Dollar General Market: Chain Store Invasion

 

Last updated 4/29/2024 at 6:28pm

The rapid proliferation of chain dollar stores using predatory tactics to undermine grocery stores targeting small rural communities in particular is wildly spreading at virus replicating speed in our Country and elsewhere causing small groceries, beer and wine retailers, general hardware stores and other retail businesses to permanently close their long standing businesses.

In 2021, nearly half of the new stores that opened in the U.S. were chain dollar stores, a degree of momentum with no parallel in the history of the retail industry. At the start of 2022, Dollar General and Dollar Tree which owns Family Dollar, together operated more than 34,000 stores in the U.S., more than McDonald's, Starbucks, Target, and Walmart combined. Dollar stores have overrun much of rural America. In some small towns, they seem to be the only retail left.

In the wake of 99 Cent Stores closing all of its 371 locations and on the heels of the announcement that nearly 600 Family Dollar locations are set to close this year, while 400 more stores under the Family Dollar and Dollar Tree banners are expected to close in the next few years as their leases expire, why is the discount store Dollar General Corporation expanding its stores at lighting speed?


The discount 99 Cent Only Store chain, which operates in California, Arizona, Nevada and Texas, made the closure announcement citing COVID setbacks, inflation and product theft. Years of strategic mistakes including stores that were too large and inefficient to run and under investment have plagued Family Dollar and 99 Cents Only stores, retail analysts say. Both brands were acquired by other companies and faltered under their new owners. By comparison Dollar General Corporation's model of business excels its proliferation across America and elsewhere.


Dollar General in particular intends to get much bigger. It is one of America's largest discount retailer and last February, it hit a major milestone with the opening of its 20,000th store. And with plans this year "to open an additional 800 stores, remodel 1,500 locations and relocate 85 stores - 2,385 real estate projects overall," it certainly will exceed all other dollar discount stores in the U.S.

A very brief Dollar General History and timeline of development.

The first Dollar General store opened in Springfield, Ky. on June 1, 1955, and the concept was simple – no item in the store would cost more than one dollar. The idea became a huge success and other stores owned by J.L. Turner and his son Cal Turner Sr. were quickly converted.

1902 – James Luther (J.L.) Turner's father died in an accident when J.L. was only 11. J.L. quit school so he could work on the family farm and help provide for his mother and siblings and never completed his education.

After two unsuccessful attempts at retailing, J.L. became a traveling dry goods salesman for a Nashville wholesale grocer. J.L. left the sales job after 10 years and settled his family in Scottsville, Ky.

During the Depression, he began buying and liquidating bankrupt general stores. J.L.'s only child, Cal Turner Sr., accompanied his father to these closeouts at a young age, gaining valuable business knowledge and skills. In October 1939, J.L. and Cal opened J.L. Turner and Son Wholesale with an initial investment of $5,000 each. Wholesaling quickly gave way to retailing – J.L.'s third and final attempt at retailing. The switch to retailing resulted in annual sales above $2 million by the early 1950's.

1955 – The father and son team decided that they'd go into business and sell good stuff to rich people, but they ended up selling, in their own words, "the cheap stuff to poor folks", the rest is history. These men were the founders of Dollar General.

1957 – Annual sales of Dollar General's 29 stores are $5 million.

1964 – J.L. passes away. Four years later, the company he co-founded went public as Dollar General Corporation, posting annual sales of more than $40 million and net income in excess of $1.5 million.

1977 – Cal Turner Jr., who joined the company in 1965 as the third generation Turner, succeeded his father as president of Dollar General. Cal Turner Jr. led the company until his retirement in 2002. Under his leadership, the company grew to more than 6,000 stores and $6 billion in sales.

2003 – Dollar General entered the grocery market with the establishment of Dollar General Market.

2007 – Dollar General was acquired by an investment group consisting of affiliates of Kohlberg Kravis Roberts (KKR), GS Cpital Partners (an affiliates of Goldman Sachs), Private Equity and other co-investors completed the acquisition of Dollar General Corporation for $6.9 billion.

2023 – Shareholder Sues Dollar General After OSHA Assesses $15M in Safety Fines and Says Chain 'Puts Profits Over People'

The lawsuit alleged a "sustained failure of the Dollar General board members to implement and maintain an effective system of internal controls."

Dollar General announced on October 12, 2023 the return of former CEO Todd Vasos, replacing Jeff Owen. Chairman Michael Calbert said in a statement that "At this time the Board has determined that a change on leadership is necessary to restore stability and confidence in the Company moving forward".

2024 – the Dollar General company is a leading discount retailer with more than 20,000 stores in 47 states and announces 800 new stores to open during the year.

Dominant discount retail chain Dollar General, which operates about 20,000 stores in the U.S., is being sued for an alleged "pricing scam." In the class action lawsuit, customers allege that Dollar General frequently tags merchandise on store floors at a lower cost than what it rings up at the register.

In the wake of the pandemic...

The popularity of dollar stores exploded during the pandemic. But that proliferation has some communities concerned. Dollar stores have fewer choices for fresh food. And for some neighborhoods, the stores are their only place to shop. One phenomenon that happened is the use of dollar stores by people who are on the higher end of the socioeconomic scale. If you've got a greater income and you discovered dollar stores, for instance, during the pandemic, when you wanted to avoid major grocery stores where you may have shopped in the past, and you saw those long lines, and you didn't want to get in a hazmat suit and wait and go around a 20,000-square-foot grocery store, and you may have driven by or noticed a little 12,000-square-foot space, and you go inside, and there's eggs and milk and some basics and maybe little things that you picked up - and all of the sudden, there was a conversion that happened.

Yes, America loves a bargain but at what price?

In our rural community it is imperative we ask "at what price" are we sacrificing our town's character, environment, future vision, present and future economic development. Local existing food stores, especially the independent grocery stores that have long served our community will feel their thin profit margins narrow exhibiting to potential future new businesses not to take root and grow and erode prospects in our town and effectively locking in neighborhood deprivation. Its strenuously exhausting, and for some simply impossible, for our small independent groceries to compete with the mega giant Dollar General Market and its anti-competitive tactics. They peel off just enough of local store's sales to send it into the red. At that point, it's only a matter of time before it goes under, leaving residents with no nearby option for food shopping other than a dollar store. Dollar General Market will be a cause of economic distress in our small community wiping out our independent grocers potentially causing a "food desert". There is also a tangible psychological cost, a loss of pride and optimism for the future, to watching once vital retail businesses, especially grocery stores, be boarded up.

The objective of the dollar chains is not to out compete by winning over more customers, but rather to peel off just enough of the local store's sales to send in into the red.

Research shows grocers are barometers for other businesses in rural towns: as goes the grocery store, so goes other independent businesses in towns. One effect is a decline in employment.

Predatory Tactics

Dollar General use three primary strategies to monopolize local grocery store markets and extract wealth from rural places. First, they target communities with diminished economic power. This generally means rural towns with high population numbers of Latino and Black. Reseacher Dr. Jerry Shannon, a geographer at the University of Georgia, published a study in 2021 concluding that the presence of a chain dollar store is "highly associated with neighborhoods of color." Shannon's research found, that dollar stores "are effectively replacing small groceries in many neighborhoods." Shannon concluded that the proliferation of the dollar chains "both reflect and, potentially contribute to long histories of racial exclusion."

The chain seems to be driven more by race than income. Borrego Springs until recently was considered by the state of California to be a "Severely Disadvantaged Community" (SDAC) and an "Economically Distressed Area" (EDA). A Disadvantaged Community (DAC) in California is defined in Water Code 79505.5 as a community with an annual median household income that is less than 80% of the Statewide annual median household income, or $56,982.

Why does Dollar General zero in on these places? As Dr. Shannon's research shows, their location strategy is guided by something more than simply poverty. One explanation may be a lack of political power. Borrego Springs is an unincorporated area of northeast San Diego County and not part of a city and we are governed by the county board of supervisors, which is equivalent to a city council. We do not have our own local government, and instead rely on the county for services such as law enforcement, zoning, and land use regulations.

Despite the well over 1,400 petition signatures sent to the county and numerous conversations opposing the new Dollar General Market with our San Diego County District 5 Supervisor Jim Desmond and Borrego Springs Sponsor Group, the Dollar General Market was approved and is supported by Borrego Springs representatives.

And of course, while an independent grocer can absorb losses for only so long before it has to close, Dollar General Market, backed by Wall Street and thousands of stores, can sustain a new outlet at a loss indefinitely.

The second strategy is market domination using predatory tactics to drive small grocers out of business typically begins with the location. In very small towns, similar to our own Borrego Springs, dollar stores often build 'bookend' stores at the entrance and exit of downtown main streets and squeeze the backbone rural retailers crushing local businesses. And of course, while an independent grocer can absorb losses for only so long before it has to close, Dollar General Market, backed by Wall Street and thousands of stores, can sustain a new outlet at a loss indefinitely.

The third strategy: predatory buying. Dollar General Market leverages their power as major buyers to coerce suppliers into providing them with special package sizes and lower prices, while charging independent grocers more and restricting the products available to them. Congress outlawed predatory buying in 1936 with the passage of the Robinson-Patman Act, but regulators largely stopped enforcing the law about 40 years ago, as part of a broader move to weaken antitrust overall. As a consequence, Dollar General has been allowed preferential terms from suppliers. Discount dollar stores control such a large share of the market that their suppliers have little choice but to acquiesce. This leads to an effect as suppliers make up for the lost revenue by raising the prices they charge the wholesalers that supply independent grocers. "For some products, power buyers extract such an unfair advantage that their retail prices are lower than the wholesale prices available to independent grocers - making it impossible for independent grocers to compete on price" David Smith, president of Associated Wholesale Grocers, explained in testimony to Congress in 2022.

Dollar chains also rig the game by demanding "cheater" sizes from suppliers. "You've got a candy bar that is two ounces less, but it looks like the one in my store. The consumer thinks Dollar General is selling it cheaper," explains an independent grocer, even though his price may be lower ounce for ounce. Suppliers generally refuse to sell these special sizes to independent grocers since "they make that specifically for the dollar stores channel."

Who is the parent company of Dollar General?

An investment group consisting of affiliates of Kohlberg Kravis Roberts (KKR), GS Capital Partners (an affiliate of Goldman Sachs), Citigroup Private Equity and other co-investors completed an acquisition of Dollar General Corporation for $6.9 billion.

The Invisible Reality: Contributors to poor health and lower life expectancy.

The extent to which people rely on discount dollar stores for groceries is startling. Dollar General accounts for a much bigger slice of the grocery market than Whole Foods does. The Dollar General chain has delineated the nation's stark and widening disparity. According to data and health leaders discount dollar stores contribute to poor health and lower life expectancy. Because perishable food is generally a money-loser, grocers rely on sales of packaged foods and other goods - all the items sold in their center aisles - to cover their overhead and stay afloat. These packaged items more often than not are ultra processed. Although Dollar General has added a small selection of produce to about a quarter of its stores most of its food products are packaged processed foods known currently in our country as "second class food".

A Generation raised on, and dependent on dollar store food.

Kids growing up on their families reliance on dollar store food shopping has created a generation of cheap food dependency. A common behavior for children when taken to dollar store chains is to make a beeline for the Hot Cheetos, soda, off brand ice cream and cookies. Dollar stores are not the ideal food source-they're known to offer less nutritious food compared to grocery stores.

Under served communities rates of diabetes and obesity are far higher than in more affluent communities, where the number of full-service grocery stores per capita is up to three times higher.

According to a 2022 USDA economic research report, more than 1 in 10 households in the U.S. deal with food insecurity, meaning they can't access the food they need - with inflation and the end of the pandemic-era aid, those numbers only rose higher.

Dollar General a multi-billion company getting rich off the backs of children's poor health contributing to future health problems and conditions.

We are what we eat.

In the U.S., what we eat is the leading cause of illness and death, but there are ways to change that. We need not only to become a food secure community but also a nutrition secure community, meaning we can access and afford healthy, reasonably priced, good quality and tasty food. There would be so many benefits for our community's health and well-being. Critics say national dollar discount chains like Dollar General undercut local grocers with their low prices and create "food deserts" - communities where shopper have little or no access to grocers offering healthier foods.

Come to work for Dollar General?

Dollar General relies on a "lean" labor model - they under staff their stores and with more self check-out counters available the "lean" labor model becomes leaner through time. As of 2023 an astonishing 92 percent of Dollar General workers earn less than $15 per hour - the worst rate of 66 large service sector firms. And, as of March 29, 2024, the average hourly pay for Dollar General store in California is $14.85 an hour. The average Dollar General hourly pay ranges from approximately $12 per hour (estimate) for a part time cashier. A store manager average yearly pay in California is approximately $39,080 which is 25% below the national average. Dollar General does not pay a living wage. However, Dollar General's CEO Todd Vasos, appointed in October, 2023, has a tenure of less that a year and his total yearly compensation is $8.98 Million, comprised of 7.3% salary and 92.7% bonuses, including company stock and options he directly owns 0.062% of the company shares, worth 21.44 Million.

To be continued... next issue: Turning the tide: Communities rising up.

This Borrego Sun story is the first of a report series actively providing its readers bi-weekly Dollar General Market reporting to come in future following issues. Stay informed.

 
 
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