How Dollar General Keeps Prices So Low

With over 21,000 stores, Dollar General has nearly five times as many U.S. locations as Walmart. That scale is a big part of the reason why it's so cheap, sometimes offering items for as little as a penny. Dollar General sets up shop in places where big retailers don't bother, like small towns and lower-income neighborhoods. Its stores are comparatively much smaller too, resulting in lower overheads. These locations might not be wealthy or populated enough to support full-sized grocery stores or big box retailers, but they can support a comparatively cheap-to-run and much smaller Dollar General store. Plus, Dollar General can benefit from cheaper rents in the often lower-income locations it serves, also helping keep prices low.

As a result, there are many more potential locations for Dollar General to open a successful store than there are for many other retailers. So, in turn, Dollar General can then benefit from economies of scale. With this many stores to stock, Dollar General is in a position to stock its own in-house brands (sometimes called "private label brands") instead of more recognizable brand names. This allows it to sell those things for cheaper, as it's not beholden to the more expensive prices of some external brand. It takes the same approach for logistics, using its own shipping service for sending frozen and refrigerated stock to its stores, again, cutting out another entity that would otherwise need to be paid. Put all of this together and Dollar General can keep prices low while still turning a profit.

Massive scale aside, Dollar General keeps prices down with some other strategies, too. One is minimal staffing: It's possible to walk into a Dollar General store and see only one employee working, and that person is likely being paid a low wage. Labor costs add up quickly for chains, so the savings here can be applied to what's on the shelves. Dollar General might call this a "lean labor model," but it has drawn criticism. Dollar General staff have complained about being overworked and underpaid, and this is considered a key reason why Dollar General stores are often rather messy. More seriously, it creates a security risk, as employees are more vulnerable to robberies and violent customers if they're working in such small numbers. Yet for better or worse, it keeps costs down.

Then there's what's on the shelves. Dollar General and similar stores shy away from anything fresh like produce or meat (although this has changed somewhat in recent years). Fresh goods require more workers to manage, and go bad faster, resulting in more wastage and lower profit margins. That's less of an issue with shelf-stable items. Finally, Dollar General often sells items in small quantities: While you might not be able to profitably sell four rolls of paper towel for a dollar, you can sell one roll. This results in one major irony: Shopping at Dollar General can actually be a worse deal than buying in bulk elsewhere, where price tags may be higher, but on a per-item or per-ounce basis, it's cheaper