Are Dollar Stores Really Driving Grocers Out of Business?
Dollar stores are the latest target of advocates who want to improve food offerings by limiting them
Earlier this month, the Institute for Local Self-Reliance (ILSR), a nonprofit advocacy group with offices in Minneapolis, Maine, and Washington, D.C., that "challenges concentrated economic and political power, and instead champions an approach in which ownership is broadly distributed, institutions are humanly scaled, and decision-making is accountable to communities," released research meant to push back against the spread of dollar stores, which the group argues are "targeting struggling urban neighborhoods and small towns."
Generally, dollar stores are mid-sized retails stores that sell "a wide range of inexpensive household goods."
The ILSR research focuses largely on the sale of what it deems substandard groceries by dollar stores, criticizes their spread as the cause and effect of economic malaise, and urges cities and towns "to check the[] spread" of dollar stores through local legislation. Steps the ILSR urges cities and towns to take include setting limits on chains, creating buffer zones around existing stores (of the sort food trucks have often endured in many cities), increasing red tape, and subsidizing locally owned groceries.
The research makes several assumptions that don't stand up to scrutiny.
First, it argues that dollar stores are both the cause and effect of what ails grocery markets in many cities and towns. It argues dollar stores are "both a symptom of larger economic trends and a cause of additional economic despair." It's not by any means impossible for a phenomenon to serve as both cause and effect, but the respective cause and effect this research identifies—dollar stores put grocers out of business and "dollar stores concentrate in areas that already have few or no grocery stores"—seem at odds with one another.
Second, one of the main criticisms the research lobs at dollar stores is that dollar stores don't sell fresh meat or produce. They do, however, offer varying degrees of canned and/or frozen meats and produce. There's nothing innate to fresh foods that is superior to canned and frozen alternatives of the same foods. Consider, for example, that dollar stores sell frozen meats, canned vegetables, condiments, and other arguably health foods. They sell $1 steaks. Dollar Tree offers some great canned foods. One Florida State University student wrote about the "ridiculously good meals" she made during a week in which she only bought food only at the Dollar Store.
Third, it quotes Tulsa city councilor Vanessa Hall-Harper, who helped develop legislation to limit dollar stores, who says a Sav-A-Lot grocery in her district closed because of incompetence on the part of management and/or the licensee, rather than because of competition from dollar stores. That would seem to undermine the premise behind ILSR's research.
(Notably, Hall-Harper's North Tulsa district is not completely devoid of places where residents may buy fresh produce. According to a recent report on farmers markets in Tulsa, the northern part of the city is home to an urban farm and is served weekly by a roving truck that sells low-priced fresh produce.)
Fourth, it argues that a dollar store in Moville, Iowa, put a grocer there, Chet's Foods, out of business. Yet the report also notes that "residents were still buying most of their groceries from Chet's" and the store closed anyway. In an email to me this week, Stacy Mitchell, ILSR Co-Director and co-author of the research, explains that fixed costs likely doomed Chet's in the end. "As a large company, Dollar General can lose money at a new location for a much longer period (making it up elsewhere in the chain)," Mitchell also adds. That makes sense. "I think this is something libertarians don't really wrestle with. Big companies can 'win' competition not by virtue of being better or more popular, but by virtue of being larger. Is that the best outcome?"
Maybe. Maybe not. But if Chet's or any other grocer's business model rests on margins so slim it will fail in the face of any competition, that business won't be able to withstand competition from anyone—be it a dollar store, a mom-and-pop corner shop, or another grocer.
Fifth, the research details how dollar stores are now selling more food than is Whole Foods. That sounds like a startling number until you consider, as the report indicates, that the two largest dollar store chains—Dollar Tree and Dollar General—now boast nearly 30,000 total locations across the United States. Whole Foods has fewer than 500 locations across the country.
That means there are at least around 25,500 more dollar stores in this country than there are Whole Foods stores. I asked Mitchell about the comparison.
"For many people living in large prosperous metro areas on the East and West costs, Whole Foods looms large in the mental landscape of food retail," Mitchell writes. "It's very visible in the national media, for example. Few people in these areas think of dollar stores as food retailers, but the invisible reality is that the dollar chains are supplying a much larger share of America's groceries. Making the comparison to Whole Foods was a way to get people's attention. Increasingly we live in two different Americas and our media more often reflects one and not the other."
So are dollar stores preying on people? Or are they serving them?
Prof. Elizabeth Racine, professor of public health at the University of North Carolina-Charlotte, studies dollar stores. She was initially opposed to the stores. "I've come around," she told Bloomberg Businessweek last year. "I appreciate that they are willing to operate in low-income places because so many other stores aren't willing to go there." Racince, the piece notes, "calls [dollar stores] the Whole Foods of Charlotte's food deserts."
"They see a need and are aggressively racing to meet that need for low-cost goods in places that are food deserts," says Garrick Brown, director of retail research with realtor Cushman & Wakefield.
That's not all. If dollar stores are taking advantage of people with little income, they're also taking advantage of shoppers who are just looking for a deal. As Greg Beato noted in 2011, Dollar General's growth has been driven in part by households earning over $70,000 per year.
Placed in a larger context, dollar stores are just the latest target of advocates who want to improve food offerings by limiting them. Plans to restrict food sellers in this way, or promote healthy food in that way, seem perpetually in motion. These efforts also seem, as a general rule, destined to fall far short of their goals. Several years back, for example, the Los Angeles City Council banned the construction of new fast food restaurants in South Los Angeles, in a move intended to combat obesity. As I've detailed, most recently in 2015, research by the RAND Corporation condemned the ban as ineffective and counterproductive.
Several years ago, Minneapolis attempted to mandate that convenience stores provide fresh produce. I criticized the plan, predicting it would backfire or fall short. And that's exactly what happened.
None of this means dollar stores should be immune to criticism. For one, they neither need nor deserve so much as one dollar of taxpayer-funded subsidies. But neither should local grocers be subsidized this way, something the ILSR research urges.
There is nothing inherently wrong with celebrating and promoting local self-reliance. But there is also nothing inherently wrong with dollar stores. Restricting them is a mistake. Might Tulsa lawmakers better serve the city by allowing residents to be truly self-reliant, rather than—as I detail in my recent book Biting the Hands that Feed Us: How Fewer, Smarter Laws Would Make Our Food System More Sustainable—ripping up a North Tulsa woman's front-yard edible garden?
