Dollar General expands stores in South Dakota
Dollar General expands stores in South Dakota
By PATRICK ANDERSON
Aug. 06, 2018
HOWARD, S.D. (AP) — Rick Hiltunen recognized a shopper as he popped out of the back offices into the store.
The man was already chatting with Hiltunen's dad, about an old card game from years past.
Hiltunen, 60, grew up in aisles of Rusty's Food Store, named for his father. When Rusty ran the store, Hiltunen stocked shelves, carried food out to cars and learned to always respect and cherish the relationship with customers — the people of Howard and surrounding towns and farms who would come, order meat at its butcher counter, pull milk from its coolers and bag fresh veggies at its produce section.
Customer service. It's Rusty's biggest advantage in a new kind of marketplace, Hiltunen said. And it's one of the first things Hiltunen discusses when he talks about competing with the newly opened Dollar General, just down Hwy. 34 from Howard's only grocery store.
"I'll be honest, I was very concerned about it," Rick said.
Rural South Dakota is experiencing the rise of Dollar General as the company opens stores in some of the state's smallest communities. The proliferation of stores in South Dakota is part of an aggressive growth plan from the top executives of the Tennessee-based corporation, the Argus Leader reported.
The company's leadership is targeting rural America, hoping to reach more customers who earn less than the median income.
Dollar General representatives did not respond to an interview request for this story.
A slide from a 2016 presentation by Dollar General CEO Todd Vasos about the company's 2020 Vision strategy. (Photo: Screen capture / Dollar General)
The number of Dollar Generals in South Dakota has tripled in recent years and will likely continue to climb as the publicly traded corporation follows its aggressive growth plan.
Dollar General is no longer a dollar store. Most of its products, while affordable, cost more than $1. The company's rural South Dakota locations feel more like mini-department stores. They sell nonperishable food items — including candy, soda and canned goods — and dairy products next to aisles filled with clothes, cleaning supplies, DVDs and CDs, lawn care products and hardware.
The corporation added more than 1,000 locations nationally last year. Included in its recent conquests are newly opened or planned locations in Howard, Wessington Springs, Custer, Garretson, Colton, Wagner, Lake Norden, Sisseton, Eureka and Summerset.
Behind most of the newly opened Dollar Generals in South Dakota is Colby Capital.
The Nebraska-based developer scouts out small towns, then helps with land acquisition and development. Colby representatives map out each town, pick possible locations for a store and then file the necessary paperwork with local officials.
Tyler Oliver, Colby's founder, did not respond to an interview request for this story.
Dollar General doesn't own the property. It goes to investors, and the retail giant only leases the space.
Once Dollar General picks a town for its next location, local business owners and city officials can do little to stop the chain from becoming a neighbor.
If Dollar General can't find a spot in city limits, Colby picks a location nearby on county land.
A store still opens, except it doesn't contribute any sales tax back to the community it serves until the land is annexed.
Before Dollar General opened in Wessington Springs in the fall, mayor Melissa Mebius called for an open forum to give the public a chance to share their concerns about the new arrival.
Mebius hosted the event with one caveat: Dollar General was coming no matter what. The company filed the permits it needed to file and it fell to the city to either take or lose the potential revenue from sales tax.
"Once they say they're coming to your town, they're either going to find a location in your town or right outside your city limits," Mebius said.
Discussion lasted for more than an hour. Wessington Springs residents voiced warnings about Dollar General and how the new store would draw dollars away from local business owners, including the town's grocery and hardware stores.
The biggest concern for smaller retailers who compete with Dollar General is lost business because of an inability to compete with the national chain's prices.
Running an independent grocery store means paying for high overhead costs and trying to keep the door open with low-margins. Tony Bosch co-owns several Sunshine Food stores in and around the Sioux Falls area.
A good number of Sunshine locations in the area are competing with national discount chains, Bosch said. Commuters used to stop by the Sunshine in Brandon to pick up groceries on their way home, but some of that business has slowed since Dollar General opened a Garretson location last year, Bosch said.
"It's a dog fight out there," Bosch said.
Before Dollar General arrived, Hiltunen expected his grocery store in Howard to lose between 5 and 20 percent in gross sales. That's what happened to other stores he called in the region while trying to prepare for the chain's arrival.
He knew some of his shoppers would check out the new store.
"The new kid comes into town and everybody wants to go and talk to him," Rick said. "I understand that that's the way it is."
For stores that serve as many as 14,000 people a week, each dollar lost adds up, Bosch said.
"That seems to be what they're going after is the independent grocer," Bosch said.
Dollar General executives laid out plans in 2016 that would set the stage for the company's fast growth across rural South Dakota.
At the time, the chain had already amassed more than 12,000 locations across the United States. Executives outlined more than 13,000 locations for additional stores. A map showing Dollar General's long-term growth plan shows a cluster of dots in South Dakota, especially in the southeastern corner of the state.
In South Dakota, Dollar General has favored some of the state's smallest communities for its most recent growth spurt. Expansion in small towns and farming communities is part of an effort to capitalize on what Dollar General executives describe as the company's core shoppers.
Executive Vice President Jim Thorpe divided Dollar General's core shoppers into two buckets.
The first group, which is fading, includes thrifty shoppers making close to the median income.
Company executives recognized an opportunity to shift focus to a second group of core shoppers: People who live closer to the poverty line and shopped at Dollar General stores out of necessity. Thorpe called these shoppers the company's "best friends forever" in a 2016 presentation. By his description, Dollar General's most important customers were living paycheck-to-paycheck and relied on government assistance.
About one in three Dollar General shoppers is a so-called "BFF," but these same customers are responsible for two-thirds of total sales, according to the report.
A slide from a presentation by Jim Thorpe, Dollar General's executive vice president. (Photo: Screen capture / Dollar General)
Howard Mayor Don Arens shops at the new Dollar General. It's convenient, he said, and it prevents Howard residents from having to drive to Mitchell or Madison for items otherwise not available in town.
"If you need something, you run out there and grab it," he said.
Howard officials were quick to annex in the site of the Dollar General after it opened just outside city limits.
Massive discount retailers such as Dollar General compete with locally owned businesses, but they can also come with a number of economic benefits for a community.
Dollar General stores bring with them jobs, a more diverse tax base and the potential for future growth, said Nick Fosheim, executive director of the Minnehaha and Lincoln counties' Economic Development Associations.
Fosheim works with 14 communities in Sioux Falls area, supporting economic development and job growth.
"Maybe the other way to think about it too is they really are sort of planting the flag," Fosheim said.
Not all South Dakota towns have a local grocer. Colton's last grocery store closed four years ago. City officials celebrated the arrival of Dollar General in December.
Even if there is an independent grocery store, big discount chains often have a broader scope of products for sale.
And Dollar General is open for longer hours than many small-town businesses. The lights beyond its windowed entryway stay on into the evening on weekdays and on Sunday.
Since Dollar Generals opened in Howard and Wessington Spring, both municipalities are also benefiting from another economic ripple effect: A boost in sales tax.
That tax was the main reason why Mebius knew she would approve the Dollar General's plans to build in Wessington Springs. It was either that or risk the chain opening a store right next to town, just outside of city limits.
When it came time to finalize the building permit, Mebius signed the document herself.
"I wanted to be very transparent with the community," she said. "This is their community and I just wanted to let them know what was going on and this is going to be proceeding."
Information from: Argus Leader, http://www.argusleader.com