Dollar General's expansion is putting pressure on small-town grocers

Dive Brief:

• Dollar General is putting pressure on beleaguered small-town grocers as it expands in rural communities across the country, according to the Omaha World-Herald. The company operates more than 14,000 stores and plans to open 1,285 locations this year.
• According to research from Kansas State University, small-town grocers can lose as much as 30% of their sales when a Dollar General store opens nearby. In communities that have one grocery store and one Dollar General, the grocer commonly has 70% market share in the community while the dollar store has 30%.
• Dollar General’s stores average 7,300 square feet, employ between six and 10 workers and typically bring in $1.6 million in sales each year. Over the past five years, the company’s stock price has increased 75%.

Dive Insight:

One of the retailers profiled in the Omaha World-Herald story, Chet’s Foods in Moville, Iowa, has seen its sales drop by a third since Dollar General opened a location just around the corner. To stay competitive, the grocer has cut its charity donations, negotiated a lower rent and even started offering a $1 section in his stores.

But Chet’s Foods, like so many other small supermarkets across the country, is fighting a losing battle against Dollar General’s low prices and convenient selection. Although these grocers typically sell more goods than the dollar operator’s locations, including fresh produce and meat, they have a hard time coping with the loss of sales that occurs when these pint-sized competitors open shop.

Dollar General succeeds through its formidable scale, and by poaching sales in small communities that don’t have a Walmart nearby. The company’s success is due in no small part, in fact, to its ability to capture shoppers who might otherwise travel to Walmart for dish soap, snacks and other consumables.

“Dollar stores decided they were going to put five stores in between that customer and their journey to Walmart,” Neil Stern, senior partner with McMillanDoolitle, recently told Food Dive. “Clearly [shoppers] still go to Walmart, but the dollar stores are more convenient, so they’ve funneled away some of those shoppers.”

It’s not just dollar stores that are cutting into independent grocers’ business. As competition among chain grocers heats up, small players are having a tough time keeping pace with the flashy remodels, surging private label launches and other measures large retailers are taking to stand out. Without the investment capital to update their stores and selection, many independents risk becoming obsolete.

Some reports have noted that small stores can stand out with service and a unique product assortment. While this is certainly true, chains like Kroger and Aldi are able to trade on price and quality, making it ever more difficult to stick with the underdog.

Things certainly aren’t getting easier for independents. Dollar General is expanding into new categories, rolling out more private label products and even testing fresh produce in some stores. As its assortment evolves, Dollar General could steal away even more market share from small grocery stores.