Moneybox

The Hidden Costs of Dollar General

A large Dollar General outdoor sign.
Photo illustration by Slate. Photo by Justin Sullivan/Getty Images.

The following article is a written adaptation of an episode of Thrilling Tales of Modern Capitalism, Slate’s podcast about companies in the news and how they got there.

During the pandemic, when so many brick-and-mortar stores faltered or collapsed, Dollar General thrived. The company opened more than 1,000 new stores in 2020, and plans to open even more this year. In fact, Dollar General has always done its best business in hard times in hard-hit communities. It’s part of the company’s origin story.

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When the Great Depression hit and local general stores were going out of business, J.L. Turner, a traveling salesman in Kentucky, started buying up their merchandise and selling it to the department stores that were still running. He enlisted his son, Cal Sr., to help him, and together they founded the company J.L. Turner and Son. They weren’t satisfied with wholesaling, and eventually they started opening retail locations of their own. By the 1950s, they had grown their family business to 35 stores in Kentucky and Tennessee. Department stores in those days used to run promotions called “dollar days,” heavily advertised monthly sales during which department stores would sell goods for a single dollar. That gave Cal the idea to build an entire store around that eye-catching and memorable price point, a store where every day would be dollar day—Dollar General.

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In 1968, Dollar General went public. At around the same time, J.L.’s grandson Cal Jr. took over. Under his leadership, Dollar General became a little more professional. It formulated a budget. It improved its supply chains and updated the technology in its stores. And it learned to pick locations for new stores. “It’s a science,” says Phil Wahba, a reporter for Fortune. “You go, you look at, down to the ZIP code, how much money people are making, what’s the average age, how many kids do they have. These were the kinds of things that, over time, he brought in that really turned Dollar General into what it is.”

The article continues below, or listen to the full episode using the player. You can also subscribe to Thrilling Tales of Modern Capitalism on Apple Podcasts, Overcast, Spotify, Stitcher, or wherever you get your podcasts.

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Dollar General’s core customer today is a woman with a household income of $40,000 or less. And that’s always whom Dollar General has targeted: people on the lower end of the economic spectrum. Guided by that strategy, Cal Jr. aggressively expanded the company’s footprint over the next couple of decades. He grew the business to more than 6,000 stores with more than $6 billion a year in sales. Once he’d figured out the kind of places where a dollar store could thrive, he put them everywhere he could.

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“Their stores are 7,000 square feet, and they’re in small towns,” Wahba says. “So they’re literally everywhere. You don’t have to drive far to find one. So people have come to consider the dollar stores as a good alternative for daily staples. They’re convenient. They’re all over the place. And also they make for very good in-and-out trips. You go in, you pop in, you buy a few items, and you’re out within minutes.”

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Dollar General always had a keen understanding of who their core customer was: a low-income person, often in a town in rural America where the Dollar General was the only option. Todd Vasos, the current CEO, has described the Dollar General shopper as someone who, when they’re running out of ketchup, doesn’t immediately buy a new bottle, but rather waits until it’s all gone and then picks one up on the way to work. Dollar General was happy to continue catering to this customer and didn’t attempt to go upmarket.

After Cal Jr. retired in 2002, the company brought in its first CEO from outside the family. David Perdue had recently executed a successful turnaround at Reebok. He would later get elected to the Senate from Georgia. Perdue continued on Cal Jr.’s path of aggressive expansion, but the strategy got out of control and the growth became bloated. Meanwhile, he had to contend with increasing competition from Walmart, which had Dollar General–like offerings along with a huge selection of other goods and services. For the first time, Dollar General’s quest for growth had backfired, and in 2006 the company closed 400 locations. In 2007, private equity company Kohlberg Kravis Roberts & Co. bought Dollar General, took it private, and changed the management team.

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KKR’s timing was lucky, as one year later the 2008 recession drove bargain-seeking shoppers into dollar stores in droves. And once those customers had discovered dollar stores, they never looked back. According to Wahba, “what’s ended up happening is, through each economic slowdown, they’ve kept a lot of the shoppers who’ve come to them.”

KKR took Dollar General public again in 2009 and sold its position in 2013 to shareholders as the company continued to flourish. Last year, another economic downturn, as well as a pandemic, boosted Dollar General yet again. The company increased sales in the first quarter of 2020 by almost 30 percent. While competitors like Walmart have put a lot of money into building out e-commerce, Dollar General continues to succeed by just being the closest brick-and-mortar option across America.

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“Dollar General just absolutely killed it last year,” Wahba says. “The headlines were full of ‘retail apocalypse’ this and ‘the death of stores’ that, but this is a company that’s been opening a thousand stores a year for the last few years.” Dollar General now has more than 17,000 stores in the U.S., twice what it had a decade ago. The company says that about 75 percent of Americans now live within 5 miles of a Dollar General. In the long term, COO Jeff Owen says, he can see the number of stores doubling in the U.S. to roughly 34,000. Wahba predicts that “they’re going to become a much bigger part of retail in the coming years, even after decades of growth.”

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The business story is a clear win. But when you talk to people in districts that already have five or six or seven dollar stores, they aren’t quite as thrilled with the notion of even more dollar store expansion.

About 10 years ago, Vanessa Hall-Harper started to notice something strange going on in her neighborhood in north Tulsa, Oklahoma: “I was just driving around in my community, and you would see development taking place, you would see dirt being moved. And then it just got to the point where every damn time you felt like, ‘Hey, I wonder what’s going there,’ it’d end up being a damn dollar store. I’m like, what? Why do we need a dollar store down the street from another dollar store?”

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A lot of what dollar stores sell is food, but their selection is mostly nonperishable items, frozen stuff and alcohol, lots of Campbell’s soup and cereal and Hamburger Helper, and not a lot of fresh produce or fresh meat and dairy. Dollar stores aren’t meant to be real grocery stores full of fresh food. They’re designed for fill-in trips, to grab a quick microwave dinner in the middle of the week. The dollar stores, with their smaller scale and selection, don’t need to pay as many workers as grocery stores, and they can focus on the high-margin packaged products, which happen to be the unhealthy ones.

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When the dollar stores moved into north Tulsa, they started driving grocery stores out. Local grocers blamed it on what they called the Walmart effect. When Walmart Supercenters arrived in neighboring areas, offering huge selections of goods at low prices, people started driving to them rather than shopping locally. Smaller stores couldn’t compete. In 2007, the last major supermarket in the area, an Albertsons, shut its doors.

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To Dollar General, this was an opportunity. A few years after the Albertsons closed, Dollar General moved into north Tulsa. They could compete with Walmart’s prices, and while you needed to drive about 15 minutes to get to the nearest Walmart, before parking in its massive lot and wandering its massive aisles, you could walk to the little Dollar General on the corner and be in and out in no time.

The dollar stores filled the niche the grocery stores had abandoned. People would drive out to Walmart on the weekend and restock with a quick midweek grocery run closer to home. For people without cars, who couldn’t drive to the Walmart, the dollar store became the main option. Hall-Harper wasn’t happy about it. “When I see a family walking to the dollar store, and they’re walking out of there with seven or eight bags, knowing that there was nothing in those bags healthy, that really bothered me.”

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In 2016, Hall-Harper ran for City Council. Her platform included bringing a grocery store to north Tulsa. She won her election, but the dollar stores kept coming. When yet another dollar store was approved in 2017, with no grocery store in sight, Hall-Harper had had enough. She rallied district residents outside the site of the new store, discouraging shoppers from bringing business there.

The protest didn’t stop Dollar General from opening, but afterward the company added a produce aisle to the store, which made it the only dollar store in town with fresh options. Still, the mere presence of all those dollar stores had made north Tulsa an unattractive location for traditional grocery stores.

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Retail districts are ecosystems where participants’ actions affect the shared environment. Walmart comes in, so supermarkets leave. Supermarkets leave, so dollar stores come in. Dollar stores are a hardy species, well adapted to struggling neighborhoods where customers are pressed for time and money. Once they’ve found a suitable habitat, they’re hard to dislodge.

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Hall-Harper has tried to use the political process to introduce more diversity into the retail environment of her district. She borrowed legislative language and tactics from a wealthy white resort town near San Diego that had limited chain stores in the name of preserving local character. In April 2018, the Tulsa City Council passed an ordinance that limited the number of dollar stores and helped bring a grocery store to north Tulsa—the Oasis Fresh Market, which opened in May of this year.

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People in other parts of the country are following Tulsa’s lead. From Cleveland to Fort Worth, local governments are passing restrictions on the opening of new dollar stores, and they often ask Hall-Harper for advice. “They call and email, but then when they want to talk to me about just the nuances, I said, OK, this is what’s going to happen. Your regional chamber of commerce, like mine, they’re going to come out against you, because they’re going to see this as anti-business. Your legal department within your government is probably going to say, ‘We don’t need to get into this, because we’re going to be sued.’ We weren’t. But those are just the roadblocks, if you will, that are going to come up.”

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In response to these efforts, Dollar General has said, “We are disappointed that a small number of policymakers have chosen to limit our ability to serve their communities.” The company has also emphasized its new produce offerings. Some Dollar General stores now stock a selection of fruits and vegetables, but those special aisles will only be in about 5 percent of stores nationwide. In any case, it’s hard to believe Dollar General is all that worried about regulation. For every neighborhood that’s using local government to slow the company down, there are dozens more where the company is opening new stores with the cooperation and enthusiasm of local communities.

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