Dollar stores are changing the rural Minnesota landscape

ISLE, MINN. – Waiting for a prescription inside the creaky-floored drugstore on Main Street, Bryan Tate didn't hesitate to explain why he shops for incidentals elsewhere.

Cold medicine, toilet paper, soda — even socks and underwear — are typically now purchased at the new Dollar General, a chain store that opened 15 months ago in this town of fewer than 800 residents on the shore of Lake Mille Lacs.

"This town has needed that for a long, long time," the retired truck driver said, adding that for such quick buys, local businesses charge "through the nose."

Drugstore owner Kris Thompson can only shake her head at such comments. Unable to undercut the wholesale buying power of a national chain, she's afraid of what it will mean for her future.

It's a landscape-changing scene playing out in small towns throughout rural Minnesota and across the nation. Small-box stores with "dollar" in their names are opening new locations at a frantic pace, delighting residents with the convenience of big inventories and low prices while threatening local merchants who say they can't compete.

In Minnesota, Dollar General opened 42 stores in the past two years, bringing its total to 75. Family Dollar opened 16 stores in Minnesota since September 2014, for a total of 72. Many of the stores are appearing in towns too small for big-box retailers.

"There certainly are a lot of them going in now," said Bruce Schwartau, a University of Minnesota Extension retail educator. While he expected to see them in larger rural towns, he said, "all of a sudden they started showing up in the smaller communities. … They keep popping up."

In the southwestern Minnesota prairie town of Tracy, two stores opened in 2015; first Family Dollar, then Dollar General. Residents wonder how the town of about 2,000 can support both.

"I think overall it's been a positive for us," Mayor Steve Ferrazzano said. "It gives people an opportunity to shop locally."

The stores cut down on residents' trips to Wal-Mart in Marshall, about 20 miles away, he said. "Those businesses here have to pay taxes, so if they're a viable business then it certainly helps the city."

For the Tracy Food Pride grocery store, though, it is a double whammy.

"In effect they're just like a Wal-Mart, pricewise," Food Pride owner Bruce Schelhaas said. "Every town they go into, it hurts the small-town store."

Sales at Food Pride are down about 10 percent, Schelhaas said. That has meant trimming employee hours and scrapping a planned $400,000 project to replace all of the store's freezer and refrigerator cases.

The grocery will continue to emphasize what the dollar stores don't, he said: fresh meat, produce and bakery items and a deli with noontime meals. Those departments are costly to run, he added, but they help bring in traffic.

"You've got to have something better and different," he said.

Roughly 6,000 dollar stores have opened across the country since 2010, for a total of nearly 30,000, according to the retail research firm Conlumino. Consumer spending in dollar stores has skyrocketed from around $30.4 billion to $45.3 billion during that time, the firm found.

While price remains the top reason customers shop the stores, according to the firm's surveys, convenience matters, too. More shoppers are also wandering in to browse.

Dollar stores don't necessarily mean all items cost $1. Though that is the model for Dollar Tree, it and other dollar-type stores sell name-brand goods at prices competitive with big-box retailers.

Online ads for three major chain stores recently advertised everything from maxi skirts to motor oil, bird ornaments to bacon.

Conlumino Managing Director Neil Saunders, who said his firm has consulted for Dollar General and other variety retailers, said he expects continued growth of dollar stores, including some that will bring in additional fresh grocery items, including produce.

The dollar store momentum comes amid a "thinning out" of retail options in rural areas that has been going on for years, said George John, a University of Minnesota marketing professor. For dollar stores to survive, he said, they will need a niche besides low prices and proximity, because people will still drive to larger stores for their regular shopping.

"You can't be a traditional small store and hope to compete against Wal-Mart," he said. A dollar store is "not your regular grocery store, it's not your regular clothing store, and it never will be."

Still, the rapid expansion across the U.S. shows few signs of slowing.

Dollar Tree, which bought Family Dollar last July, expects to open 550 new stores in North America in 2016, according to Randy Guiler, vice president of investor relations. Dollar General plans to open approximately 900 new stores in the U.S. in fiscal year 2016, according to a company statement.

About 70 percent of Dollar General stores are in towns that serve communities of 20,000 people or less, spokeswoman Crystal Ghassemi said in an interview.

"That's part of our business model, is to be able to serve communities that may be overlooked by other retailers," she said.

In Minnesota, many towns welcome the stores with open arms, feeling a sense of pride in getting noticed by a national chain.

In Braham, Park Cafe owner Jeana Strelow said she goes to the local Dollar General regularly since it opened about a year and a half ago.

The local grocery was already struggling, she said, and when avian flu drove up egg prices last year, Strelow found the breakfast staple to be cheaper at Dollar General than from her supplier. She bought more than 60 dozen eggs a week.

"I've never heard anything bad, not one word," she said, sitting at a Formica-topped restaurant table, a chalkboard advertising the daily pie specials.

Strelow said she still makes regular trips to large chain stores in bigger towns, but not as often, especially not when her shopping list is short.

"If you drive … you're spending the same amount," she said.

But Schwartau, of the U, said he and others worry about losing small-town groceries and the fresh, healthy food they carry.

"The grocery store is by far the better place to find healthy food alternatives," he said. "What can we do to help the small grocery stores still stay competitive and available for community members?"

Despite their popularity, dollar stores have not been embraced by all communities, for various reasons.

In the picturesque Lake Superior tourist town of Grand Marais, rumors of a possible Dollar General store prompted more than 1,500 signatures on a petition saying a national chain store would send a message that the town isn't unique.

The City Council there responded by putting a temporary moratorium on commercial development larger than 5,000 square feet in the city's service commercial/industrial zones while it studies the issue.

When Thompson bought Lake Country Drug & Gifts in Isle two years ago after working elsewhere as a pharmacist, she understood she wasn't going to get rich. But she liked the idea of serving her hometown.

She didn't know Dollar General was planning to open eight months later. When she found out, she went to city hall to voice her concerns, but it was apparently too late.

Thompson said she knows she simply can't compete on some items. While Dollar General offered 84 diapers for $24, her wholesaler would have charged her $40 for the same amount, she said. She also believes the dollar stores carry differently sized items, making their prices appear lower when sometimes they aren't.

As she walked through the small aisles, she pointed to how she's changing her business. Fewer shampoos and greeting cards now sit on the shelves, replaced with yarn, more cabin decorations and gifts.

Thompson hopes her staff's personal attention and honesty will keep customers coming back, too.

"My philosophy is, if I'm good to people, they'll be good to me," she said. "I'm not going to sell them something just to sell them something."

Pam Louwagie • 612-673-7102