Dollar store chains are the pandemic’s big winners so far

The dollar store chains continue to win business from rattled consumers with their low prices and ubiquity.

Dollar General has been on a tear for a decade now, and the current pandemic, weak economy, and very high unemployment is only accelerating that momentum.

The company, which like its dollar store peers was deemed essential by most local authorities because it sells household products and food, said on Thursday that sales in the first quarter, which ended in early May, had increased 27.6% to $8.4 billion. Comparable sales, which includes stores open for at least a year, rose 21.7%. And shoppers also flocked to its smaller, underperforming rival, Family Dollar, whose comparable sales were up 15%.

That was far better than the growth of the pandemic’s other big winners, namely Target, Walmart, and Costco, which, unlike the dollar stores that do almost no business online, have big e-commerce operations.

The dollar store chains have grown in popularity over the decades by operating small stores of about 7,000 square feet, or half the size of a drugstore, and opening them closer to shoppers, with Family Dollar gravitating more to suburbs and Dollar General in rural areas.

What’s more, by offering a limited assortment of items, compared with that of other retailers, as well as thinly staffed stores, they have kept costs and prices down. For instance, a Dollar General store will stock about 10,000 kinds of items, one-tenth of what a big Walmart carries. 

The result is that these stores dot the country and dominate markets too small to support a Walmart, Target, or Kroger. Dollar General now has 16,500 stores, double the number a decade ago, and is the biggest U.S. retailer by store count: Some 75% of Americans live within five miles of a Dollar General store, the company says.

“This ‘localness’ was a major advantage during the crisis when many households were reluctant to travel too far, and some were nervous about visiting big-box stores where it is very difficult to reduce dwell time,” says Neil Saunders, a managing director at GlobalData Retail. That has helped Dollar General, which got its start in the rural South, win more middle-class shoppers and expand closer to large cities in recent years. 

But the convenience and lower prices are only part of why dollar stores have thrived. Long known for selling food items like frozen pizza and beef jerky, such stores don’t offer enough assortment to allow for a weekly grocery run, though they are practical for intra-week fill-in trips.

Still, as detailed in a Fortune feature last year, that is beginning to change. Dollar General has been moving for years to improve its food offerings, making a bigger push into fresh produce, meats, and healthier fare, all while adding more refrigerators at its stores, meaning it will keep winning a bigger share of food spending. It is even testing a format that looks a lot like a grocery store—with fresh fruit. Dollar General has also added products from better brands like Starbucks in recent years.

As for Family Dollar, the troubled dollar store chain Dollar Tree bought in a battle with Dollar General in 2014, it was able to ride the wave of stock-up shopping for many of the same reasons as Dollar General. But Family Dollar’s turnaround is far from complete, with many stores still shabby and a product assortment not as inviting to shoppers as Dollar General’s. (Dollar Tree, where all items are $1 without exception, is more focused on discretionary items like party supplies and less on essentials.)

GlobalData Retail said its data suggests that Family Dollar won far fewer new customers than Dollar General did during the pandemic and that many of those that it did win are drifting back to the other retailers they frequented before the crisis shut down some stores. Meanwhile, Dollar General said that sales growth three weeks into this quarter is on par with the first quarter and that it still plans to open another 1,000 stores this year.

More must-read retail coverage from Fortune:

• Dollar store chains are the pandemic’s big winners so far
• Walmart’s latest move to build more fashion cred: The resale market
• Why TJX is reemerging stronger from the lockdowns than Ross Stores
• How Chipotle’s past food crises prepared it for the COVID-19 outbreak
• Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
• WATCH: The ugly toll COVID-19 has taken on retail