WEBVTT - How Do Dollar Stores Make Money? 0:00:01.800 --> 0:00:04.320 Welcome to brain Stuff, a production of I Heart Radio. 0:00:07.960 --> 0:00:11.799 Hey brain Stuff, Lauren Vogel Bomb Here. It's a quarter 0:00:11.880 --> 0:00:14.239 after nine at night on a Tuesday, and you just 0:00:14.360 --> 0:00:17.600 realize there's no milk or bread for breakfast tomorrow morning, 0:00:18.160 --> 0:00:20.760 and if you're honest with yourself, that half finished roll 0:00:20.800 --> 0:00:22.360 of toilet paper might not make it all the way 0:00:22.360 --> 0:00:25.720 through the night. It's time to hit the store, and 0:00:25.800 --> 0:00:28.479 now you've got a choice to make. The nearest grocery 0:00:28.480 --> 0:00:31.520 store is twenty five minutes away. The big box superstore 0:00:31.560 --> 0:00:34.360 is even further. Driving to either one at this hour 0:00:34.560 --> 0:00:37.080 means you won't be home and in bed until eleven. 0:00:37.800 --> 0:00:40.319 But what about that new dollar store that opened down 0:00:40.360 --> 0:00:43.519 the street doesn't even have food. If it does, you 0:00:43.520 --> 0:00:45.800 could get this shopping trip wrapped up in twenty five 0:00:45.800 --> 0:00:49.839 minutes flat. So you decide the dollar store is the 0:00:49.840 --> 0:00:53.560 best option. It's tiny and packed to the gill with neighbors, 0:00:53.600 --> 0:00:56.760 but there is actually some food. You don't recognize the 0:00:56.760 --> 0:00:59.600 brands and feel a little funny buying milk and pint bottles. 0:00:59.760 --> 0:01:02.040 That's a quarter to an eighth of the standard size 0:01:02.040 --> 0:01:05.040 for our metric friends, But after all, each one is 0:01:05.080 --> 0:01:07.959 only a dollar on your way to the toilet paper aisle, 0:01:08.040 --> 0:01:10.959 you pass a toy section and bed sheets and greeting cards, 0:01:11.040 --> 0:01:14.600 which is useful because your mom's birthday was yesterday, and 0:01:14.640 --> 0:01:16.720 there's only one person working the checkout, so the weight 0:01:16.800 --> 0:01:18.720 is a little long, but the total bill is less 0:01:18.760 --> 0:01:22.880 than thirty bucks, and you're back home before ten pm. 0:01:23.000 --> 0:01:27.040 Welcome to the dollar store economy. Dollar stores exploded during 0:01:27.080 --> 0:01:29.480 the Great Recession and have continued to do well during 0:01:29.480 --> 0:01:33.840 the COVID nineteen pandemic and the current inflationary period. There 0:01:33.840 --> 0:01:35.959 are now more than thirty four thousand of them in 0:01:35.959 --> 0:01:41.760 the United States. That's more locations than Walmart, Walgreen's, CBS, Costco, Kroger, 0:01:41.880 --> 0:01:47.080 and Home Depot combined. Once widely criticized as retail vultures 0:01:47.160 --> 0:01:50.480 preying on poor people living in food deserts, dollar stores 0:01:50.560 --> 0:01:55.640 now boast a more mixed income clientele. Button Why has 0:01:55.680 --> 0:01:58.440 the dollar store model been so successful and how does 0:01:58.440 --> 0:02:00.960 a company even make money so things for so cheap. 0:02:02.680 --> 0:02:06.200 The two biggest dollar store chains, Dollar General and Dollar Tree, 0:02:06.320 --> 0:02:09.840 which also owns Family Dollar, have been brilliant at capturing 0:02:09.960 --> 0:02:14.959 underserved demographics. Dollar General, for example, has built seventy of 0:02:15.000 --> 0:02:18.640 its stores in small rural towns with fewer than twenty people, 0:02:19.040 --> 0:02:21.679 and pinpoints new locations and areas that are fifteen to 0:02:21.720 --> 0:02:25.480 twenty miles that's around kilometers away from the nearest big 0:02:25.480 --> 0:02:29.320 box store or grocery store. A family. Dollar targets urban 0:02:29.440 --> 0:02:33.040 and low income shoppers, while Dollar Tree goes after the suburban, 0:02:33.120 --> 0:02:38.680 middle income shopper. By expanding their offerings to include more food, 0:02:38.840 --> 0:02:43.000 household cleaners, help and beauty products, paper products, and other consumables. 0:02:43.440 --> 0:02:46.440 Dollar stores have positioned themselves as a whole new shopping 0:02:46.440 --> 0:02:50.720 category called the fill in trip. As in the example above, 0:02:51.040 --> 0:02:53.440 this can tide you over until a regular trip can 0:02:53.480 --> 0:02:58.080 be made. Not only has the proliferation of dollar stores 0:02:58.120 --> 0:03:00.760 fueled this new type of shopping behave of year, but 0:03:00.880 --> 0:03:03.560 the arrival of a new dollar store often kills off 0:03:03.680 --> 0:03:07.080 local competition like the mom and pop corner store, meaning 0:03:07.160 --> 0:03:11.640 even more customers and profits for the dollar store. Because 0:03:11.639 --> 0:03:13.560 the shopping list for a pill in trip is only 0:03:13.600 --> 0:03:15.880 a few items long, the total bill at the dollar 0:03:15.960 --> 0:03:19.320 store is usually pretty low, and since many dollar store 0:03:19.360 --> 0:03:22.360 goods are still sold for a dollar each, it's tempting 0:03:22.400 --> 0:03:24.640 to think that shopping at a dollar store must be 0:03:24.680 --> 0:03:27.120 a better deal than shopping at either the local corner 0:03:27.200 --> 0:03:30.920 store or the big chain grocery store or retailer. But 0:03:31.280 --> 0:03:36.000 is this always true. Paying a dollar for that pint 0:03:36.040 --> 0:03:38.440 bottle of milk at the dollar Store is the equivalent 0:03:38.440 --> 0:03:41.080 of paying eight dollars for a full gallon, which is 0:03:41.120 --> 0:03:44.920 more expensive than the fancy organic stuff at Whole Foods. Similarly, 0:03:44.960 --> 0:03:47.840 according to an analysis by the Guardian, the one dollar 0:03:47.920 --> 0:03:50.280 bag of raisins at the dollar store may weigh only 0:03:50.280 --> 0:03:52.160 four and a half ounces or a hundred and twenty 0:03:52.200 --> 0:03:55.000 eight grams, while a seventy two ounce or two key 0:03:55.040 --> 0:03:57.480 low bag from a big box store costs ten dollars 0:03:57.480 --> 0:04:01.080 fifty cents. That's a little over half the cost per ounce. 0:04:03.120 --> 0:04:06.160 By shrinking package sizes, dollar stores can get away with 0:04:06.280 --> 0:04:09.120 charging way more per volume, which is one of the 0:04:09.200 --> 0:04:12.080 main ways they profit. Just because you only paid a 0:04:12.160 --> 0:04:14.640 dollar for that roll of aluminum foil doesn't mean that 0:04:14.680 --> 0:04:18.680 it's a good deal. The Washington Post reported that the 0:04:18.680 --> 0:04:21.919 Dollar Tree dollar roll of foil was only fifteen square 0:04:21.960 --> 0:04:24.960 feet that's one point four square meters in area, while 0:04:25.000 --> 0:04:27.719 Walmart sold a seventy five square foot or seven square 0:04:27.760 --> 0:04:31.279 meter role for four dollars and six cents. That's the 0:04:31.320 --> 0:04:34.279 equivalent of more than eighteen square feet or two square 0:04:34.320 --> 0:04:38.520 meters per dollar. Of course, if finances are tight, maybe 0:04:38.560 --> 0:04:41.359 four dollars for foil isn't an option, no matter how 0:04:41.480 --> 0:04:45.400 much of a better deal it is in the long run. Also, 0:04:45.600 --> 0:04:48.720 dollar store shopping is a no frills experience, and that's 0:04:48.720 --> 0:04:51.880 not an accident. By keeping stores small and staff at 0:04:51.920 --> 0:04:54.760 a minimum, companies are able to convert a larger portion 0:04:54.800 --> 0:04:59.960 of sales into profit. According to figures, dollar Tree caps 0:05:00.279 --> 0:05:03.400 thirty five cents of profit for each dollar of revenue. 0:05:03.640 --> 0:05:06.679 Walmart only captured twenty four point one cents per dollar 0:05:07.680 --> 0:05:11.120 for the third quarter of one. Figures remained comparable, though 0:05:11.160 --> 0:05:16.200 the gap was closing. Dollar stores are rightfully called small 0:05:16.240 --> 0:05:20.040 box retailers. The typical Dollar general is seven thousand, four 0:05:20.120 --> 0:05:23.640 hundred square feet about seven hundred square meters. The average 0:05:23.640 --> 0:05:27.080 Walmart supercenter is one hundred and seventy eight thousand square feet. 0:05:27.240 --> 0:05:31.080 That's sixteen five hundred square meters. And even though dollar 0:05:31.120 --> 0:05:34.120 stores are packed from floor to ceiling with items, the 0:05:34.160 --> 0:05:38.359 typical one only carries ten thousand individual products, while the 0:05:38.360 --> 0:05:42.480 average Walmart carries closer to ninety thousand those dollar store 0:05:42.520 --> 0:05:46.279 items are chosen for maximum profit, emphasizing long shelf life 0:05:46.360 --> 0:05:51.520 off brands and small packaging. That small size means you 0:05:51.640 --> 0:05:54.120 don't have to employ as many people, and wages of 0:05:54.200 --> 0:05:56.960 dollar stores are among the lowest in the retail industry. 0:05:58.360 --> 0:06:02.240 Dollar stores have been doing pretty well two Inflation has 0:06:02.240 --> 0:06:05.200 pushed up the cost for goods, causing non traditional, higher 0:06:05.279 --> 0:06:08.960 income shoppers to visit dollar stores along with the usual customers. 0:06:09.560 --> 0:06:13.440 Profits in were huge, but slowed down in due to 0:06:13.520 --> 0:06:18.680 supply chain issues. In late Dollar Tree became the last 0:06:18.800 --> 0:06:21.800 major dollar store brand to change his policy of charging 0:06:21.880 --> 0:06:24.800 only a dollar for most items and now charges a 0:06:24.839 --> 0:06:27.600 dollar twenty five cents per item, and they set the 0:06:27.640 --> 0:06:31.159 decision to raise prices was due to increases in labor, shipping, 0:06:31.160 --> 0:06:34.160 and fuel costs, and that several customer favorites had had 0:06:34.240 --> 0:06:36.719 to be discontinued as they were not sustainable at the 0:06:36.800 --> 0:06:40.680 one dollar price point. At the same time, dollar store 0:06:40.720 --> 0:06:43.640 staff has been quitting due to low pay in long hours, 0:06:44.120 --> 0:06:46.880 and many cities have put moratoriums on how many dollar 0:06:46.960 --> 0:06:49.240 stores can be built in an area and to prevent 0:06:49.279 --> 0:06:52.320 them from crowding out new businesses and stores that offer 0:06:52.400 --> 0:06:57.440 fresh foods. Despite these negatives, dollar stores continue to expand 0:06:57.520 --> 0:07:00.680 at a very fast rate. Dollar General plans to open 0:07:00.800 --> 0:07:05.520 one thousand and ten new stores in and remodel one thousand, 0:07:05.560 --> 0:07:08.680 seven hundred and fifty others. It also plans to open 0:07:08.800 --> 0:07:12.000 many more of its pop shelf stores, designed to appeal 0:07:12.040 --> 0:07:15.040 to a wealthier demographic, with most items priced at five 0:07:15.080 --> 0:07:23.160 dollars or less. Today's episode is based on the article 0:07:23.240 --> 0:07:25.400 how do Dollar Stores make money? On how stuff works 0:07:25.400 --> 0:07:28.160 dot Com, written by Dave Rouse. Brain Stuff is production 0:07:28.240 --> 0:07:30.280 by Heart Radio in partnership with how stuff works dot 0:07:30.320 --> 0:07:33.280 Com and is produced by Tyler Klang. Or more podcasts 0:07:33.280 --> 0:07:36.360 from my heart Radio, visit the iHeart Radio app, Apple Podcasts, 0:07:36.440 --> 0:07:38.200 or wherever you listen to your favorite shows.