In 2021, more than 40 percent of all retail stores that opened in the United States were dollar stores. These stores—which now total over 37,000 outlets nationwide—are often located in low-income neighborhoods populated mainly by people of color. Today, more Americans live within five miles of a dollar store (75 percent) than within five miles of a hospital (60 percent). Increasingly, dollar stores are driving “grocery stores and other retailers out of business” (6), according to a recent report by the Institute for Local Self-Reliance.
In short, dollar stores often function as economic kudzu, spreading relentlessly and cutting off the flow of dollars to homegrown businesses. It’s not rare for dollar stores to swamp an entire community.
An example of this was profiled at NPQ in 2019, when we published a detailed study about the closure of a food co-op that had opened three years before in a Black community in Greensboro, NC. From 1998 to 2016, that community lacked a full-service grocery store; the co-op’s opening marked a triumphant moment after many years of community organizing.
So, why did the co-op effort fall short? As the study’s authors, Marnie Thompson, Sohnie Black, and Ed Whitfield, detail, the community co-op failed in large measure because it came “under direct pressure from more than 30 dollar stores within its two-mile radius.” These dollar stores were not grocery stores per se, but they siphoned away enough sales to sink the community store.
Greensboro’s is the story of many communities. What can be done about this pattern? Quite a bit. But to respond effectively, it is important to understand dollar stores’ growing importance, how communities are responding, and how public policy might better support community-based businesses.
Dollar stores often function as economic kudzu, spreading relentlessly and cutting off the flow of dollars to homegrown businesses.
The Dollar Store Business Model
Dollar stores offer convenience and stock many low-cost items—some of which might be deals, others not so much. These stores go by three brand names—Dollar General, Dollar Tree, and Family Dollar—and have two corporate owners, as Dollar Tree acquired Family Dollar in 2015. Nationally, the number of outlets has doubled over the past 15 years. Today, there are more dollar stores nationwide than locations of McDonald’s, Starbucks, Target, and Walmart combined. Importantly, in recent years dollar stores have greatly expanded their food offerings; today, an estimated one in five consumers regularly purchases groceries from these stores and, in total volume, grocery store sales at dollar stores now exceed national sales by Whole Foods (6).
The ILSR report’s authors Stacy Mitchell, Kennedy Smith, and Susan Holmberg note a direct relationship between the growth of Walmart—which, since 2001, has been the largest grocer in the United States—and the subsequent rise of dollar stores. Effectively, the Walmart Supercenters, which average 187,000 square feet per store, or the size of three football fields, took market share from traditional grocers (both chains and independent stores), causing many to close.
But this left a market gap. What if a resident doesn’t want to drive to the closest Walmart and negotiate the Supercenter’s aisles just to pick up a few items? Or, what if that person doesn’t own a car and wants to avoid the time and expense of a cab, car share, or public transit? Enter the dollar store. The average dollar store is about 10,000 square feet, with sales averaging about $260 per square foot or over $2 million per store. That means it is much smaller (and has lower overhead) than a traditional supermarket (average size of which is now over 51,000 square feet), but it is also larger than a convenience store (average size between 2,500 and 4,000 square feet) and therefore able to stock a much wider range of items than a 7-Eleven franchisee can.
Dollar Store Tactics—and Consequences
While the hollowing out of supermarkets precipitated by the rise of Walmart is one driver of dollar store expansion, Mitchell, Smith, and Holmberg also highlight some of the tactics that dollar store corporations use to expand their networks. One is to site store locations in low-income areas, both in large cities and small towns. In cities, dollar stores are typically located in low-income Black and Latinx communities.
For example, in DeKalb County, GA—which includes a small part of Atlanta, as well as surrounding suburban areas, and is about 55 percent African American—only three of the county’s 70-plus dollar stores are in the two mostly White districts. DeKalb County is not unique. On its website, ILSR maintains a set of maps showing the overlay of poverty and store location in multiple metropolitan areas.
A second tactic is to site stores across the street from existing grocers, with the goal of acquiring enough of the more profitable sales of prepared food items to force the grocery across the street out of business. Mitchell, Smith, and Holmberg write, “Reports from local grocers suggest that it’s typical for sales to drop by roughly 15 to 30 percent after a dollar store opens” (12). Grocery stores are legendary for their narrow profit margins; such a revenue loss can be devastating.
Chain stores take profits out of communities; local stores keep resources in communities.
A third tactic that dollar stores use, one familiar to students of the Walmart business model, is to squeeze suppliers by leveraging “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” (12). As Mitchell, Smith, and Holmberg point out, this is illegal price discrimination—a violation of the Robinson-Patman Act of 1936, a New Deal-era antitrust law, but it is also very common given lax antitrust enforcement.
What is the impact of dollar store expansion on communities? One effect is on employment. Dollar stores tend to employ 20 percent fewer people per sales volume than competing stores. They also pay their workers less. According to Mitchell, Smith, and Holmberg, in 2019, the average dollar store worker earned $14,571 a year in wages. Even store managers earn a very modest average annual salary of $40,000.
The loss of local ownership has other effects. Chain stores take profits out of communities; local stores keep resources in communities. In economics jargon, local ownership creates a greater “multiplier effect.” Not only do local stores keep profits at home, but they are more likely to buy goods and services from local vendors.
Dollar stores also negatively impact public health. To the extent dollar stores drive out grocery stores, residents’ access to healthy food is reduced. As Smith observes in a related study, “health conditions such as diabetes, hypertension, and obesity are strongly linked to poverty and reliance on cheap, low-quality food.”
Communities Organize to Limit Dollar Store Spread
Increasingly, local communities are organizing to put on the brakes. In 2021 and 2022 alone, more than 50 communities rejected dollar store projects, Mitchell, Smith, and Holmberg report. They add, “Over the last four years, at least 54 cities and towns have enacted measures limiting new dollar stores and, in one case, banning them altogether” (18). Of those 54 cities, 15 imposed temporary moratoriums, while the remaining 39 implemented permanent zoning changes.
One common policy strategy is to mandate a minimum set distance between store locations. Atlanta, for instance, mandates that new dollar stores must be at least one mile away from other similar stores. Cleveland, OH, mandates a two-mile zone and requires 15 percent of shelf space to be dedicated to the sale of produce and other minimally processed food items. Birmingham, AL, takes a somewhat different approach, creating a “healthy food overlay district,” which limits dollar stores and incentivizes fresh-food retailers (18).
In Tulsa, OK, a successful community campaign in North Tulsa, a largely Black section of the city, resulted in a law mandating that dollar stores be at least one mile apart from each other. This policy victory also paved the way for the creation of a new community-owned grocery store, Oasis Fresh Market, which is 16,500 square feet and cost $5 million to develop (19). The new grocer opened its doors in 2021, becoming the first neighborhood grocery store in 14 years.
Typically, laws restricting dollar stores are enacted in large cities, but rural communities also have mobilized. The ILSR report authors give a few examples of such rural campaigns, including one from Morgan, MN, a town of 800 people, in which a petition drive of 100 people stopped a dollar store project; and one from Algansee, MI, a small township near the Indiana state line with a population of 1,817. In that town, more than 200 residents—over 10 percent of the town’s population—showed up at a local planning meeting to oppose a permit for a dollar store to be built across the street from the community’s local grocery store; not surprisingly, the town commissioners voted down the dollar store’s proposal.
That said, these community victories, important as they are, remain the exception, not the rule. In 2021 and 2022, over 3,000 new dollar stores opened nationwide. While community efforts have succeeded in placing some limits on dollar store growth, the overall trend of chain expansion and resulting resource extraction persists.
The Call for Policy Change
What is needed to move from local victories to a trend shift at the national level? Mitchell, Smith, and Holmberg contend that local activists need help from state and federal policymakers, for instance, in reviving enforcement of the Robinson-Patman Act that limits price discrimination, which the report authors label “predatory buying.”
State governments can…[reinforce] local planning agency authority to reject developments that are not in accord with community needs.
It appears that the Biden administration is taking some steps in that direction. At a minimum, Biden’s actions have alarmed many corporate law firms, such as Duane Morris, which issued a blog post this past January noting that the Federal Trade Commission may be “resuscitating” enforcement of Robinson-Patman.
A second priority, the authors contend, is to support local finance. Michell, Smith, and Holmberg observe that “The disappearance of local banks, and the loss of small business lending they provided, has been particularly harmful for local grocery stores” (22). Federal policy, they contend, in the best case would use antitrust law to break up the “too big to fail” banks, which the authors argue are squeezing out local banks that have been central to keeping local grocers in business. Failing that, they suggest one step would be for the US Small Business Administration (and possibly state agencies as well) to establish “grant and loan programs that are targeted to independent food retailers looking to open or expand in underserved communities” (22).
One last area where state governments can play an important role involves reinforcing local planning agency authority to reject developments that are not in accord with community needs. This can be done, for instance, by making dollar stores “a conditional use that requires approval from the municipality (that is, it is a use that is never allowed ‘by right’) and further clarifying that local governments may reject these stores on a wide range of grounds, including if they are likely to have a detrimental effect on the local economy or access to fresh food” (23).
The Road Ahead
The report’s authors are not unaware of the irony of calling for state and federal intervention in a field where such policies have often lent a helping hand—in the opposite direction. During the COVID-19 pandemic, dollar stores were deemed essential businesses—and increased their market share as a result (4).
But what policy giveth, policy can taketh away—if movements are able to compel a shift in government priorities. To date, the authors note that federal policy, particularly the lack of antitrust enforcement and the consolidation of banking, has helped facilitate the proliferation of dollar stores. Reversing those policies could have the opposite effect.
Nonetheless, even when dollar store expansion is halted, more is needed. As Smith emphasizes in a companion strategy guide, building community health and wealth requires residents to develop “a concrete plan for rebuilding their local economies, with locally owned businesses at the heart of their strategies.”
This article originally appeared in the Nonprofit Quarterly. See the original article here.