The retail gargantuans continue to benefit as prices rise.
For many people, a routine weekly trip to the grocery store has gotten significantly more expensive in the last few months.
With the price of eggs making recent headlines for their meteoric price hikes (the cost of a dozen eggs was up 59.9% in Dec. 2022) due to an avian flu, among other contributing factors, it's safe to say food doesn't cost what it used to.
And it's not just eggs that have consumers holding tight to their wallets. Customers' purchasing power is weaker across the aisles; everything from meat to cereal to oils is up by double digits. On average in 2022, food staples rose by 11.2% compared to the year prior.
In fact, a recent report found grocery prices haven't spiked this high since the 1980s, when inflation was at record highs. For many people who are already feeling the pinch of a cooling labor market and rising interest rates, a rise in the grocery budget is simply out of the question -- which is why a new type of budget retailer is rapidly gaining market share.
The 'Fastest Growing Food Retailer' Isn't a Superstore
While large box retailers like Walmart (WMT) and Target (TGT) have largely saturated the U.S. market, one kind of store that typically takes up a smaller footprint has been rapidly growing -- and grabbing U.S. market share as it scales.
According to a recent study by the American Journal of Public Health, dollar stores are the fastest-growing food retailer by household expenditure. The study estimated the budget for 50,000 U.S. households between 2008-2020 and extrapolated that bigger percentages of those budgets were being allocated to dollar stores. At the same time, expenditure at national grocery chains was declining.
"We found that dollar stores were the fastest-growing food retailers by household expenditure share (increasing by 89.7%), with rural growth outpacing growth elsewhere (increasing by 102.9%)," the study release said. "Though dollar stores still represent a small share of national household food purchases (2.1% in 2020), they play an increasingly prominent role in food-at-home purchases for certain disadvantaged and rural communities."
Dollar Stores Are Convenient But Come At a Cost
Perhaps you may have noticed in your own community that dollar stores are popping up on every corner. Stores like Five Below (FIVE) , Dollar General (DG) , and Dollar Tree (DLTR) have defined the retail apocalypse curse that so many others have fallen victim to.
Much of these stores' success can be chalked up to the perceived value they offer: name brand selection at deeply discounted prices, as well as popularity among a wide ranging demographic.
But those perceived strengths are also dollar stores' biggest pitfalls. Dollar stores tend to excel specifically in rural, lower-income areas where retail options are limited and the population is especially price-sensitive. And while the proliferation of these stores may seem like a good thing, their presence may actually hinder economic progress in rural areas in the long-run.
This is because dollar stores get a lot of their business from single or small-unit sales. A lower unit count allows the store to charge more for a product while still undercutting prices at bigger box stores, which may offer lower prices-per unit in bulk.
"Dollar General charges premium prices across a range of staple goods—52% more per pound for chicken breasts than its cheapest competitor, for instance—but masks the high cost from consumers by stocking smaller pack sizes," A More Perfect Union study found.
"In other words, Dollar General often charges more for less. It offers low absolute prices for national brands, but in smaller pack sizes than other stores, in order to push per-unit costs higher."
Also of issue: dollar stores tend to offer less nutritious food, offer their workers industry-low pay rates and routinely understaff their stores. Dollar General was also recently accused of charging customers for more than the prices on the shelves were advertised.