according to U.S. Bureau of Labor Statistics data released today. Grocery prices were up 11.9% in May compared with a year ago, while energy prices were up 34.6%.

Separately, a Numerator report found that for the four-week period ended May 29, grocery inflation was highest in the online and dollar channels (+22.5% and 19.5% vs. a year ago, respectively). Both channels have seen significant growth in inflation rates in 2022, compared to the mass (+13.7%), food (+12.9%) and club (+8%) channels.

“As inflation puts pressure on household budgets, consumers are changing behaviors by the day,” said Eric Belcher, CEO, Numerator.

Yet, spending is still strong, according to top retailers including Walmart and Target, but consumer dollars are shifting from big-ticket items, like electronics and furniture, to necessities such as goods and household staples. CNN says that this shift benefits dollar stores, which mainly sell food and everyday items in smaller sized packages.

“For people on lower incomes this is not discretionary spending,” Paul Ashworth, chief North America economist at Capital Economics, told The Wall Street Journal. “Other than substituting out cheaper food types—cheaper meat cuts, whatever it might be—people need to continue buying food.”

Dollar stores have expanded their offerings by widening their product selection to grab the wallet of convenience, grocery and pharmacy customers. Dollar General announced that all of its 18,000+ locations now offer healthy food options, including assorted dairy items, frozen vegetables, proteins, canned fruits and vegetables and grains.

“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. “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.”

Not unlike many convenience retailers, Dollar General been increasing its private-label lines. Historically, private-label brands thrive during inflation rises and economic uncertainty. During high inflation in the 1970s, private labels grew more prominent as cost-effective substitutes to name-brand products, and in 2008, store-label brands excelled, according to a 2008 New York Times article.

In the convenience channel, private-label sales climbed 17.8% in 2021 year over year, outpacing national brands, which only saw 4% sales growth, according to NACS State of the Industry data. (Read more about private label performance in c-store in NACS Magazine’s June SOI Summit issue.)

In 2018, Dollar General launched its Good & Smart private brand that includes “healthier snacking and beverage choices” such as trail mix, nuts, coconut water and dried fruit. The complete line of Better For You brands which includes the Good & Smart line are in roughly 8,200 Dollar General locations as of January 2022. Each of Dollar General’s more than 18,000 locations also carries a curated selection of the Good & Smart line.

Customers with higher incomes are shifting to Dollar General, according to CEO Todd Vasos. The dollar chain’s core customers have a household income of less than $40,000.

“Shopping patterns are definitely changing, and we're seeing it happen right before our eyes," Vasos said on an earnings call last month. The chain also plans to add more $1 items and more private-label brands.

Dollar Tree said cash-strapped customers are also turning to its stores. The chain raised its base price point from $1 to $1.25, and CEO Michael Witynski told analysts in March that customers are "going to come to Dollar Tree and Family Dollar now more than ever" in response to economic pressures.