Dollar General’s Threat To Rural Iowa’s Community Grocery Stores

First in a two-part series on Dollar General coming into rural Iowa towns, and how rural grocers can still compete with them. Read Part 2 here.

Scott Vogelaar started working at his parents’ grocery store, Sanborn Foods, when he was 12 years old. Around 11 years ago, Vogelaar and his wife bought out the store from Vogelaar’s father.

His biggest issue then was keeping residents of Sanborn, a town of 1,400 in Northwest Iowa, from driving out of town to get their groceries.

“We’re only 10 miles away from a Fareway and a Hy-Vee, and now a Kwik Star,” Vogelaar said. “So we’ve got quite a bit of competition within a 10-mile radius.”

But Vogelaar at least had the in-town business cornered with his longtime Main Street store.

That is, until four years ago, when Dollar General set up shop on the edge of Sanborn.

When he heard the low-cost retailer was coming, “we were very worried,” Vogelaar said. “We’ve heard a lot of things from other towns.”

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Almost immediately, Vogelaar noticed a drop in business, particularly when it came to things like paper goods and detergent, of “probably 10 to 20%.”

He attributes that directly to Dollar General.

Dollar General’s undermining of rural Iowa

Dollar General hoovering up local business isn’t a surprise to J.D. Scholten—the former congressional candidate now running for Iowa House in Sioux City.

“I hate Dollar General—I think they’re the devil,” Scholten said. “I think they’re horrible for the rural economy.”

There’s a lot to hate, he pointed out.

• The killing of small-town grocers: Scholten says he knows of at least eight rural grocery stores that went under in western Iowa as a direct result of a Dollar General opening in town;
• The poor working conditions: Stores generally only have one to three workers (fewer than a local grocer’s) and pay them barely above minimum wage (which isn’t a living wage in Iowa) with no benefits;
• No community involvement: While rural grocery owners donate to and volunteer with local schools, churches and community organizations, Dollar General keeps its profits for its shareholders.

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“Other than paying property taxes, I feel they extract wealth out of rural America,” Scholten said. “To me, (Dollar General) personifies what’s wrong with the economy of the rural Midwest.”

About 75 percent of Americans live within 5 miles of one of Dollar General’s roughly 18,000 stores, the fastest-growing retailer in the US. Around 88% say they shop there or at another dollar store, like Family Dollar or Dollar Tree, at least sometimes for the convenience and price, according to a 2021 report.

But as cash-strapped consumers turn to dollar stores over their local grocers, they’re unwittingly pushing those rural grocery stores—many of which are longtime staples of their communities, donating lunch to church potlucks and t-shirts to T-ball leagues—out.

‘Killing practically everything’

Jennifer Davis has no idea what “normal” means for her rural Iowa grocery store.

A longtime employee of Fairbank Foods, she decided to buy the place when the previous owners retired. She was optimistic. It was November of 2019.

“The first three or four months were great,” Davis said. “And then COVID hit.”

Davis estimates she lost $16,000 in just catering business alone due to the pandemic. Though that’s rebounded, other issues have surfaced: random shortages in products, a resurgence of bird flu affecting chicken and eggs, increasing product recalls from companies trying to cut corners.

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Then, too, she has to explain why her prices are higher than bigger chains, like Dollar General. (The short answer: Chain stores, by virtue of their sheer size, can force their distributors to give them lower prices on products; Davis cannot.)

And then, the icing on the cake: A year after she took over Fairbank Foods’ operation, the city (after twice vetoing it) allowed a Dollar General to open up on the outskirts of town.

It’s been so chaotic, pinning any drop in sales on Dollar General alone is tough for her to do. But she knows having one in Fairbank won’t be good in the long run.

“(People say,) ‘Oh, Dollar General is so cheap.’ It’s really not,” Davis said. “There is so much research that shows what it does to a community. It’s killing practically everything.”

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‘Wasn’t ready to fight’

Darren Trunck, who took over Trunck’s Country Foods in Reinbeck from his parents, had also heard the horror stories of a Dollar General coming to town. Other rural grocery owners, plus the warehouse where he gets the products for his store, told him it would take 15 to 20% of his business right away.

So Trunck decided to close the family’s Dysart store and focus exclusively on Reinbeck.

“I just wasn’t ready to fight that battle at two different locations,” he said.

Grocery stores are already a business that operates with the thinnest of profit margins. But while Trunck needs around four to five employees at a time to run Trunck’s different departments, including meat and deli, Dollar General runs their stores with just two, sometimes only one.

That means Trunck is spending 13 to 15% of his sales on labor costs, while he estimates Dollar General can get by on 4 to 5%.

“It’s tough,” he said. “I get where they get their competitive advantage. They just run them really lean, whereas we’re a full service.”

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How to beat them

When Dollar General came to Paulina in 2018, Laura Palmer worried her store, Prairie Market, would have problems. And, indeed, she said the first few months after Dollar General opened, she saw a devastating 15% decline in sales.

She told local news outlets in the Sioux City area the same thing in 2019, worried Dollar General would soon put her out of business entirely.

But she didn’t give up.

On Prairie Market’s website, a list of reasons why customers should shop local (“you keep your dollars in our local economy”) features prominently. Palmer sends out a weekly ad to customers via email, touting the store’s specials and specialty groceries, like local dairy products.

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Nowadays, Prairie Market isn’t just surviving Dollar General—they’re thriving. Palmer said business is “constantly seeing growth,” and her responses in that 2019 article “would be opposite now.”

“We found our niche,” she said.

How does she and other rural grocers do it? We’ll have their strategies for beating Dollar General in part two of our series, coming soon.

By Amie Rivers
10/09/22

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