Dollar General’s growth hurting small stores
Locally owned grocers struggle to find profits
At the Pembine Food Depot, a northwoods grocery store tucked alongside a crook in Highway 141 about 15 miles south of the Michigan state line, owner Tim Potterville has some good things going.
His Bloody Mary snack sticks are popular. His deli cook whips up old family recipe dishes like the “Fabi” — ground beef, cabbage and onions over potatoes, fried in an electric skillet. And his meat counter may be the only one in Wisconsin offering “Al Capone Roast” (boneless pork butt stuffed with mozzarella, black olives, hard salami, mushrooms and Potterville’s homemade Italian sausage).
But where Pembine Food Depot used to feature Frito-Lay snacks on two end caps — the Boardwalk of grocery-store real estate — sales have dropped so much that Potterville has exiled the chips to less-prominent mid-aisle territory.
The Pepsi situation is similar — just one end cap now instead of the former two.
The reason, Potterville said: About two years ago, Dollar General, the discount retailer that now has more than 15,000 stores nationwide, opened about a quarter-mile up 141.
Potterville estimates his sales have fallen 4% since Dollar General’s arrival — seemingly not much, but, according to him, enough to wipe out his profits and force him to extend his mortgage for 15 years.
“Yeah, it’s hurt a lot,” he said. “I can go down there, buy Pepsi for example, pay tax on it, and still get it cheaper there at the Dollar General than I get it (wholesale) off the same truck.”
Much as Walmart generated angst among retailers in small-city downtowns decades ago when it ramped up its nationwide expansion, Dollar General’s aggressive rollout is a gut check for grocers in even tinier communities. How tiny?
Coloma, population 453, got a Dollar General in 2017. Neshkoro, population 416, got one last year. So did Pittsville, population 869.
In February, Dollar General, which already had a store in Clintonville, opened another six miles away, in Embarrass, population 371.
Then there’s Pembine, an unincorporated hamlet estimated to have 123 residents — and one Dollar General.
“They’re popping up everywhere,” said Potterville, 55. “I’ve been in this business for a long time and I know a lot of other retailers and usually when they come in they’ll take and put a hurt on ma and pa.”
Interviews with 10 small-town grocers confirmed that. Almost all said they’d been hurt by a Dollar General opening nearby. The severity of the blow, though, is another question.
Store owners in Manawa and Pittsville spoke of serious impact.
“We’ve got a deli, thankfully, and catering,” said John Baum, who has owned Baum’s Mercantile in Pittsville for 17 years and said sales had dropped 20% to 25% since Dollar General opened in early 2018. “Because otherwise we would not be here.”
In the Marathon County community of Edgar, where Dollar General opened in 2017 with village assistance through a tax financing district that also supported a factory expansion, local IGA owner Lance Bauer said the new competition had “taken its toll in multiple departments.”
He bristles at the accommodation to Dollar General, saying he got no financial help from the village when he bought what he described as a failing supermarket in 2012.
But others sounded much less dire. In Stratford, a village of 1,600 about 11 miles north of Marshfield, Davel’s One Stop owner Mark Kraus, while not happy to see Dollar General come to town last year, said the new competition “didn’t hurt us real bad. … Not as bad as I thought it was going to hurt us.”
In Wittenberg, Sentry operator Sherry Hersant said the opening of a Dollar General two or three years ago had been “no problem.”
To the extent that chains like Dollar General take sales from local merchants, however, they drain money from the surrounding community. In contrast to locally owned businesses, profits from chains leave the area, Steven Deller, an economist at the University of Wisconsin-Madison, said by email.
Independent retailers return more than three times as much money to their communities per dollar of sales than chain competitors, said Isabelle Busenitz of the Center for Engagement and Community Development at Kansas State University.
The name notwithstanding, Dollar General isn’t an everything-costs-a-buck place. That’s the realm of another discounter, Dollar Tree, which targets middle-class consumers, often in suburban locations.
Dollar General, like less-successful rival Family Dollar, stakes out different ground. It packs the high shelving in its stores with a mini-Walmart array of items — plastic totes, small rugs, coffeemakers, spatulas, duct tape, paint brushes, motor oil, boys’ undershirts, greeting cards, coloring books, Lego sets, DVDs …
Dollar General’s main business, though, accounting for 77% of revenue last year, is selling everyday “consumables” such as food, cleaning supplies, paper products and health and beauty items — categories found in many supermarkets.
The Institute for Local Self-Reliance, a Washington-based advocacy group, has pointed to independent grocers shutting down in other states because of Dollar General.
But Bill Ryan, a community business development specialist with the University of Wisconsin Extension, said he knew of none in Wisconsin.
“I feel pretty strongly that they are not driving out many more businesses, because they’ve already been driven out,” he said. “… If anything, they’re adding more economic life to a community.”
The communities and neighborhoods Dollar General seeks out often are those that are hurting.
Its core customers are low- and fixedincome households, and Dollar General locates its stores accordingly, the publicly traded company said in its most recent annual report to securities regulators.
For Dollar General, a bad economy isn’t bad news. At an investor conference in March 2016, CEO Todd Vasos said Dollar General’s extensive expansion opportunities were due in part to “this economy that continues to create more of our core customer each and every year,” according to a transcript posted on research site Seeking Alpha.
At the time of the conference, Tennessee-based Dollar General had 12,483 stores nationwide, and had identified potential sites for 13,000 more.
Wisconsin is a prime target for that growth. A map presented at the investor conference showed potential future store locations as green dots clustered tightly across much of the state as a swarm of honeybees forming a new colony.
The expansion prospects here may stem in part from the fact that until recently the state was relatively untapped by Dollar General.
But in 2016 the firm opened a distribution center in Janesville, and over the last two years Dollar General has added Wisconsin stores at nearly twice the national rate. That’s a big increase from the company’s previous pace and took Wisconsin, as of March 1, to 171 stores.
By Dollar General standards, though, there’s plenty of room for more. If Wisconsin had roughly as many Dollar Generals per person as Indiana and Iowa, there would be nearly 500 here.
Family Dollar, meanwhile, has been stuck on about 140 Wisconsin locations
“I feel pretty strongly that they are not driving out many more businesses, because they’ve already been driven out. … If anything, they’re adding more economic life to a community.” Bill Ryan community business development specialist with the University of Wisconsin Extension
since 2013.
Dollar General stores are cheap to open, at about $250,000 each, and cheap to run. Their sales floors average 7,400 square feet — a typical Walgreens has 10,600 — and there’s no need to hire, say, butchers or deli staff. They’re also profitable to develop. Many of the Wisconsin sites have been developed by Todd Platt and the Pfefferle Companies Inc., of Appleton. Real estate records for six Dollar General locations across the state show that Pfefferle entities bought the sites for prices ranging from $59,900 to $175,000 and, after the stores were built, sold the properties for $1.1 million to $1.2 million.
For those prices, the buyers get a stream of rental income in the neighborhood of $75,000 to $90,000 a year, current Pfefferle store listings suggest.
Platt declined to talk about the development of Dollar General stores in Wisconsin.
The Institute for Local Self-Reliance views dollar stores as agents of economic distress by undermining the viability of independent grocery stores and other local businesses.
Ryan, of the UW Extension, doesn’t agree, but does believe that the growth of dollar stores reflects what for many Americans remains a difficult economy.
“I think it goes back to the Great Recession,” he said. “I think some of the impact is still being felt.”
A Dollar General spokeswoman said by email that the firm’s stores represent economic growth for communities. The stores offer both alternative and com
plementary options to items sold by grocers and other retailers, she said.
Like Ryan, Rick Shea, president of Shea Food Consultants in Minneapolis, didn’t know of Wisconsin grocers closing shop because of Dollar General.
“No,” he said, “but we’ve heard a lot of the same thing — that the volume gets split or a portion of it gets siphoned off and then it becomes kind of a slow decline and eventually even death if they don’t have the wherewithal and the financing behind them.”
Development of some Dollar General stores, like those in Edgar and in the Waupaca County city of Manawa, has been helped by local government creating tax financing districts. In Manawa, the city also received a $240,000 grant from the Wisconsin Economic Development Corp. to clear an old milk and butter plant for construction of a Dollar General.
Mayor John Smith said the store benefited the city of 1,327 by providing such items as clothing, gardening gear and small hardware previously unavailable in Manawa.
“So we don’t have to run to New London or Clintonville or Waupaca for everything, and that keeps more people shopping at our local grocery store as well as getting gas at our local gas station,” Smith said.
Grocery store owner Wendy Remington sees things differently. Remington’s Quality Foods, the supermarket she and her husband run, is right across Bridge Street from Dollar General. The chain store opened last November.
“It’s taken away quite a bit,” Remington said. “About 80% to 85% of what they sell are consumables, so pretty much I’m left with all the things that take high labor to sell. Like the deli — you need three, four employees at least in a small store. Meat department, you need two, three people.”
Over the course of an hour on a recent Saturday afternoon, Remington’s attracted more customers than Dollar General but not by much — 21 cars pulling into one driveway, 17 into the other.
Among those at Dollar General was Heather Sprenger, a 35-year-old lifelong Manawa resident driving a shiny Silverado pickup. She does most of her major grocery shopping in larger cities but used to hit Remington’s occasionally, too. Now, not so much.
On this day, she walked out of Dollar General toting a plastic bag containing eight hot dogs, two cans of SpaghettiOs, two cans of Green Giant cut green beans, two boxes of Kraft macaroni and cheese, and a bottle of Mountain Dew — for $8.
“Easy supper for three girls,” Sprenger said.
She said she makes about $17 an hour working at Waupaca Foundry and that her husband has a good job and they could afford to shop at pricier stores than Dollar General. But why, she said, when you can get the same stuff cheaper?
Which perhaps suggests a path for independents confronted by the mushrooming dollar-store phenomenon — offer what the competition can’t.
At the Manawa Dollar General, a 55year-old dump truck driver named Loren — he wouldn’t give his last name — had just loaded up on Pepsi. But when it comes to buying cheese, he’s fussy. He’d never opt for Dollar General’s skimpy selection of Velveeta, Kraft singles and private-label Swiss and cheddar.
Rather, he heads for Remington’s and its ample stock of Dupont Cheese, made at a plant only a few miles north on Highway 110. He particularly likes the jalapeno variety.
“Dupont has the best,” he said. To survive in a world increasingly filled with grocery-selling dollar stores — the 2016 Dollar General analysis suggests there’s still room for another 10,000 — independents must adapt and switch to fresh strategies, Shea said.
Some of the Wisconsin stores are trying to do just that, but they don’t sound optimistic.
In Pembine, Potterville installed a grab-and-go bakery center on his prime end cap. In Manawa, Remington is trying to carry still more local products and has meat sales every few weeks to draw traffic.
“But I really don’t know,” she said. “I’m worried about the future.”
So is Baum in Pittsville. For now, he’s riding the strength of his deli and catering and his longstanding presence in the community.
And for the future? “Crossing my fingers and hoping,” he said.
Contact Rick Romell at (414) 224-2130 or rick.romell@jrn.com. Follow him on Twitter at @RickRomell