How Do Dollar Stores Make Money?

is even further. Driving to either one at this hour means you won't be home and in bed until eleven. But what about that new dollar store that opened down the street doesn't even have food. If it does, you could get this shopping trip wrapped up in twenty five minutes flat. So you decide the dollar store is the best option. It's tiny and packed to the gill with neighbors, but there is actually some food. You don't recognize the brands and feel a little funny buying milk and pint bottles.

That's a quarter to an eighth of the standard size for our metric friends, But after all, each one is only a dollar on your way to the toilet paper aisle, you pass a toy section and bed sheets and greeting cards, which is useful because your mom's birthday was yesterday, and there's only one person working the checkout, so the weight is a little long, but the total bill is less than thirty bucks, and you're back home before ten pm.

Welcome to the dollar store economy. Dollar stores exploded during the Great Recession and have continued to do well during the COVID nineteen pandemic and the current inflationary period. There are now more than thirty four thousand of them in the United States. That's more locations than Walmart, Walgreen's, CBS, Costco, Kroger, and Home Depot combined. Once widely criticized as retail vultures preying on poor people living in food deserts, dollar stores

now boast a more mixed income clientele. Button Why has the dollar store model been so successful and how does a company even make money so things for so cheap. The two biggest dollar store chains, Dollar General and Dollar Tree, which also owns Family Dollar, have been brilliant at capturing

underserved demographics. Dollar General, for example, has built seventy of its stores in small rural towns with fewer than twenty people, and pinpoints new locations and areas that are fifteen to twenty miles that's around kilometers away from the nearest big box store or grocery store. A family. Dollar targets urban and low income shoppers, while Dollar Tree goes after the suburban,

middle income shopper. By expanding their offerings to include more food, household cleaners, help and beauty products, paper products, and other consumables. Dollar stores have positioned themselves as a whole new shopping category called the fill in trip. As in the example above, this can tide you over until a regular trip can

be made. Not only has the proliferation of dollar stores fueled this new type of shopping behave of year, but the arrival of a new dollar store often kills off local competition like the mom and pop corner store, meaning

even more customers and profits for the dollar store. Because the shopping list for a pill in trip is only a few items long, the total bill at the dollar store is usually pretty low, and since many dollar store goods are still sold for a dollar each, it's tempting to think that shopping at a dollar store must be a better deal than shopping at either the local corner store or the big chain grocery store or retailer. But

is this always true. Paying a dollar for that pint bottle of milk at the dollar Store is the equivalent of paying eight dollars for a full gallon, which is more expensive than the fancy organic stuff at Whole Foods. Similarly, according to an analysis by the Guardian, the one dollar bag of raisins at the dollar store may weigh only four and a half ounces or a hundred and twenty eight grams, while a seventy two ounce or two key low bag from a big box store costs ten dollars

fifty cents. That's a little over half the cost per ounce. By shrinking package sizes, dollar stores can get away with charging way more per volume, which is one of the main ways they profit. Just because you only paid a dollar for that roll of aluminum foil doesn't mean that it's a good deal. The Washington Post reported that the Dollar Tree dollar roll of foil was only fifteen square feet that's one point four square meters in area, while Walmart sold a seventy five square foot or seven square

meter role for four dollars and six cents. That's the equivalent of more than eighteen square feet or two square meters per dollar. Of course, if finances are tight, maybe four dollars for foil isn't an option, no matter how much of a better deal it is in the long run. Also, dollar store shopping is a no frills experience, and that's not an accident. By keeping stores small and staff at a minimum, companies are able to convert a larger portion

of sales into profit. According to figures, dollar Tree caps thirty five cents of profit for each dollar of revenue. Walmart only captured twenty four point one cents per dollar for the third quarter of one. Figures remained comparable, though the gap was closing. Dollar stores are rightfully called small box retailers. The typical Dollar general is seven thousand, four

hundred square feet about seven hundred square meters. The average Walmart supercenter is one hundred and seventy eight thousand square feet. That's sixteen five hundred square meters. And even though dollar stores are packed from floor to ceiling with items, the typical one only carries ten thousand individual products, while the average Walmart carries closer to ninety thousand those dollar store items are chosen for maximum profit, emphasizing long shelf life

off brands and small packaging. That small size means you don't have to employ as many people, and wages of dollar stores are among the lowest in the retail industry. Dollar stores have been doing pretty well two Inflation has pushed up the cost for goods, causing non traditional, higher income shoppers to visit dollar stores along with the usual customers. Profits in were huge, but slowed down in due to

supply chain issues. In late Dollar Tree became the last major dollar store brand to change his policy of charging only a dollar for most items and now charges a dollar twenty five cents per item, and they set 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

one dollar price point. At the same time, dollar store staff has been quitting due to low pay in long hours, and many cities have put moratoriums on how many dollar stores can be built in an area and to prevent them from crowding out new businesses and stores that offer fresh foods. Despite these negatives, dollar stores continue to expand at a very fast rate. Dollar General plans to open one thousand and ten new stores in and remodel one thousand,

seven hundred and fifty others. It also plans to open many more of its pop shelf stores, designed to appeal to a wealthier demographic, with most items priced at five dollars or less. Today's episode is based on the article how do Dollar Stores make money? On how stuff works dot Com, written by Dave Rouse. Brain Stuff is production by Heart Radio in partnership with how stuff works dot

Com and is produced by Tyler Klang. Or more podcasts from my heart Radio, visit the iHeart Radio app, Apple Podcasts, or wherever you listen to your favorite shows.