What You Really Need to Know About Dollar Stores

Dollar stores are a favorite of frugal shoppers, and though they have a distinctly spartan feel, good buys can be found if they know where to look. But it isn't only lower-income consumers looking for deals. A greater number of higher wage earners, including those who make as much as $100,000 a year, are turning to Dollar General and other bargain stores to save money. Still, cheap goods often come at a price, and there may be things you don't want to know.

Related: What Not to Buy at the Dollar Store

With inflation surpassing 40-year highs this past year, it isn't only modest-income shoppers who have turned to dollar stores in search of bargains. Dollar General, for example, is seeing robust sales from consumers earning $75,000 to $100,000, according to CEO Todd Vasos. Dollar General's "core" customer earns less than $40,000. Higher earners began shopping at Dollar General during the early days of the pandemic and have kept coming back, he said. A few years back, The New York Times Magazine discovered that about 22% of dollar-store shoppers make more than $70,000 a year. They're also the fastest-growing segment of discount shoppers, along with millennials.

Related: Dollar General Goes Upscale With Surprising New Chain

Dollar General is adding fresh fruits and vegetables to its offerings. The retail chain was selling produce in 3,000 of its stores by the end of 2022 and planned to add fruits and vegetables at 2,000 stores in 2023, ultimately making them available in 10,000 locations in the coming years. Dollar General said it plans to provide the top 20 items and about 80% of the categories of produce sold by most grocery stores. The company also said it has partnered with a nutritionist to create healthier recipes using items sold at its stores.

Related: I Stopped Shopping on Amazon and Here's What Happened

The nation's largest retailer by locations, Dollar General had just under 19,000 stores as of February 2023. The chain opened 1,000 locations in 2021 and 1,100 more in 2022 — about three stores a day. Dollar General's revenue is growing, too — to $36.3 billion. Its chief competitor, Dollar Tree (which also owns Family Dollar) had nearly 16,300 locations as of November 2022 and expected at least $28.1 billion in revenue in 2022.

The two biggest dollar chains, Dollar General and Dollar Tree, have more stores combined than the six biggest U.S. retailers — Walmart, Kroger, Costco, Home Depot, CVS and Walgreens — put together, according to Forbes. If you put Macy's, Kohl's, Nordstrom, JCPenney, Dillard's, Saks/Lord & Taylor, Neiman Marcus, and Belk together, the store count would add up to less than 15% of the total number of dollar stores.

Family Dollar made headlines after a rodent infestation at a distribution center forced it to recall scores of products and close more than 400 stores in six states. It's not the first evidence of subpar dollar-store conditions: At Dollar General, the Labor Department has documented a "long history of violations and repeated failures to protect its workers from on-the-job hazards" that's led to $3.3 million in proposed penalties stemming from 54 inspections. Among the problems: blocked exits, fall hazards, and poor sanitation. The company has also faced accusations that sparsely staffed stores are too vulnerable to violent crime; at least six Dollar General workers have died in robberies since 2016, according to CNN.

Dollar Tree, the only major dollar-store chain that has traditionally sold the vast majority of its products for $1, raised the prices of most items to $1.25 in 2022. The decision was permanent, with Dollar Tree saying the price hike will let it reintroduce in-demand items it had stop selling because profit margins were too thin. Dollar Tree also has an initiative called Dollar Tree Plus that will sell $3 and $5 products. Experts say the current economic environment, including supply-chain issues and a difficult labor market, are also to blame. Dollar General, 99 Cents Only, and Dollar Tree-owned Family Dollar stores have long offered goods at multiple price points.

Dollar stores aren't the best place to find healthy foods — and many may not offer fresh fruits and vegetables at all. Given that dollar stores tend to force out traditional grocery stores (which operate on slimmer margins), that means many people who don't have the money or time to travel beyond their immediate area have no choice but to buy the ultra-processed choices at their local dollar store. To battle the "food deserts" of low-quality food created by these stores, Oklahoma City's Ward 7 is now requiring new discount stores in the area either have an on-site pharmacy or at least 500 square feet dedicated to fresh veggies, fruit, and meat.

You still have to shop around. We compared dollar store prices to Walmart prices, and how well a shopper does depends on how closely they check the unit price. Sometimes, a dollar — or $1.25 — gets you less at Dollar Tree than it would somewhere else.

Sometimes it's more important to keep a product ultra-cheap, even if that means shrinking the size of the container of toothpaste, shaving cream or other item the quantity of what you're selling, according to Clark Howard. We noticed shrinking containers when comparing Walmart to dollar stores, too. As inflation goes up, items get even smaller.

It doesn't help your budget if you grab a name-brand detergent or soap at a dollar store that is smaller than what you'd buy at a discount or grocery store, which may undo your savings. But if you like specific cleaning products or bathroom supplies, you can find them here.

Unfortunately, these stores aren't passing the savings onto consumers. Dollar General has said that it wants to make its gross margin, which is nearly 30%, even bigger. It's making stores smaller to prevent shoplifting, using anti-theft tags on all items, managing and expanding its own fleet of trucks, expanding its generic product line, and sourcing from places cheaper than China. While most goods will remain below $5, they're looking to encourage impulse buying on goods with higher price points.

The loss of the middle class may have helped dollar stores, but financial analyst say those chains will need things to get worse if they really want to thrive. "What the dollar stores are betting on in a large way is that we are going to have a permanent underclass in America," Garrick Brown, director for retail research at the commercial real estate company Cushman & Wakefield, told Bloomberg. "It's based on the concept that the jobs went away, and the jobs are never coming back, and that things aren't going to get better in any of these places."

It's been noted before that the upswing in Americans on food stamps and the continued struggles of millennials after the recession — issues that worsened during the pandemic — have helped dollar stores find footing. But with Pew Research noting that just 50% of U.S. wealth is held by middle-income households — compared with 61% in 1973 — a rash of retail closings and the decline of malls in middle-class areas have swept more people toward dollar stores. In 2021, the 1,650 dollar stores that were expected to open represented nearly half of all new national retail openings, according to Coresight Research.

In December 2017, Dollar General CEO Todd Vasos told a Goldman Sachs retailing conference that his stores' average shopper is, typically, a woman living a two-income household, making $40,000 per year before taxes, and clinging to a stable job with no wage growth. He says that shopper's disposable income is around 2%, so $800 per year, and her shopping habits don't respond well to price changes of as little as a dime.

As CityLab noted, dollar stores tend to flourish in areas where residents are making below the median income and living at high rates of poverty. They also tend to pop up in areas where residents have lower levels of education, higher rates of smoking and obesity. Dollar stores are also more common in communities with higher crime rates. 

Wondering why Dollar General stores are so messy? Walking into a dollar store in disarray isn't a rarity, but that's by design. These stores run on minimal staff and they're built to move a lot of product quickly. If that product has to sit on floors or in boxes for a bit while a cashier handles the register, so be it.

According to Glassdoor, the average cashier makes $14 an hour or less than $28,000 a year. Store managers and assistant managers make between $49,000 and $84,000 a year, while district managers can make over $104,000. If you're stocking shelves, it's $12 an hour. Dollar General wages fall along the same lines.  

If you're a cashier at a dollar store, chances are you're also its janitor and security as well. Dollar stores go light on employee presence to keep their overhead low and to keep their profit margins high.

The growth of Dollar Tree, Dollar General, and the other large chains has come at the expense of not only upmarket competitors, but smaller dollar stores. As the New York Times pointed out, dollar-store chains have done a fine job of pushing mom-and-pop operations out of the business through their presence and their supply chains.

While dollar stores have proliferated across the country, the folks at CityLab point out that "they are concentrated in blue-collar, working-class states." The highest concentrations are found in Ohio and Indiana to the north, down through Kentucky and Tennessee through the South and into the Gulf states. Notably, cities including New Orleans, Tulsa, Mesquite, Texas, and Birmingham, Alabama have passed legislation to block proposed dollar stores from opening within 1 or 2 miles of existing ones.  

Their numbers are growing, but dollar stores face the same struggles as many other retail stores in the current environment. Dollar Tree and Dollar General benefit from a shrinking middle class that is drifting into lower tiers, but they're also pressured by online marketplaces such as Amazon. Even with their great deals, dollar stores feel the same pinch as other retailers when the economy softens.

Independent dollar stores and small chains depend heavily on wholesalers with access to overproduced products or inexpensive imports. But some of the larger chains have their own suppliers in place and deal with name-brand clients directly.

In 2020, Dollar Tree and Dollar General alone made more than $56 billion in revenue. That's more than three times what Macy's made, but not even half of what Kroger brought in.

They're picking up items in bulk and benefiting from the economics of scale, but dollar stores aren't always passing the bulk of those deals onto the consumer. That's evident from Dollar Tree's Direct to Business program, which lets businesses and charitable organizations pick up items at bulk prices, but doesn't charge them a warehouse fee like Costco or Sam's Club for the privilege. Meanwhile, they can break up cases and sell items for $1 in stores whether or not that's their unit price in bulk.

All Dollar Tree and Family Dollar stores are operated from their corporate headquarters in Virginia. Dollar General doesn't franchise either, but will let you sell Dollar General products online as an "affiliate" for a 5% commission.

Dollar stores maintain huge gross margins — larger than discount or supermarket chains — and actually make more money on every item they sell than their competitors. By selling smaller sizes and cheaper goods for a higher unit price, dollar stores are taking in more from consumers by parsing the pain into bite-sized chunks.