Dollar Stores Offer Low Prices — but Hurt Local Economies

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Sometimes there’s a tradeoff between saving a few bucks and protecting your community. 

One of the results of the crazy high prices we’ve seen in the last year is that dollar stores have become more appealing. After all, who wouldn’t want to buy basics like cereal and cleaning products at a lower price than in their normal store?

Unfortunately, a recent report shows there’s a hidden cost of dollar stores. Not only can they damage your community in the long term, but it also says dollar stores aren’t always cheaper. You might feel like you’re getting a better deal, but you might be getting smaller packages and, in fact, worse value for money.

How dollar stores can hurt local economies

According to a March report from the Institute for Local Self Reliance, nearly half the new stores that opened in the U.S. in 2021 were dollar stores. It says at the start of 2022, there were more than 34,000 Dollar General, Dollar Tree, and Family Dollar stores — more than McDonalds, Starbucks, Target, and Walmart combined.

There’s an argument that we should welcome dollar stores into our communities because they answer a consumer need. After all, if you’re struggling to put food on the table, any savings helps. But the report points out that dollar stores often undercut local grocery stores with predatory practices, and their staffing models and other practices damage communities.

The authors say, “These stores aren’t merely a byproduct of economic distress, they are a cause of it.” For example, it shows the stores create fewer jobs and pay lower wages. Not only do understaffed stores mean less employment, but the lack of staff in these stores can make them unsafe. So much so that one Georgia sheriff told the press they’d earned the nickname “stop-and-robs.”

Another issue is that these stores employ a “carpet-bombing” strategy that undermines existing food stores. A big issue is fresh produce. Small local stores often lose money on perishable food and need the sales of packaged goods and other products to stay afloat. Take that away, and it’s difficult for those stores to function.

Once the local stores are gone, communities can be left without access to fresh produce. Some leaders say this can lead to poor health and even lower people’s life expectancies. They also lose one of the hubs that brought them together. All in all, the report paints a damning picture about the impact of these shops that people use to save money.

What it means for consumers

The difficulty in all this is that if you’re living paycheck to paycheck and don’t have enough money in your bank account to cover the bills, it’s almost impossible to justify spending more. Even if you know it could make your life — and that of your community — more difficult in the long run. Particularly if you’re already using a credit card or other form of debt to cover essential bills, as a number of Americans already are.

However, in addition to supporting local stores when you can, there are other steps you can take.

Make sure the dollar store is actually saving you money: Don’t assume a dollar store is automatically cheaper. Track the price per ounce, and try to compare prices against your normal shop. One local grocer told the report, “You’ve got a Snicker’s bar that is two ounces less, but it looks just like the one in my store. The consumer thinks Dollar General is selling it cheaper.”Join any community action: Communities can minimize the damage done by dollar stores and ensure their tax dollars aren’t incentivizing harmful practices. In a number of areas, local authorities have stepped in to control dollar store expansion and activity. Some have enforced restrictions on the distance between dollar stores, so they can’t open two within a set distance of one another. Others have implemented demands that dollar stores stock a certain percentage of fresh produce on their shelves.

Low-cost stores are not the only way to reduce the cost of your grocery bill. Other tactics include bulk buying, cash back apps, and clipping coupons wherever possible. Use price comparison apps to help you know whether something is actually a good deal, especially when the packages are different sizes.

These are challenging times and the desire to shop in dollar stores is understandable. But if you’re aware of the issues, you might be able to stop them suffocating your local businesses along the way.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks, Target, and Walmart. The Motley Fool recommends the following options: short April 2023 $100 calls on Starbucks. The Motley Fool has a disclosure policy.

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