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Dollar General creates worry in small towns

Dollar General creates worry in small towns

HANKINSON — A change is coming to small-town North Dakota and it began in the southeast corner of the state in Hankinson..

Last February, Dollar General, the giant Tennessee-based discount retailer, opened its first store in North Dakota on state Highway 11 in Hankinson. The move sent fear through the business community of this farming town, population 899. Similar concerns are being felt elsewhere.

The retailer has mounted an aggressive push into North Dakota. Already this year it has opened 11 stores in the state, and at least 8 other stores are under construction or in development. Almost all of them are in towns with fewer than 2,000 people.

Critics of Dollar General say the retailer hurts local businesses, pays employees poorly, drains money from local economies because profits leave town, and contributes little to the communities where it does business.

They say Dollar General can kill small-town downtowns, just like Walmart did in some bigger places. The company denies all those accusations and insists it benefits the communities where it locates because it offers customers more affordable prices for everyday goods. Company officials declined multiple requests for interviews for this story.

Contrary to what was supposed to happen, however, local retailers in Hankinson and other towns in the state where Dollar General has opened haven’t suffered significantly, at least not so far. Some stores experienced short-term sales declines because everyone wanted to try the new store, but business has returned and they now say the chain is having minimal impacts on their bottom lines.

“Business has been fine,” said Jeremy Post, who owns Post’s Hardware Hank in downtown Hankinson with his wife, Jill.

Is he surprised Dollar General has not had a bigger impact? “Yes,” he said. “I wasn’t really happy about it.”

Hankinson is the center of a productive farming region where corn and soybeans are the dominant crops. There is an ethanol plant two miles east of town. Most of the town’s stores are concentrated in a single block of Main Avenue, just south of the Canadian Pacific railroad tracks and the Wheaton Dumont Co-op grain elevators.

Downtown has the usual mix of businesses for a town of this size — a bank, a grocery, a drugstore, a hardware store, a couple of bars, insurance dealers, and a funeral home. Customers haven’t abandoned those businesses for Dollar General. No stores have closed. They haven’t had to cut staff. Local retailers are holding their own.

Merchants and government officials in other North Dakota towns report similar experiences.

Denise Milbrandt, manager of Miller’s Fresh Foods, the grocery store in Hankinson, says her store’s sales fell 10 percent in the first few months after Dollar General opened. The store was forced to cut the hours of some employees. Since then, sales have returned to previous levels and employee hours have been restored.

“Everyone was worried,” she said. “At first, you could tell the difference. It took a bite. Now we’re back where we were. Our loyal customers are still shopping here.”

City officials, meanwhile, are hoping the addition of Dollar General will increase sales tax receipts by keeping shoppers in town and attracting residents from nearby areas who may patronize other stores in town in addition to Dollar General.

“You definitely notice people shopping in town that never shopped here before,” said Hankinson Mayor Loren Hovel.

If you’re not familiar with Dollar General, you will be. The retailer has 14,000 stores in 44 states, nearly three times as many stores as Walmart. It has added 1,000 stores every year for the last four years.

Dollar General is ubiquitous in small towns throughout the South and Midwest. Towns too small for any other national chain retailer will have a Dollar General. There are 1,346 Dollar Generals in Texas alone and 700 in Ohio.

Dollar stores represent the single fastest-growing retail sector, according to Garrick Brown, vice president of retail research for Cushman & Wakefield, a Chicago-based commercial real estate company. He says that over the last five years, a new dollar store has opened somewhere in the United States every 4.5 hours, or an average of five per day.

The Great Recession was a boon to dollar stores, as consumers in all income categories became more price conscious. Dollar stores have traditionally appealed most to low-income groups, but more affluent consumers discovered their virtues as economic anxieties increased. They continued to shop at dollar stores even after the recession ended. Everybody likes a bargain.

Dollar General is the largest dollar store chain, with nearly twice the number of stores as its closest competitor, Family Dollar. It also has a stronger presence in small towns.

The chain has ambitious expansion plans. CEO Todd Vasos told investors in March 2016 that the company hoped to increase sales 50 percent by 2020 to $30 billion. Key to that growth will be the opening of new stores. His presentation featured a map showing 13,000 new store “opportunities,” mostly in small towns, including 79 in North Dakota.

Does retail analyst Brown believe Dollar General will ultimately open as many as 79 stores in North Dakota? “Absolutely,” he said. “There might even be more.”

• • •

When Dollar General opened its first store in Springfield, Ky., in 1955, no item in the store cost more than a dollar. That is no longer the case, but more than 80 percent of its products sell for $5 or less, and it does have a small section of products that sell for $1.

Nowadays, Dollar General is most often compared to the general store of an earlier era, but with low prices as the chief attraction. It carries a little bit of everything. Stores are relatively small, averaging about 7,500 square feet of sales space, about double the size of a convenience store, which allows shoppers to get in and out in a hurry. The average shopper spends less than 10 minutes in a store, according to the chain.

The retailer jams a remarkable variety of products into 10 or so aisles, everything from motor oil to underwear to discount DVDs. The typical store carries more than 10,000 different items. Basics like toilet paper, cleaning supplies, and over-the-counter health and beauty products seem most popular. But you can also buy clothespins, a desk lamp shaped like the Eiffel Tower and an Atari video game system, the most expensive item in the Hankinson store, selling for $40.

In order to compete with grocery stores, Dollar General has expanded its food section. The Hankinson store has nearly three aisles of food products. It has a cooler and freezer section, so you can buy milk and microwavable meals. It doesn’t stock fresh meat or produce, but lots of processed foods in boxes and cans. More of its food shelf space is devoted to snacks and sugary drinks than anything else.

Dollar General probably most resembles Walmart, though a miniature version, with less than one-tenth the floor space and less variety in any product category. The magnetic pull of low prices has long drawn rural and small-town residents to nearby cities containing Walmarts. There is a Walmart 30 minutes northeast of Hankinson in Wahpeton.

Its similarity to Walmart may help explain why Dollar General’s impact on retailers in small North Dakota towns has been less than anticipated. Dollar General competes more directly with Walmart than local grocers, drugstores and hardware stores. Hankinson consumers can now buy locally basic goods, low in price, that they used to drive to Wahpeton to purchase.

A Hankinson resident loading his pickup in front of Dollar General on a brisk Wednesday morning typifies this change.

“The products I can get here are a lot cheaper than in town,” he said. “It’s better than having to drive to Walmart.”

• • •

Dollar General’s expansion into the upper Midwest was aided by its building of a distribution center in Janesville, Wis., earlier this year. It now operates 113 stores in Minnesota and 43 in South Dakota. North Dakota was the retailer’s 44th state.

The chain’s first five stores in North Dakota are in the southeastern part of the state, but it is rapidly expanding northward and westward. It is preparing to open a store in Cavalier, 15 miles south of the Canadian border. It has opened stores in Lakota, Langdon and Larimore. It is building in Cooperstown and New Rockford.

“The Dakotas are one of the last frontiers for the dollar stores,” said Cushman & Wakefield’s Brown.

Family Dollar also has a presence in North Dakota. It has 21 stores, spread throughout the state. But Family Dollar has struggled in recent years and was acquired by another chain, Dollar Tree, in 2015. It is not as aggressive as Dollar General and isn’t seen as the same threat to small-town businesses.

The two dollar chains also have different locational strategies. Family Dollar is more likely to locate in major urban areas and bigger towns. It has stores in Fargo, Grand Forks and Bismarck. The average population of towns where it is located in North Dakota is almost 20,000.

Dollar General, in contrast, has located almost exclusively in small towns, some of them very small. All but one of the towns where it has opened, or will open, stores in North Dakota have populations of less than 2,000. Seven have fewer than 1,000 people. It is building a store in Wyndmere, population 419.

City officials in some towns where Dollar General is locating have been surprised by the chain’s interest. Joseph Neis was born and raised in Edgeley, population 563, where the chain is building a store. He has lived in the LaMoure County community all his life, except two years when he was in the military. He has been the city’s auditor since 1999 and was mayor for 13 years before that.

Neis had never heard of Dollar General when a developer representing the retailer called him, inquiring about available land.

“I thought he was blowing hot air,” Neis said. “I’ve been doing development work for 25 years. You don’t see that kind of investment in a community as small as Edgeley.”

Until now, if Edgeley residents needed something they couldn’t buy locally, or wanted cheap paper products or dog food, they had to drive 45 miles to Jamestown, which has a Walmart Supercenter, Menard’s, Tractor Supply Co., and Home of Economy.

“We have very limited retail here,” Neis said. “For us, it’s a big plus. It will keep people from going to Jamestown.”

• • •

What must local retailers do to compete with Dollar General?

Businesses in towns where the chain has opened say they have chosen to emphasize products that the chain doesn’t stock to differentiate their stores from Dollar General.

Hankinson Drug, for example, stocks upscale clothing and gifts, such as candles. Julie Falk, who owns the store with her husband Nathan, said 92 percent of her business is prescriptions. She says the store carries over-the-counter health and beauty products, like Dollar General, but they constitute only about 2 percent of sales.

“Generally, people go out of town to get that stuff anyway,” she said.

Jeff Miller, owner of Miller’s Fresh Foods, based in Mayville, owns groceries in nine North Dakota towns. Seven, including Mayville, have a Dollar General or are getting one.

The business prepared for the arrival of Dollar General by expanding its produce, dairy and frozen food sections, and reducing its inventory of general merchandise, and health and beauty products, which consumers can buy more cheaply at Dollar General.

“We retooled our stores,” Miller said. “They can’t do fresh meat. They don’t do produce.”

Other retailers say Dollar General can’t compete with them on quality or the depth of their selection in a category. Consumers may go to Dollar General for a cheap package of nails, but if they need a particular-sized screw or a drill, they are more likely to go to the local hardware store.

“We carry such a wide variety,” said Jerry Praska, who owns Praska Hardware Hank in Oakes, an hour west of Hankinson, where Dollar General opened in February. “We have more specific items. We have 20 linear feet of bolts and screws.”

Store owners and retail analysts say the single biggest advantage mom-and-pop retailers have over a chain like Dollar General is the quality of their customer service.

On a recent Wednesday morning in Hankinson, Dollar General had only one staff member on duty. Hankinson Drug, Post’s Hardware Hank and Miller’s Fresh Foods each had multiple employees available to help customers.

“If you’re competing with someone who is going to beat you on price, your other option is to beat them on service,” said Cushman & Wakefield’s Brown. “There is a premium in knowing the people, and they always give you good service. Dollar stores are not known for having great service.”

Dollar General is still new to North Dakota, so it’s too early to say what the chain’s long-term impact will be. Many still fear its influence.

The chain opened in Langdon earlier this month and already one retailer, Langdon’s General Store, has announced that it will close at the end of the year. The store is similar to Dollar General, but can’t compete in price.

Further west in Cando, local officials say a developer representing Dollar General has purchased the only motel in town and plans to build a store on the site. Dollar General officials won’t discuss future store plans, but acknowledged it is considering the town.

Cando, population 1,116, is an unusually healthy small town, with attractive residential streets and assets many towns of similar size do not possess, including an active arts council and a century-old, city-owned auditorium downtown that features first-run movies and locally produced live theater.

The city’s three-block business district has several empty storefronts, but still has a grocery, pharmacy, hardware store, café, a bank and insurance agents, an auto parts store and two bars. Downtown is busy on weekdays, with plenty of cars in front of stores and people chatting on sidewalks.

Residents, however, fear that may change once Dollar General opens. Typical of its strategies to locate stores on major highways and away from downtowns, the property where it is reportedly building is on U.S. Highway 281 on the south edge of town.

Chuck Wilson, a business owner and a member of the Cando City Council, says the developer representing Dollar General tried to buy two other properties, “but people refused to sell to them. They didn’t want them in town.”

Wilson owns an auto body shop and, with his wife, a nursery. They figure the nursery will be hurt by Dollar General, which stocks basic gardening supplies, such as flower pots. Owners of the grocery and drugstore spoke recently at a City Council meeting to express opposition to Dollar General.

But the barriers to development are minimal in small towns. So long as the Dollar General store satisfies rudimentary building requirements, the chain will be allowed to locate in Cando, even if elected officials and residents object.

“I don’t think there’s any way to keep them out of here, to tell the truth,” Wilson said. “It’s going to hurt main street. It’s too bad it’s got to come to this.”

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