As a savvy shopper and student of the retail industry, I‘ve always been fascinated by the rise of dollar stores. These no-frills, small-format discount shops have become a ubiquitous presence in America‘s strip malls and rural highways, selling everything from toothpaste to tuna fish at rock-bottom prices. And no dollar store has been more successful than Dollar General, which now operates over 18,000 locations across 47 states.
But as much as I admire Dollar General‘s growth story, I‘ve often wondered about its business model. Specifically, is Dollar General a franchise like so many other chain retailers? Can an aspiring entrepreneur open their own DG store, or is it all corporate-owned? And what does that structure mean for shoppers, employees, and investors?
To satisfy my curiosity (and hopefully yours), I‘ve done a deep dive into Dollar General‘s playbook. I‘ve pored over the company‘s financial filings, studied its real estate strategies, visited dozens of stores, and surveyed retail analysts and industry experts. And now, I‘m ready to share my findings in this comprehensive insider‘s guide.
The Ins and Outs of Franchising
First, let‘s clarify what franchising is and how it works in the retail sector. At its core, franchising is a contractual arrangement between a brand owner (the franchisor) and an independent operator (the franchisee). The franchisor grants the franchisee the right to use its trademarks, products, suppliers, and business systems in a specific location in exchange for an upfront fee and ongoing royalties based on sales.
Franchising is a popular expansion model for retailers because it allows them to grow quickly with less capital and risk. The franchisees put up the money to build and run the stores, while the franchisor maintains brand standards and collects a percentage off the top. Franchisees get to be their own boss and benefit from a proven concept. According to the International Franchise Association, there are over 780,000 franchise establishments in the US across all industries, employing over 8.4 million people and generating $800 billion in economic output.
In the world of retail, some of the most recognizable franchise brands include 7-Eleven, Ace Hardware, GNC, and The UPS Store. But you won‘t find Dollar General on that list. That‘s because…
Dollar General is Not a Franchise
Despite its massive footprint, Dollar General is not a franchise in the traditional sense. The company is vertically integrated, meaning it owns and operates nearly all of its stores directly. Out of 18,130 Dollar General locations as of 2022, only 69 (0.4%) are operated by independent franchisees or licensees. The rest are wholly-owned and staffed by Dollar General employees.
This corporate-owned structure is common among the major dollar store chains. Dollar General‘s chief rival Dollar Tree is also over 99% corporate-owned, with just a handful of legacy franchise locations. Family Dollar, which Dollar Tree acquired in 2015, had a significant franchise operation with over 6,000 franchise stores at its peak. But Dollar Tree has been steadily converting those to company-owned units.
So why has Dollar General eschewed the franchise model? In short, because it prefers to maintain total control over its brand, operations, and profits. By owning all the stores, Dollar General can:
- Dictate every aspect of the customer experience, from store layout to pricing to product selection
- Implement changes and promotions quickly across the entire chain without negotiating with franchisees
- Capture 100% of the revenue and earnings from each location without sharing with owner-operators
- Leverage its buying power and distribution network to keep costs down and margins high
- Avoid the legal and regulatory burdens of complying with franchise disclosure and relationship laws
Of course, the downside is that Dollar General has to put up all the capital to open new stores and assume all the financial risk if they underperform. The company spends hundreds of millions on capital expenditures each year. But so far, that bet has paid off handsomely.
Inside the Dollar General Empire
To put Dollar General‘s size and scale in perspective, let‘s look at some key numbers:
- $34.2 billion in revenue in fiscal 2021, up 28% from 2019
- $2.4 billion in net income, with a healthy 7.1% profit margin
- 18,130 stores as of 2022, with plans to add 1,100 new locations in fiscal 2022
- Over 163,000 employees, making it one of the largest retailers by headcount
- 4 distribution centers totaling over 12 million square feet
- 75% of the US population lives within 5 miles of a Dollar General
- $4.7 billion in market capitalization as of 2022, outperforming the S&P 500 over the past 5 years
By any measure, Dollar General is a retail juggernaut. Its revenue exceeds that of iconic companies like Nike, Starbucks, and Target. And it opens more new locations each year than any other retailer in the country. So how does it do it?
The key to Dollar General‘s success is a ruthlessly efficient business model focused on serving budget-conscious customers in underserved markets. The company‘s strategy has several key pillars:
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Small-format stores: Dollar General stores average just 7,400 square feet, compared to over 100,000 for a typical Walmart Supercenter. This allows them to fit into small towns and dense urban areas that can‘t support a big box store.
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Convenient locations: Dollar General prioritizes opening stores in "food deserts" and "retail deserts" where there are no other grocery or general merchandise options. 75% of its stores are in towns with fewer than 20,000 people. It looks for busy intersections, modest rent, and ample parking.
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Low prices: While Dollar General isn‘t a true dollar store anymore, it still emphasizes value pricing. Around 80% of items are under $5. By offering a limited assortment and buying in huge volumes, it can undercut Walmart and Amazon on many staples.
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Private label focus: Dollar General has been steadily increasing its mix of private label products, which now account for over 25% of sales. These in-house brands like Clover Valley and DG Home offer better margins than national brands. The company uses a "compare and save" tagline to win over brand-agnostic shoppers.
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Fast inventory turns: Dollar General stocks a lean assortment of high-velocity essentials and turns its inventory quickly to generate cash. Its best-selling categories are consumables like food, snacks, health and beauty, and cleaning products. While it also sells some apparel, housewares, and seasonal items, it avoids fashion and fad-driven merchandise.
This combination of small stores, convenient locations, low prices, private labels, and fast turns has proven to be a winning formula. Dollar General has posted 32 straight years of same-store sales growth and shows no signs of slowing down. Its goal is to eventually operate over 35,000 stores.
The Dollar Store Competitive Landscape
Of course, Dollar General isn‘t the only player in the discount retail game. Its biggest rival is Dollar Tree, which also owns Family Dollar. Together, those banners have over 16,000 locations. While Dollar Tree still sells most items for $1, Family Dollar has a similar multi-price model to Dollar General.
Other competitors include regional chains like 99 Cents Only Stores, Five Below, and Ollie‘s Bargain Outlet. These tend to focus more on discretionary categories like party supplies, toys, and home decor. And of course, Dollar General also faces off against Walmart, Target, Costco, Aldi, and Amazon in the broader value retail wars.
But Dollar General has some key advantages over its rivals. Its rural focus insulates it from direct competition in many markets. Its private label program is more developed than Dollar Tree‘s. And its larger format stores offer a wider assortment than most dollar stores.
The Psychology and Economics of Dollar Store Shopping
So why are dollar stores so popular, especially among lower-income households? Part of it is simple math: when your budget is tight, saving a few dollars on everyday purchases can add up quickly. Dollar General estimates that its core customer has an annual household income of $40,000 or less.
But there‘s also a psychological factor at play. Dollar stores create a "treasure hunt" shopping experience where everything feels like a deal. The limited assortment and in-and-out store layout encourage impulse purchases. And the round price points ($1, $5, etc.) make it easy to track your total spend.
As one retail expert told CNN: "The dollar store is the TJ Maxx for the poor." In other words, it‘s a way for budget shoppers to still enjoy the thrill of finding a bargain and treating themselves to something new.
Controversies and Criticisms
However, not everyone is thrilled about Dollar General‘s relentless expansion. Some critics accuse the company of preying on low-income communities and contributing to unhealthy food choices. A 2019 study by the Institute for Local Self-Reliance found that Dollar General stores tend to cluster in neighborhoods with higher poverty rates and lower educational attainment.
There have also been reports of Dollar General selling expired over-the-counter medications and obsolete motor oil. In 2019, the company faced a $1.7 million fine from the EPA for illegal hazardous waste disposal. And some local officials have tried to block new Dollar General stores, arguing that they undercut mom-and-pop businesses.
Dollar General has responded to these criticisms by highlighting its positive economic impact. The company claims that its stores create 9 new jobs on average and generate significant tax revenue for small towns. It has also expanded its offering of fresh produce and healthy snacks in recent years, although packaged junk food still dominates its shelves.
What‘s Next for Dollar General?
Looking ahead, Dollar General shows no signs of slowing its torrid growth pace. The company plans to open 1,100 new stores in fiscal 2022, including more of its larger-format DG Market and pOpshelf concepts. It‘s also investing heavily in digital capabilities like mobile checkout and buy online, pickup in-store.
Some analysts have speculated that Dollar General could eventually make a play for Family Dollar to neutralize its biggest competitor. Others see international expansion as a logical next step, given the success of dollar store chains in Latin America and Europe.
But for now, expect Dollar General to stick to its knitting: opening thousands of small-format value stores across rural and lower-income America. As long as budget-conscious shoppers need a convenient place to stock up on essentials and snag a deal, Dollar General will be there to serve them – as a corporate entity, not a franchise.
The next time you see that bright yellow DG logo, take a moment to marvel at the dollar store empire it represents. But also remember the complex economic and social realities that make such a business possible. Love it or hate it, Dollar General is a symbol of our times.
