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Meet the new general

For America's dollar-store behemoth, food is the next target

This summer, my family–two kids, husband, mother, and I–embarked on a road trip to South Carolina’s Myrtle Beach.

During the 18-hour ride, two things stood out. First, America really does have many food deserts. In the South, you can almost drain a tank of gas without encountering a single supermarket.

The other surprise: the sheer number of dollar stores. In particular, the yellow and black sign belonging to Dollar General, the country’s largest dollar chain, seems as common as Tim Hortons here.

In America today, in fact, there are more dollar stores than Starbucks. Or McDonald’s. Or drugstores.

The top four chains–Dollar General, Family Dollar, Dollar Tree and 99¢ Only–together have 21,000 stores. Nearly half belong to Dollar General. Across 40 states, it owns 10,000 stores, and this year alone it’s adding another 625.

Driving by all these dollar stores, it’s obvious how they’ve stepped up to fill the need to eat within food deserts. And how grocers have entirely missed the boat.

Emily Weiss, of Dollar General, says about 70 per cent of its stores serve communities with populations of less than 20,000. Many customers rely on the chain for fill-in trips to supplement their regular grocery shopping.

Rick Dreiling, CEO of Dollar General (and a former grocer) has aptly said dollar stores are in a race to become “the new general store.”

Dollar General, in particular, is pushing hard to take grocery share from retailers like Walmart.

A few years ago it launched a new format, Dollar General Market that has an expanded selection of grocery, frozen and dairy items, including fresh produce and meat, all within 16,000 square feet. About 40 of these stores are opening this year.

Meanwhile, rival Family Dollar has entered into a partnership with McLane, a major U.S. provider of grocery supply chain solutions.

Why are dollar stores expanding so rapidly into food?

Retail expert David Rogers, of DSR Marketing Systems, has several ideas. One is that Aldi, a limited assortment discounter that attracts dollar-store customers, isn’t adding nearly as many stores as perhaps it could.

Rogers goes so far as to say there are too few limited assortment grocery stores in America right now.

Meanwhile, some conventional grocery chains, like Supervalu, are in weak shape. They are having to fix their own operations rather than answer new competitors.

“As a result,” Rogers says, “the dollar stores are stepping into the breach by adding food and consumables.”

It’s easy to think only America’s plentiful poor shop at dollar stores. But that’s not true.

The Romneys and the other “one per cent” might load up the Hummer at Costco, but a Consumer Reports survey finds 75 per cent of Americans earning $40,000 to $74,900, and 68 per cent making $75,000 or more, shop at dollar stores.

What’s driving them there? According to consumer researchers at the Hartman Group, it’s “the allure of the bargain, the thrill of the hunt, and an influx of food and beverage products.” In other words, dollar-store shopping can be fun.

If that isn’t enough to jolt grocers out of their complacent seats, U.S. dollar chains have started rolling out their own private-label brands to compete with the likes of Costco’s Kirkland, Walmart’s Equate, and Target’s Market Pantry house brands.

Dollar General has Clover Valley foods and DG products (over 1,500 items, from baby products to house- wares). Family Dollar has Family Gourmet prepackaged meals and other foodstuffs.

In Canada, of course, things are different. Our economy hasn’t been nearly as gutted as the U.S., food deserts aren’t as common in urban areas, and the dollar stores we do have (Dollarama, for the most part) have not made food a priority.

Still, we should pay attention to the trend south of us. The American chain Dollar Tree is already here and increasing its store base 12 per cent this year.

Whether now or later, Canada is an opportunity for American dollar stores to expand. Grocers need to look at reinventing themselves to compete with dollar stores, much like how Walmart is doing with its smaller Express format.

If Canadian grocers get too complacent, they will lose out to the new general store.

Nancy Kwon is Canadian Grocer's managing editor

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