Rural Grocers Stare Down Competition From Dollar Stores

Rural grocers are feeling the competitive heat from dollar stores moving into their communities, a new survey from the University of Minnesota indicates.

More than half of the rural grocers (54%) from across Minnesota who responded to the survey reported that a dollar store had moved into their community in the past five years. Competition from dollar stores ranked No. 2, behind operating costs, as rural grocers’ most-cited top challenge.

The survey was fielded before the start of the COVID-19 pandemic, so the pandemic’s effects on Minnesota grocers are not quantified in survey results, the authors note. Rural grocers were defined as businesses in communities of 2,500 or fewer residents that provide a full range of fresh, frozen and shelf-stable foods.

Owners of rural grocery stores in communities that had seen a dollar store open recently were less optimistic about their business prospects than those who had not seen a new dollar store move in. Said one respondent: “I lost over 30% the day [the dollar store] opened and it has continued to take more and more business.” Another reported their store was down $2,000 a week since a nearby dollar store opened.

The competition from dollar stores looks only to increase: Dollar stores have been strong performers throughout a tumultuous 2020, and last week, one of the sector’s top players, Dollar General, announced plans to open 1,050 new stores in 2021. That expansion will follow Dollar General’s ribbon-cutting on an expected 1,000 stores by the end of its current fiscal year, which wraps up Jan. 29.

Community ties are a key differentiator for rural grocers, who see themselves as both members and caretakers of their communities, the University of Minnesota survey suggests. Nearly 4 in 5 rural grocery owners (79%) live in the same community as their store, and 96% said they agree or somewhat agree that as a small business, they have a responsibility to their community.

Eighty-eight percent indicated that they participate in Supplemental Nutrition Assistance Program (SNAP)/Electronic Benefits Transfer (EBT) initiatives; 74% said they participate in the Women, Infants and Children program.

Looking toward the future, about half (49%) of rural grocers expressed concern that their store could go out of business in the next five years. Around 80% said they don’t have transition plans in place for the leadership or ownership of their store. Forty-five percent said that while their store is a family-owned business, they do not plan to pass the business down to the next generation.

Where do rural grocers see promise? In collaboration, respondents indicate. Seventy-six percent of respondents said they believe a statewide alliance of small, independently owned stores could have value. A smaller share, 63%, said they have existing collaborations with other independently owned stores.