How Local Iowa Grocers Are Fighting Back Against Dollar General

Second in a two-part series on Dollar General coming into rural Iowa towns, and how rural grocers can still compete with them. Read Part 1 here.

When Dollar General opened a store in Paullina, a small Northwest Iowa town, in 2018, Prairie Market Owner Laura Palmer thought the days were numbered for her small grocery store.

Prairie Market saw a worrisome 15% decline in sales for the first few months, confirming her worst fears.

And then a curious thing happened: Sales rebounded. Not only that, Palmer said she’s now seeing constant growth, even with inflation.

“A couple of years ago, we were so concerned,” Palmer said. “But we just lost a lot of sleep for nothing—it was a good thing.”

If the only thing folks care about when shopping is finding the lowest price on an item, that sounds like good news for a chain like Dollar General, which specializes in the cheapest shelf-stable goods, but bad news for a full-service, locally-owned grocery store.

And bad news for a locally-owned business is usually bad news for a community.

Dollar General doesn’t sponsor or contribute to the community like a local grocery store. It doesn’t have the customer service, staff, product selection, or cleanliness of one. It usually pays lower wages, keeping its own workers mired in poverty and, thus, dependent on shopping there. It often doesn’t carry the number of fresh—and healthier—produce that grocery stores do, sometimes leading to food deserts in smaller communities.

But there’s a wrinkle in this framing: Small-town grocery stores don’t universally hate Dollar General or its ilk, Family Dollar and Dollar Tree.

“I really don’t consider (Dollar General) a problem or an issue,” said Scott Edwards, vice president of operations at Brothers Market, a small chain of 16 grocery stores throughout Iowa and Missouri (and one in Kansas).

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How is it possible that smaller, full-service grocery stores—already facing thin profit margins as an industry—can compete with Dollar General?

It turns out, several of them told Starting Line, they’re taking advantage of a Walmart-Dollar General competition, partnering with distributors to offer discounted products, continually championing their community involvement, and promoting other services that make them the better choice.

They’re lessons all rural grocery stores can adopt, in Iowa and beyond.

“You should never be afraid of competition—it just makes us better,” Palmer said. “You’re always moving forward instead of staying stagnant, and that’s a good thing.”

Why drive 40 minutes to Walmart?

Of course, Palmer didn’t always think like that. She was initially worried about a Dollar General coming to her O’Brien County town of 982 people and taking her business.

However, it turned out that what Dollar General did really well was undercutting the original local grocery-store killer: Walmart.

Palmer said her customers used to make the 40-minute drive to the Walmart in Sioux Center or Le Mars. There, they could get cheaper groceries as well as other goods her store didn’t stock.

But now, Dollar General stocks many of those same home goods as Walmart, for just as cheap in some cases, while gas prices have risen in recent years. That’s also something Darren Trunck, who owns Trunck’s Country Foods in Reinbeck, has noticed.

“Now, Dollar General is kind of like a Walmart: We can get our meat and produce at Trunck’s, and our wrapping paper at Dollar General,” said Trunck. “Maybe it’s keeping people from leaving town a little bit.”

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Find ways to discount

For the most part, small-town grocers can’t compete with the Dollar General behemoth on price. Even though they might be similarly sized, Dollar General has the benefit of economies of scale.

Call it the Sam’s Club effect: The more you’re buying, the more money you save than if you were buying only one or two. That’s why Walmart or Dollar General, with thousands of stores, gets their products from distributors cheaper (and can sell them to you for less) than someone who only owns one grocery store.

“What I pay for Miracle Whip is what Walmart is selling it for. That’s the other thing I don’t think people realize,” said Jennifer Davis, owner of Fairbank Food Center. “You’re comparing my small store to a giant corporation.”

But here, too, small grocers can tip the scales in their favor.

Scott Vogelaar, who owns Sanborn Foods in Sanborn, just started doing temporary price reductions as part of a partnership between his store, his warehouse, and a company out of Kansas City. That allows him to offer discounts “throughout the store,” deals he shares on social media to drum up interest.

“I can see the impact every week,” Vogelaar said. “It has helped, and people have noticed, so that’s been a good thing.”

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Brothers Markets, the small chain, also goes through its warehouse to make private label brands for its stores—basically, off-brand items that replicate name-brand ones—that offer price-sensitive consumers an option (read: they’re cheaper).

Just like Dollar General has their own line of private label brands, now, so does Brothers.

“Not everybody wants Charmin. Some people are OK with buying the cheapest they can get,” Edwards said. “(With) private label, you can compete with Dollar General.”

Be part of the community and offer better services

After a massive EF-5 tornado leveled parts of Parkersburg and New Hartford in 2008, nine people were dead, and dozens of homes and businesses were rubble. One of those was Parkersburg’s only grocery store. Its owners said they could not rebuild.

Into that void came Jared, Jay, and Darian DeVries, three brothers who wanted their town to have a grocery store again. So they opened their own in 2009 and expanded across the state and Midwest in the years since.

The story is featured prominently on Brothers Market’s website, and it’s one Edwards pointed to immediately as a sign of how invested Brothers Markets are in the wellbeing of their community.

“We are family-oriented and community-oriented,” Edwards said. “We provide a lot of things in the communities the Dollar Generals can’t or don’t provide.”

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Local stores support things such as Little League teams or donations to high school fundraisers. There are also monthly “roundups” at some locations, where customers can choose to round up their grocery purchase to the nearest dollar to benefit a local charity, such as an animal shelter.

“That’s not in Dollar General’s plan,” he said. “We hope, by doing that stuff, we let the community know we’re here to support them.”

Donating items to local silent auctions or charities is common for small-town grocers. But there’s also a sense of fitting into the community: When the local Catholic Church was having its fall festival, Davis decided to shut down Fairbank Food Center’s hot lunch so as not to compete.

“People came in and we said, ‘Head downtown—we’re supporting that today,'” Davis said. “It’s just a subtle reminder of, that’s why we’re local, that’s why we support.”

Deli, delivery, decor

In its quest for low prices above all, dollar stores can also be lax on other things local grocers excel at—another opportunity for locals.

While a Dollar General might be low-staffed, resulting in poor customer service, locals such as Trunck’s Country Foods can emphasize their full-service meat department, daily hot meals, local food like Hansen’s Dairy milk products and thrice-weekly delivery service.

“There’s stuff we have a hard time competing on, like certain things price-wise, so we try to use friendliness and customer service,” said Trunck. “I think you have to focus on figuring out where your strengths are and be really good at those.”

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Palmer makes sure her customers know she carries a lot of things Dollar General doesn’t, like gluten-free or vegetarian options, and an expanded dairy aisle.

“We chose to just stay our course,” she said. “You have to find your specialty. We found our niche.”

Vogelaar advised local grocers to “just keep plugging along,” and Edwards said the same.

“Dollar Generals, when they open up, they’re new, they’re bright and shiny. People are going to go there just because it’s a new store in a small town,” Edwards said. “After a while, they’re going to go back to where they feel comfortable and where they get the best service.”

Even price-conscious consumers can appreciate a quality product lasting longer, Davis added.

“How many times are you going to spend a dollar on something for it to continuously break?” said Davis. “Then you’re going, ‘Oh, wait, never mind, that’s not a better deal.'”

By Amie Rivers
10/13/22

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