Price Wars: The Fall of Dollar Stores | Shrinkage | 2

0:20It's 2017, and in the titanic fight for market share, Dollar General is going urban. For decades, the market-leading dollar store chain has focused on rural America. Now, it's breaching the city limits. It's intruding on turf long dominated by its closest rival, Family Dollar. And one of the places on Dollar General's expansion list is North Tulsa, Oklahoma. The median income here is around half of that of South Tulsa. Around a third of people living in North Tulsa live below the poverty line, all of which makes it prime territory for dollar stores. Dollar General wants to open on Pine and Peoria, just a few yards from a family dollar.

1:03It's an aggressive play, to be sure. There's already nine dollar stores in the neighborhood, each competing to be the most convenient destination. But for City Councilor Vanessa Hall Harper, the arrival of another dollar store in her district is anything but good news. The district might be awash with dollar stores, but it doesn't have a single supermarket. So she's launched a campaign to keep Dollar General out. I want to say up front, I am not anti-dollar stores. I am not against dollar stores. I've never been. But I am against the proliferation of dollar stores because the proliferation of dollar stores is what causes harm.

1:40You don't see this proliferation in affluent white communities. They don't go to affluent white communities and create these food deserts. Hall Harper works in public health at the city's health department. She knows what happens when people don't eat healthy. On average, people in North Tulsa die eight and a half years earlier than those on the south side of the city. And diet plays a significant role in that. But buying healthier food isn't easy in North Tulsa. The dollar stores sell little to no fresh produce. But there's so many of them that supermarkets don't want to open there. Adding a dollar general will only reinforce the problem.

2:20So Hall Harper organizes street protests. She files a lawsuit against the Tulsa Development Authority to try and stop it from selling land to dollar stores. She marshals support for a law that would stop dollar stores from clustering together. This isn't just happening in North Tulsa. Across the country, people and lawmakers are rising up. And it's not the only headwind dollar stores now face, either. After years of unchecked expansion, it's getting harder for dollar stores to keep growing. Resistant communities, crime, inflation, and more are about to test the dollar store business models to the max.

3:01And to survive, the dollar store giants will need to change up their strategies.

3:14From Wondery, I'm David Brown, and this is Business Wars.

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5:17So you left your wallet in the car. Or was it at home? No need to panic. With your iPhone, you can tap to pay using Apple Card with Apple Pay and earn unlimited daily cash back when you do. Apple Card is ready when you need it. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City Branch. Terms and more at AppleCard.com. In the last episode, CEO Rick Dreiling turned Dollar General into the king of small box discounters. and Family Dollar got bought by Dollar Tree. Well, now the two rivals are rushing to open stores in a battle to become top dollar. But as the dollar store invasion accelerates, people are asking what dollar stores cost their communities.

6:06This is Episode 2, Shrinkage.

6:14It's late 2018, and the dollar store backlash is gathering steam. Communities all over the U.S. are trying to resist their advance, and activists are accusing the dollar stores of creating food deserts, places where incomes are low and there's no grocery store within a mile. Now, the term food desert is one of those sparkly labels that's catnip for journalists who love to work buzzy phrases into their stories. But it also bakes in boatloads of assumptions that can be profoundly misleading. So let's be clear. Dollar stores do sell food, and they've done so for decades. But they tend to stock food with the longest possible shelf life, typically foods that are highly processed or have lots of salt and sugar added to act as preservatives.

6:59And as we all know, that's not the best food for us. The reason dollar stores don't stock fresh food is because there's no guarantee people will buy it before it perishes. That waste, or as retailers like to call it, shrinkage, makes selling fresh produce risky and expensive. A can of Spam can sit safely on the shelves for years. Berries spoil in days. So traditionally, dollar stores limit produce to staples like milk or eggs that encourage people to visit their stores more often. But while shelves packed with food that lasts makes business sense, it's out of step with America's increasingly health-conscious culture.

7:38And when the consumer changes, well, businesses need to change too. and as the criticism of dollar stores food offerings intensifies that's exactly what Dollar General does in December 2018 Dollar General CEO Todd Vasos announces a push into groceries the average store will now have 20 fridges allowing them to offer more chilled and frozen food it also introduces DG fresh a range of fresh fruit and vegetables that will go on sale in several hundred stores. Vassos describes the move as a response to consumer demand. And it sure sounds like Dollar General's bowed to the critics. In North Tulsa, its new store starts stocking the DG Fresh range to stop residents protesting on its doorstep.

8:26But Dollar General's not doing this to improve its image. It's all about the bottom line. See, Dollar General wants to take shoppers away from its big-box rivals, Walmart and Target. By strengthening the grocery aisle at its 15 ,000-plus stores, it hopes to persuade people to skip the longer trip to Walmart. Fresh produce is also a way to increase Dollar General's appeal to higher earners. It also sets Dollar General apart from family dollar. So, how did Dollar General freshen up its food selection? Well, first it carefully picked what fresh food it would stock. It focused on the 20 best-selling produce items at grocery stores, including tomatoes, onions, apples, and strawberries.

9:11The company also controls the temperature of its fresh produce displays to extend shelf life. But there's even more to it than that. It's also a move designed to lower costs. Until now, Dollar General got its supplies of frozen and chilled food from external distributors. That made sense when the stores carried fewer groceries. Running warehouses and truck fleets is expensive business. But now that it's stocking more groceries, the calculations changed. It now makes sense for Dollar General to handle distribution itself, so it can better control costs and doesn't have to pay the markup that distributors charge.

9:49It also means Dollar General can make more frequent deliveries of food to its stores. More deliveries means less risk that stores will end up overstocked, reducing losses from the food going bad. Like so many things in business, when you peel back the layers, it all goes back to distribution and logistics. So by embracing groceries, Dollar General boosts its appeal to customers, gets an edge over the competition, and cuts costs, while also improving access to healthier food in hundreds of communities. The PR win? Well, that's just a happy side effect. But opening distribution centers, buying trucks and installing thousands of refrigerators is expensive.

10:32So to offset that investment, Dollar General looks to reduce its spending on security and labor. And that ramps up another problem that's putting dollar stores in the headlines. It's the other thing retailers call shrinkage. Most folks call it debt. We begin tonight with a growing number of Detroit dollar stores caught up in a crime spree. The number is quite shocking. 20 armed robberies at stores across the city in 22 days. Some hit twice. One security company owner told us he won't even take jobs in Indianapolis' dollar stores. I'm not longer going up there. I'm not allowing my employees to go up there.

11:12I will not do it. It's not worth the risk of risking somebody else's life to make a dollar. Within the span of four days in the month of March, the Dollar General stores on Salem Avenue and North Main Street were both robbed. And based on the surveillance video, it appears the same suspect is responsible for both robberies. Crimestoppers says it is only a matter of time before a recent string of robberies at local dollar stores hurts business. That's because employees and customers say they are afraid to be there if the suspects aren't caught. Across the nation, robberies at dollar stores are making headline news, creating a perception that these stores are unusually susceptible to crime, but the reality is more complicated.

11:54It's true that a small-scale study in Chicago found crime increased when dollar stores opened and fell when they closed, but other studies report the same happens with fast food restaurants, gas stations, and drug stores. What all these stores have in common is that they carry a lot of cash, often have weak security, and are frequently located in lower-income neighborhoods where crime is higher. Police argue that dollar stores could reduce the risk of being robbed by employing security guards or installing better CCTV, you know, cameras. But when your business is built on tiny margins, these expenses have consequences.

12:34Either prices have to rise or profits have to shrink. And when the cost of preventing crime is higher than the losses from crime, some retailers conclude that robbers and thieves are cheaper than effective security, even if that pushes up the costs for the local police force and taxpayers who fund them.

12:57It's 2019, and in rural America, a new front in the dollar store wars is opening up because Family Dollar is stepping up its game by moving to the country. When Dollar Tree bought Family Dollar in July 2014, it was struggling. Family Dollar might have been the second biggest dollar store, but it was a straggler when it came to growth and profitability. Dollar Tree thought it could fix it. But five years on from the acquisition, that early optimism's vanished. Integrating the two businesses is proven harder than expected. Family Dollar is a convenience store that sells items at a wide range of prices.

13:35Dollar Tree is a variety store that prices everything at a dollar. Their activities don't neatly mesh, making it harder to find efficiencies. Family dollar stores aren't in great shape either. In the brand's rush to expand, it's neglected its existing stores, which now need extensive refurbishment. But with more than 8 ,000 family dollar stores nationwide, refreshing all of them will be expensive and slow. Dollar Tree is suffering too. The time and energy it's putting into Family Dollar is causing it to lose focus on its own brand. But now, Dollar Tree thinks it's finally found a way to claw back some upside to the Family Dollar acquisition.

14:18The Combo Store. Putting two brands under the same roof isn't a new idea. Taco Bell and KFC have been doing it since the 1990s. But when businesses own two brands that operate in the same way and can complement each other, it can make a lot of sense. In this case, Family Dollar sells the everyday basics. Household goods, food, clothes. The Dollar General next door sells non-essentials like decorations, wrapping paper, beauty products, and art supplies. But having the two stores side by side can tempt shoppers into spending more. People might come in to buy milk at Family Dollar and then get tempted to buy a small gift at Dollar Tree.

15:00Others come to buy a birthday card at Dollar Tree but then grab some groceries at Family Dollar too. So you see how a combo store can increase sales. Housing the two stores in a single building and staffing them with the same people also makes combo stores cheaper to run than two standalone stores. In turn, that lets Family Dollar and Dollar Tree open stores in places where they previously would struggle to turn a profit. After years of sticking to cities and suburbs, Dollar Tree can now open in rural towns with 3 ,000 to 4 ,000 people. A whole new market for expansion has just opened up. In their first year, the combo stores boosted Dollar Tree's sales 20%.

15:43Dollar Tree's finally homed in on a winning strategy. But after years of missteps, is it too little too late?

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18:41It's March 2020, and the coronavirus pandemic is engulfing the world. Hospitals are overwhelmed, and people are being told to shelter at home to protect themselves. But while white-collar workers settle into the luxury of working at home via Zoom, many low-paid blue-collar workers get hit hard. Their income drops. Sometimes, it stops altogether. The situation threatens disaster for the dollar stores. These are their core customers. But then the federal government steps in to save the day. And we have some breaking news that affects families that receive assistance from the state. Emergency benefits are now being handed out to SNAP participants because of COVID-19.

19:23That means each participant will see their benefits go up by about$75 a month. Officials with the state's Department of Social Services says this is a way to make sure low-income Virginians don't go hungry during the coronavirus crisis. SNAP is the Supplemental Nutrition Assistance Program, the benefit formerly known as Food Stamps. It helps low-income households pay for food. Those eligible for SNAP get debit cards they can use to help pay for purchases at participating stores. And in reaction to the economic pain of the pandemic, it's getting a temporary increase. The bump to SNAP immediately benefits the dollar stores.

20:01Not only are people shopping closer to home, but now many of their poorest customers have more money to spend. Dollar General's profits leap more than 50%. Family Dollar suddenly becomes the sixth largest snap retailer in the U.S. But while Dollar General's seeing profits boom, Family Dollar struggles to capitalize on the influx of snap cash. The extra profits get swallowed up by renovations of its long-neglected stores. and the supply chain headaches caused by the pandemic. And then, as the world starts to return to normal, inflation hits. With the cost of just about everything rising, Dollar Tree finds itself in a bind, because for decades, it has sold itself as a place where everything costs$1.

20:51Excuse me, sir. Yes? How much for this Revlon shampoo? Everything in the store is$1. Wow. Believe it. Everything's$1 at Dollar Tree. Are you new? No. How much are these Panasonic batteries? One dollar. Oh, that boggles my mind. How much is this? One dollar. Seriously? Seriously. Bottom line. Bottom line is a buck. At Dollar Tree, there's no need to ask how much. Everything in the store is one dollar. Believe it. Not anymore, it's not. In the fall of 2021, inflation forces Dollar Tree to break its one dollar price point. Now, most products cost$1.25. It's a high-risk move that obliterates the company's main selling point.

21:32But with the costs of goods, labor, and freight rising fast, there's no alternative. This is history repeating. Back in the mid-20th century, there were things called five-and-dime stores. Anyone remember? Everything in them cost five or ten cents. But then inflation pushed prices up to a point where the only things that cost ten cents was stuff no one wanted. Many five-and-dimes turned themselves into dollar stores or reinvented themselves in some other way. Those that didn't aren't around anymore. Well, today the same thing's happening to dollar stores. One dollar used to be a magical price point that drew customers in.

22:11Now, it's a business liability. But while Dollar Tree adjusts to this new reality, Dollar General uses its COVID snap windfall to open new stores even faster. In 2021, it opens more than a thousand new stores, more than any other retailer in the United States. Dollar General's store openings are now a slick operation. It can go from breaking ground to opening for business in as little as four months. And in late 2020, that store opening machine is eyeing up a plot in the small town of Morgan, Minnesota. The news that Dollar General is looking to build a store on the edge of town worries Morgan's 74-year-old mayor, Jerry Heeres.

22:58Morgan's Main Street is already littered with empty stores. One of the exceptions is the family-run grocery, and Heeres is protective of it. In his opinion, it sells the best ribeye steaks around. And he's heard that mom-and-pop grocery stores often close down once a dollar store moves in. So, Hira skits into his car and heads out of Morgan, on a mission, to find out what's planned. Hurrius is a Republican. He's pro-competition. His background's in construction, and he wants to be sure that the local construction crews won't miss out on extra income if he objects to Dollar General's arrival. He heads north over the Minnesota River and on to the nearby town of Fairfax, where a new dollar store recently opened.

23:47There, he meets with an electrician friend. Over coffee, Harris asks the question burning in his chest. Say more about that new dollar store build. Was it good for business? Ha ha, no. Harris raises an eyebrow. Ah, come on, somebody must have done okay out of it. No one from around here. They brought their own team of contractors in. Well, what about the materials? They brought in all that with them too. Chucked in all the steel, the flooring, even the lights. The guys at the machinery shop told me that in the whole four months that the dollar store's crew were here, they bought just one thing from them.

24:22Want to know what it was? Sure. A single nut for a bolted joint. One nut to replace one they stripped. Harris has heard enough. Even a simple bill like a dollar store should cost about a quarter of a million dollars, he reckons. But it seems like local communities aren't benefiting. Harris comes to a stark conclusion. The dollar stores aren't coming to add to struggling communities. They're coming to squeeze out what little's left. Hiros leaves Fairfax with fire in his belly. He's now going to get Morgan to join the other 75 towns and cities in America fighting the dollar store invasion.

25:12But the scattered opposition is doing little to curb Dollar General's ambitions. The company's not just opening more Dollar General stores and stocking more fresh food to boost its profits. It's also rolling out a new retail brand, Pop Shelf. The first two Pop Shelf stores opened quietly in October 2020 near Nashville. Unlike Dollar General, Pop Shelf isn't focused on selling everyday essentials. Instead, it sells fun items like party supplies, home decor, toys, beauty products, all at low prices. But it's not targeting folks on low incomes. The people Dollar General wants Pop Shelf to reach are suburbanites with household incomes as high as$125 ,000.

25:56In other words, the affluent people who shop at Target and Dollar Tree. And Pop Shelf's brightly lit, clean stores are full of on-trend merchandise. The chain quickly wins fans. In today's video, I'm going to be doing a shopping haul from Pop Shelf, and I am really in love with this store. And Pop Shelf's delivering the financial goods, too. First-year sales at each Pop Shelf store reach as high as$2 million. That's$600 ,000 more than standard Dollar General stores. The gross margins are better, too. By the time Pop Shelf is putting its 2021 Halloween decorations onto its shelves, Dollar General is readying plans to Spook, Target, and Dollar Tree by opening 1 ,000 Pop Shelf stores over the next four years.