According to analysis by The Guardian, paying $1 for a 16-oz (473-milliliter) bottle of milk at a dollar store is the equivalent of paying $8 for a full gallon (3.8 liters), which is more expensive than the fancy organic stuff at Whole Foods. Similarly, the $1 bag of raisins at the dollar store weighs only 4.5 ounces (128 grams), while a 72-ounce (2-kilogram) bag from a big-box store costs $10.50, or 52 percent less per ounce.
By shrinking package sizes, dollar stores can get away with charging way more per volume, which is one of the main strategies that dollar stores use to wring the most profit out of every sale. Just because you only paid $1 for that roll of aluminum foil doesn't mean that it's a good deal. The Washington Post reported in 2018 that the Dollar Tree $1 roll of foil was only 15 square feet (1.4 square meters) long, while Walmart sold a 75 square foot (7 square meter) roll for $4.06, the equivalent of more than 18 square feet (2 square meters) per dollar. Of course, if finances are tight, maybe you'd rather pay $1 for 15 feet of foil rather than $4.06 for 75 feet.
Dollar-store shopping is a no-frills experience and that's not an accident. By keeping stores small and employees at a minimum, dollar stores are able to convert a larger portion of sales into profit.
According to 2012 figures, Dollar Tree captured 35 cents of profit for each dollar of revenue compared to 24.1 cents per dollar at Walmart. For third quarter 2021, figures remained comparable. Dollar Tree had a gross profit margin of 27.5 percent of net sales, while Walmart's was 25 percent.
Dollar stores are rightfully called "small-box" retailers. The typically Dollar General store is 7,400 square feet (687 square meters) compared to 178,000 square feet (16,537 square meters) for the average Walmart Supercenter. And even though dollar stores are packed floor to ceiling with items, the typical dollar stores only carries 10,000 SKUs (individual item codes called "stock-keeping units") while the average Walmart carries closer to 90,000 SKUs. Those 10,000 dollar-store items are chosen for maximum profit, emphasizing long shelf life, off brands and small packaging.
Dollar stores don't need a lot of employees to run, again keeping overhead costs down considerably. The typical dollar store employs eight or nine people compared with 14 employees at a similarly sized independent grocery store. Wages at dollar stores are among the lowest in the retail industry.
The Future of Dollar Stores
In general, dollar stores have been doing well in 2022; inflation has pushed up the costs for goods, causing non-traditional, higher-income shoppers to visit dollar stores, along with their usual customers. Profits in 2020 were huge, but slowed in 2021, due to supply chain issues.
In late 2021, Dollar Tree became the last major dollar store brand to change its policy of charging only $1 for most items; it now charges $1.25 per item. Dollar Tree said the decision to raise prices was due to increases in labor, shipping and fuel costs and that several "customer favorites" had had to be discontinued as they were not sustainable at the $1 price point, reported CNN.
At the same time, dollar store staff has been quitting due to low pay and long hours. And many cities have put moratoriums on how many dollar stores can be built in an area. "Most dollar stores stock only a limited selection of processed foods and offer no fresh vegetables, fruits, or meats. Yet, in urban neighborhoods and small towns alike, the dollar chains are opening stores at such a density that they're crowding out full-service grocery stores and making it nearly impossible for new businesses to start and grow. This has exacerbated the problem of food deserts and further eroded the economic prospects of vulnerable communities," wrote the Institute for Local Self-Reliance in 2022.
Despite these negatives, dollar stores continue to expand at a very fast rate. Dollar General plans to open 1,110 new stores in 2022 and remodel 1,750 others. It also plans to open many more of its Popshelf stores, designed to appeal to a wealthier demographic, with most items priced at $5 or less. As dollar stores continue to expand their offerings and compete more directly with grocery stores, drug stores and big-box retailers, they may evolve to look and feel more like mini Walmarts than bloated bodegas.
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I'm deeply familiar with retail economics and strategies, especially regarding pricing tactics and profit maximization employed by various stores. The article delves into the intricate world of dollar stores, highlighting how they manipulate pricing structures to yield substantial profits while offering seemingly inexpensive goods.
Firstly, the piece touches on the deceptive pricing at dollar stores. For instance, it discusses how a seemingly affordable item, like a $1 bottle of milk or a $1 roll of aluminum foil, might actually be more expensive when you consider the quantity you're receiving. By reducing package sizes, these stores charge more per volume, effectively increasing their profit margins.
The article also emphasizes the intentional minimalism of dollar stores. They maintain small stores with minimal staff, which significantly reduces overhead costs. This business model allows dollar stores to convert a higher portion of their sales into profit compared to larger retailers like Walmart. Dollar Tree, for instance, was reported to capture 35 cents of profit for every dollar of revenue, exceeding Walmart's profit margin.
Moreover, the selection of items at dollar stores is strategic. They curate around 10,000 stock-keeping units (SKUs) compared to the approximately 90,000 SKUs found at an average Walmart. Dollar stores focus on items that guarantee extended shelf life, often opting for off-brands and smaller packaging, maximizing their profits while appealing to price-conscious consumers.
The piece also touches upon the evolution of dollar stores amidst economic changes. Despite challenges such as supply chain disruptions and rising costs, these stores have adapted by adjusting their pricing strategies. Dollar Tree, for instance, shifted from charging $1 for most items to $1.25 due to increased expenses in labor, shipping, and fuel costs.
Furthermore, it addresses the controversies surrounding dollar stores, including their impact on communities. While they provide affordable goods, they often crowd out full-service grocery stores, exacerbating food deserts and affecting the economic prospects of vulnerable communities.
Despite these criticisms, dollar stores persist and even expand aggressively. Dollar General, for example, plans to open numerous new stores and remodel existing ones, adapting to changing consumer needs and preferences.
Overall, this article showcases the complex strategies employed by dollar stores to remain profitable in a competitive retail landscape, shedding light on both their successes and controversies within the industry.
