Dollar stores – the no-frills discount retailers – were known for catering to the most cash-strapped consumers. These chains expanded rapidly to meet the needs of that demographic, with more than 19,000 Dollar General stores and more than 16,000 Dollar Tree and Family Dollar outlets now in North America.

But now, dollar stores’ demographic is changing, as inflation drives more and more middle-income consumers through their doors. One primary factor behind this trend is U.S. grocery prices, which were up 8.5% from March of 2022.

This emerging trend has led the industry’s two biggest chains – Dollar General (DG) and Dollar Tree (DLTR) – to both announce plans to remodel almost twice as many stores as they will open this year. Dollar General and Dollar Tree will increase the number of refitted stores by 11.4% and 25.6% from last year, respectively.

Both are investing heavily in freezers and coolers to meet growing demand for groceries from U.S. consumers who have shifted more spending from discretionary items to essential items like food.

Dollar General will increase capital spending by 22% this year, to $1.9 billion—about 142% above what it spent in the pre-pandemic fiscal year to January 2020. Dollar Tree is increasing its capital expenditure this year by about 60% to $2 billion, nearly double what it spent in the fiscal year to February 2020.

However, profit margins are lower for groceries than other items, so dollar stores have little incentive to push too far into the terrain of the likes of Walmart (WMT). UBS notes that dollar stores’ operating margins were more than double those of grocery chains last year. So, the number of food items available at dollar stores will be limited.

With that in mind, let’s compare…

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