Written by Tess Britton
In rural America, lower income residents depend on easy access to affordable food. When “local” department stores and Walmart require some to travel up to fifty miles for everyday supplies, a pop-up dollar store appears to save the day.
To a low-income consumer, the low prices that dollar stores offer and the close proximity to their place of living is enough of an incentive to choose to shop at these dollar stores rather than spend money on higher quality goods. In other words, money is the greatest cost to these consumers and outweighs any benefits that could occur from spending more on nutrition or assisting local businesses. For example, if someone has a tight budget and wants to feed their family, it makes the most sense for this person to want to buy as much as possible for the cheapest price.
It seems intuitive that dollar stores allow low-income consumers to buy the resources they need at a price they can pay for them. What often goes unnoticed is the economic distress and imprisonment of poverty that the rise of dollar stores creates.
David Procter, a Kansas State University professor stated in an interview with the Washington Post that “big box grocery stores” are no longer a threat to local businesses. Instead, it is now the “discount retailer” that will open up in these small, poverty-stricken communities.
Most people are aware of the problems that Walmart causes by driving local retail stores and grocery stores out of business. What is significant, though, is that Walmarts exist only in populations where they have enough nearby customers to survive. Being that dollar stores are significantly smaller, they are able to pop up in the wake of Walmarts and throw gas on the fire of an economic disaster already in the making.
The biggest problem that dollar stores create is that their abundance makes it virtually impossible for smaller businesses to open. In fact, when there is an excessive number of any large corporation chain, other shops struggle to open or stay open due to their inability to compete with dollar store prices.
To put this idea into perspective, Dollar General and Dollar Tree operate more than 30,000 stores nationally; by these numbers, they far outnumber the amount of Walmart, McDonald, and Subway locations (ILSR).
This diagram from the Institute for Local Self- Reliance depicts how many dollar stores there are per 10,000 residents by state. It is evident that the south in particular is most affected with the highest concentration of dollar stores in these parts.
Dollar stores drive local stores out of business because of their boundless presence in rural America. This creates a bigger problem because small community economic development depends on small businesses circulating money throughout the community. When an outsider like Dollar General or Dollar Tree shows up, the money that was once circulating within the community now goes to a large corporation instead. That is to say, money is taken away from the local residents and distributed elsewhere; they put a halt on any productive economic development possible for small rural communities.
As a result of these small businesses failing, dollar stores and Walmart become the only surviving businesses for residents to spend their money. Consequently, loans for new businesses are rejected and all the wealth is taken out of these already struggling communities; further pushing them into poverty.
Due to this ever growing problem, a Dallas suburb passed zoning guidelines to prevent dollar stores from opening within 5,000 feet of one another. These guidelines also included rules that 10% of dollar store floor space must be dedicated to fresh food (Washington Post).
Nutritional deprivation is an expanding issue within small, poverty-stricken communities. For these lower-class families, access to fresh food becomes increasingly difficult when dollar stores take over the business of local grocery stores which provide locally produced food. For some, buying large quantities of cheap, processed food makes more sense than spending their income on fresh food administered from local grocers. This shift in demand is what causes the local businesses to slowly be unable to compete with the accelerating rise in dollar stores. When the grocery store prices are undercut and fresh food can no longer be accommodated, these impoverished communities lose their already limited options of access to fresh food.
Though these fresh food premiums cause disparities between dollar stores and grocery stores, a difference in profit margins is what truly sets the two apart and causes one to float and the other to sink in these impoverished economies.
A profit margin gauges the degree to which a company actively makes money. In other words, it is a valuation of how many cents of profit will be generated for each dollar of sale (Investopedia). For grocery stores, this profit margin comes out to be around 1 to 3 percent. (Washington Post). In contrast, dollar stores run on profit margins anywhere between 30 to 36 percent.
This graph depicts gross profit margins specifically for Dollar Tree in the last 15 years (Macro Trends). From this graph, it is apparent that Dollar Tree, like other dollar stores, is able to maintain relatively high profit margins.
These discrepancies in profit margins can be explained by the fact that most dollar stores are self-servicing, only requiring a couple employees making minimum wage to run the store. On the other hand, grocery stores must be run with several employees, managers, and other staff in order to keep up produce and consistently stock their stores. Dollar stores don’t sell the same selection of produce as grocery stores and therefore are able to keep their operating costs low.
Even though dollar store prices are so low, their costs are even lower. Because of this, they are able to bring in a substantial amount of revenue each year.
This image, taken from the Wall Street Journal, shows quarterly revenue for Dollar General. By these numbers, annual revenue comes out to about $27.8 billion for Dollar General alone. Grocery store revenue is not even comparable. Though high profit margins and low operating costs can account for some of this revenue, they don’t explain the full story.
This degree of revenue can be explained by that fact that dollar stores have an unusually high buying power. Unlike most grocery stores, dollar stores have built their own supply chains and distribution centers; ultimately cutting their costs even more.
With such low operating costs and high buying power, dollar stores get away with their low costs thereby making them a target to people living in poverty.
It seems simple; offer struggling citizens cheaper goods to alleviate poverty. The intention behind dollar stores was to alleviate poverty and provide affordable goods to the lower income population of America. In fact, the former chief executive director of Dollar General commented on Fox Business stating that “the Dollar General customer is in a permanent recession and we want to help them”.
Though the intentions for dollar stores might have been for good, it is unmistakable that they cause more problems than they do to fix them.
It is beginning to become clear to residents around the United States in affected areas that Dollar stores are a symptom of larger problematic economic trends and a cause of ever-growing poverty.
Co-director for Institute for Local Self-Reliance remarked in an interview that dollar stores are “a recipe for locking in poverty rather than alleviating it”. The fact of the matter is dollar stores aren’t the problem, their quick rise and multiplication is.
Appendix
Dollar Tree Profit Margin 2006-2020 | DLTR. Macro Trends. Retrieved October 3, 2020, from https://www.macrotrends.net/stocks/charts/DLTR/dollar-tree/profit-margins
Siegel, R. (2019, February 15). As dollar stores move into cities, residents see a steep downside. Washington Post.
Mitchell, S., & Donahue, M. (2018, December 6). Report: Dollar Stores Are Targeting Struggling Urban Neighborhoods and Small Towns. One Community Is Showing How to Fight Back. Institute for Local Self-Reliance. Retrieved October 3, 2020, from https://ilsr.org/dollar-stores-target-cities-towns-one-fights-back/
Segel, T. (2020, September). Profit Margin. In M. James (Ed.), Investopedia.
Strong, J. (2019, October). [Personal interview by A. Elder].
Dollar General Corp. (DG). Wall Street Journal, Markets.