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Rotman Insights Hub | University of Toronto - Rotman School of Management

Dollar for dollar: How a growing number of dollar stores negatively impacts food security

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El Hadi Caoui, Matthew Osborne

For every three dollar stores that open in the U.S., one grocery store closes, according to new research from Rotman professors El Hadi Caoui and Matthew Osborne. And a lot of new dollar stores are opening. Between 2018 and 2021, around half of all new retail stores in the U.S. were dollar stores.

Specifically, the big chains Dollar General, Dollar Tree and Family Dollar are growing rapidly. Between 2010 and 2019, 14,554 new dollar stores opened, and by 2021 those three retailers had a combined 30,000 storefronts in the U.S. — more than Walmart, Target, CVS and Walgreens combined. In comparison, the number of grocery stores in the U.S. decreased by 13 per cent from 2012 to 2019.

“When a dollar store appears, people shift their spending away from grocery stores and into dollar stores, and the issues for grocery stores only compound from there,” says Osborne. “In the long run that means fewer options for the customers."

Caoui, an assistant professor of strategic management at the University of Toronto, had previously been researching dollar store expansion when he linked up with Osborne, an associate professor of marketing at UofT who was researching household spending in the U.S. Joined by Brett Hollenbeck, an assistant professor at UCLA Anderson School of Management who studies retail chains, the trio combined their datasets to explore the impact dollar stores had on food access in the U.S. between 2008 to 2019.

The dollar store growth followed the mass expansion of bigger box retailers, such as Walmart and Target, which left a gap in the marketplace for stores targeting smaller and low-income markets. Dollar chains grew particularly quickly after the 2008 recession, when people were looking for more affordable options. Then, in 2015 Dollar Tree and Family Dollar merged and their combined respective distribution facilities resulted in even quicker growth.

“Expansion takes time and we’re really starting to see the fruits of the expansion that the dollar store chains planned 15 years ago,” says Osborne.

Yet despite the meteoric growth in dollar stores’ reach, the net result on local communities wasn’t always positive. Researchers found that as these ultra-low-cost retailers grew, more grocery stores closed, while spending on fresh produce declined. Lower income households are more heavily affected by this shift, often meaning a reduction in access to food in low-income areas and those most in need.

Their research showed that markets lose one grocery store for every three new dollar stores that open within a three-kilometre radius as a result of shifting local spending habits.

Since dollar stores rarely stock fresh fruits and vegetables, consumers usually reduce their spending on fresh produce. Coupled with the loss of grocery stores, this results in an overall decline in access to fresh produce for a community, ultimately leading to nutritional inequality.  Households with an annual income of less than US$45,000 per year end up spending around 15 per cent less on fresh produce, while high-income households with an annual income of more than US$70,000 are not affected.

“Some shopping trips that people used to do to the grocery store to buy a variety of products, they are now substituting with trips to the dollar store and therefore reducing their fresh produce spending,” says Caoui.

Homes with high transportation costs — often low income, older and minority groups without access to a vehicle — are the most likely to shift their spending towards dollar stores and are then the most affected by a lack of access to fresh produce.

“Transportation plays a huge role,” says Osborne. “When people are interviewed about why they like dollar stores over Walmarts, they usually say they have to  travel around 20 miles to get to a Walmart, but only two or three miles to get to a dollar store.”

A big motivation for the research is to inform the debates that policymakers are already having about a lack of access to fresh food for low income communities. While many levels of elected government officials had a hunch that dollar store expansions are having an impact, there hasn’t been any data to back it up. The researchers are now hoping that this information can be useful for politicians to discuss how to change policies or zoning, or just have more informed debates.

The data only looked at the impact of expansion up until the end of 2019, but since then, following the pandemic and rising inflation, Caoui and Osborne believe that dollar stores have continued to grow, and so have the impacts.

“I wouldn’t be surprised if we saw dollar stores and discount formats like this become even more popular,” says Osborne. “People are going to be looking for more ways to save their money and that could increase the appeal even more.”

El Hadi Caoui is an assistant professor of strategic management in the department of management at the University of Toronto, Mississauga, with a cross appointment to the strategic management area at the Rotman School of Management. 
Matthew Osborne is an associate professor of marketing in the department of management at the University of Toronto Mississauga, with a cross-appointment to the marketing area at Rotman.