Expanding chains drive out independent grocers, reduce access to fresh produce
As retail sales move online, dollar stores stand out for their bricks-and-mortar success. In the last year alone, the two largest chains, Dollar General and Dollar Tree, added more than 1,300 stores. Together they have nearly 35,000 locations across the U.S., more than Walmart, CVS, Walgreens and Target combined.
Their rapid expansion into urban and suburban markets has come with significant social and economic costs, critics say. The stores can be magnets for crime, and the low prices they promise — largely due to selling smaller sizes — disguise the fact they are often more expensive than their traditional competitors.
A working paper suggests another problem. The growth helps to drive out independent grocers and, in the process, creates or exacerbates “food deserts” where shoppers have little or no access to purveyors of healthier foods.
Dollar Stores Push Out Smaller Grocers
The study by University of Toronto’s El Hadi Caoui, UCLA Anderson’s Brett Hollenbeck and University of Toronto’s Matthew Osborne found a significant decline in the number of independent grocers following the entry of dollar stores into a neighborhood — roughly the loss of one grocery store for every three dollar stores within a 2-mile radius. At the same time, consumers trim their purchase of fresh produce by an average of 4% to 7.4%, with a significantly steeper decline for low-income households.
“The exit of existing grocery stores and the entry of large numbers of dollar stores … have significant impacts on food purchases and availability,” the authors write.
Dollar stores, which first appeared in the 1950s, typically offer a limited selection of merchandise that emphasizes seasonal products, household goods and individual servings of nonperishable food items. Soda, snacks, candy and crackers account for the largest share of consumer spending at the stores, the study indicates.
Until recently, fresh produce wasn’t part of the mix, and it still remains the exception. Dollar General now offers fruits and vegetables in about 3,000 of its 18,800 stores, with plans to add another 2,000 in 2023, the company CEO said in December.
Defenders argue that dollar stores’ lower prices give underserved consumers more choice, while their strategy of flooding a market with several outlets means shoppers gain the convenience of shorter trips without long drives to distant supermarkets or club stores.
(Separate research suggests making COVID-19 vaccines available at the stores, which are more common than drugs stores in rural and exurban areas, would have eased the problem of “vaccination deserts” during the pandemic.)
Stores keep operating costs low by employing few workers and through efficient distribution networks, and they typically deliver wider profit margins than competing retailers.
DG Gross Profit Margin data by YCharts
Smaller, independent grocers have been chiefly affected. “We lasted three years and three days after Dollar General opened,” said the owner of a Foodliner grocery store in Haven, Kansas, quoted in The Guardian in 2018. “Sales dropped and just kept dropping. …I lost a thousand dollars a day in sales in three years.”
Dollar stores’ rapid growth has spurred a backlash. Several cities — including Atlanta, Tulsa, Oklahoma, and Fort Worth, Texas — have adopted ordinances limiting the spread of new dollar stores.
How Dollar Stores Affect Consumer Spending
To learn more about the effects of dollar stores’ expansion, the authors examined data about retail locations and consumer spending between 2010 and 2019, a period in which the chains added more than 14,000 new outlets in the U.S. They focused on independent grocery stores, which compete more directly with dollar stores within a smaller geographic area.
They found a substantial decline in the number of grocers within a 2-mile radius of the new dollar store, and the effect increased as more dollar outlets entered the market. Grocers outside the 2-mile radius were less affected.
As independent grocers left the market, shoppers made more visits to dollar stores and fewer to grocery stores. Consumer spending on fresh produce declined, and the decline was especially pronounced among low-income households. For low-income shoppers, produce spending fell by as much as 13.8% when there was one dollar store in the market and as much as 30.4% with three or more stores.
Dollar stores’ lower prices don’t necessarily mean households save money on their food purchases. Spending on most food categories changed little, although spending increased for frozen produce after three or more dollar stores entered a market.
The authors then consider a what-if: How would a ban on dollar-store expansion have affected local grocery markets? If such a ban had been adopted at the start of their study period, the analysis suggests, markets would have 54% more grocery stores and 47% more convenience stores. Shoppers would have to travel less to the nearest grocer, from about 2.9 to 2 miles.
The effects would have been greatest in census tracts with larger shares of minorities, higher poverty rates and higher travel costs.
Assistant Professor of Marketing
About the Research
Caoui, E. H., Hollenbeck, B., & Osborne, M. (2022). The Impact of Dollar Store Expansion on Local Market Structure and Food Access. SSRN Electronic Journal. doi:10.2139/ssrn.4163102