As the chain opens stores at the rate of three a day across the US, often in the heart of ‘food deserts’, some see Dollar General as an admission that a town is failing

When Dollar General came to Haven, Kansas, it arrived making demands. The fastest-growing retailer in America wanted the taxpayers of the small, struggling Kansas town to pick up part of the tab for building one of its squat, barebones stores that more often resemble a warehouse than a neighbourhood shop.

Dollar General thought Haven’s council should give the company a $72,000 break on its utility bills, equivalent to the cost of running the town’s library and swimming pool for a year, on the promise of jobs and tax revenues. The council blanched but ended up offering half of that amount to bring the low-price outlet to a town that already had a grocery store.

Dollar stores are thriving – but are they ripping off poor people? Read more

“Dollar General are a force. It’s hard to stop a train,” said Mike Alfers, Haven’s then mayor who backed the move. “Obviously there’s been collateral damage. We didn’t expect it. I’m torn but, net-net, I still think it was a good move to bring them in.”

The Dollar General opened in Haven at the end of February 2015. Three years later, the company applied to build a similar store in the neighbouring town of Buhler, a 20-minute drive along a ramrod straight road north through sprawling Kansas farmland.

Buhler’s mayor, Daniel Friesen, watched events unfold in Haven and came to see Dollar General not so much as an opportunity as a diagnosis.

Friesen understood why dying towns with no shops beyond the convenience store at the gas station welcomed Dollar General out of desperation for anything at all, like Burton, just up the road, where the last food shop closed 20 years ago. But Buhler had a high street with grocery and hardware stores, a busy cafe and a clothes shop. It had life.

As Friesen saw it, Dollar General was not only a threat to all that but amounted to admission his town was failing. “It was about retaining the soul of the community. It was about, what kind of town do we want?” he said.

Facebook Twitter Pinterest Buhler, Kansas. Photograph: Kacy Meinecke/The Guardian

Dollar General is opening stores at the rate of three a day across the US. It moves into places not even Walmart will go, targeting rural towns and damaged inner-city neighbourhoods with basic goods at basic prices – a strategy described by a former chief executive of the chain as “we went where they ain’t”.

The chain now has more outlets across the country than McDonald’s has restaurants, and its profits have surged past some of the grand old names of American retail. The company estimates that three-quarters of the population lives within five miles of one of its stores, which stock everything from groceries and household cleaners to clothes and tools.

Not everything is to be had for a dollar, but rarely is anything priced above $10. But there is a cost. Dollar General’s aggressive pricing drives locally owned grocery stores out of business, replacing shelves stocked with fresh fruit, vegetables and meat with the kinds of processed foods underpinning the country’s obesity and diabetes crisis.

Dollar Generals are frequently found at the heart of “food deserts”, defined by the department of agriculture as a rural community where one-third of residents live more than 10 miles from a grocery store selling fresh produce.

We lasted three years and three days after Dollar General opened. Sales dropped and just kept dropping Doug Nech

That was not what bothered Friesen. He saw construction of a Dollar General more as a statement about the health of his town as a whole than any one of its 1,400 residents.

If Dollar General were to be believed, there was a sound economic benefit for Buhler from one of its stores. This time the company didn’t ask the council for money. Instead it sold the promise of prosperity, claiming it would boost the town’s coffers with increased sales tax revenues by encouraging residents to shop locally instead of traveling to distant supermarkets for what they cannot find at the grocery store.

Buhler’s council called two public meetings in March to gauge the mood of residents and invited Doug Nech, owner of neighbouring Haven’s only grocery store, the Foodliner, to speak. Dollar General had driven his shop out of business days earlier.

“We lasted three years and three days after Dollar General opened,” he said. “Sales dropped and just kept dropping. We averaged 225 customers a day before and immediately dropped to about 175. A year ago we were down to 125 a day. Basically we lost 35 to 40% of our sales. I lost a thousand dollars a day in sales in three years.”

The arrival of Dollar General cost the Foodliner hundreds of thousands of dollars over that time. The foremost challenge was price. The chain has the power of scale in negotiating with foodmakers. Nech discovered the store had done a deal with Campbell’s Soup to make a 14.5oz can of chicken noodle soup for $1.50, the price he was paying wholesale for an 11oz can of the same soup.

“Dollar General have buying power. There’s not a lot of competition at the wholesale level so it’s rather difficult and the smaller you are, you pay a higher price for goods whether it’s in delivery costs or volume buying or any number of things,” he said.

Nech calls Dollar General “a cancer” but reserves his anger for Haven’s council for subsidising a hugely profitable corporation to compete against him. He asked the council to cut his shop’s utility bill to $100 a month until the Foodliner received a matching benefit. It refused, saying that Dollar General had taken advantage of a programme to bring in new business while Nech’s was long established.

“It’s the principle that they gave them money to come to town. I’m kind of conservative. I don’t believe in asking government for anything and I damn sure don’t believe in asking the government for anything now,” he said.

Facebook Twitter Pinterest Daniel Friesen in Buhler. Photograph: Kacy Meinecke/The Guardian

Friesen said Nech’s account “scared a lot of people” in Buhler who feared they could lose their own grocery store. The council also took on board what happened in a town an hour north-east of Buhler when a small Walmart moved in, put two grocery stores out of business and then shut down, leaving the town with nothing. “Dollar General, Walmart, any large corporation, doesn’t have the best interests of our community at heart here at all,” said the mayor.

Buhler’s council was not reassured by Dollar General’s attempts to say that it should not even discuss the store and its potential impact at the planning meetings. The company submitted its application through the developer assigned to build the outlet. The developer sought a change of use for the land from agricultural to retail without specifying what kind of shop it planned to construct. Friesen said Dollar General did not want its name brought up during the council’s deliberations.

“Dollar General were saying this wasn’t an application for a Dollar General, it was an application for a retail store. It could be anything. It could be a clothing store. They didn’t want us to consider some significant issues such as local economic impact,” he said.

The council asked an expert on the impact of cut-price stores from Kansas State University to address the public meeting. David Procter laid out the ways independently owned family businesses generally benefit small communities. “On the average there are about 15 employees in these small grocery stores and Dollar General stores might have five employees. Profits from small-town grocery stores are generally going to stay in that town whereas profits made by Dollar General, a significant percentage of them anyway, are going to the corporate office in Tennessee,” he said.

Procter said many local grocery stores also serve as community gathering places, some of them with delis and seating areas where people have lunch, and offer services such as home delivery for the elderly or infirm. Dollar General, which tends to build spartan shops on the edge of towns to catch passing traffic on main roads, does none of these.

“Grocery stores give more back to the community. They are much more likely to support local sporting teams, local faith-based organisations. Dollar General corporate policy sets a pretty strict limit on how much community giving they provide,” said Procter.

Some at the public meeting spoke up in favour of the chain. They liked its long opening hours – most of Buhler’s shops are closed on a Sunday – and cheaper prices. But the sentiment was overwhelmingly against the store and an informal online poll of the town’s residents came out two to one in opposition. Some people didn’t want an ugly building as the gateway to the town.

A retirement community next to the planned site objected. In the end, people in Buhler decided that although the grocery and hardware stores might cost a little more they were prepared to pay a premium to preserve their community. Buhler has a large brown and yellow sign on the main road into town. It features a cross with an open book suggestive of a Bible. On one page is written “traditional values” and on the other “progressive ideas”.

“There were some who said this is not very progressive to deny a new retail development in the community,” said Friesen. “But there was agreement in the city council that the more progressive thing is to not do what every small community in Kansas seems like it’s doing, just begging for a national retail chain to come in.”

Facebook Twitter Pinterest Burton, Kansas, where the last food shop closed 20 years ago. Photograph: Kacy Meinecke/The Guardian

Days after Nech was driven out of business in Haven, Buhler’s council voted unanimously to reject Dollar General. The company’s developer was not pleased. “I wasn’t terribly impressed. They stormed out. They were pretty hot about it,” said Friesen.

In Haven, the former mayor Mike Alfers conceded that the promised financial advantage of Dollar General has largely been lost with the closure of the Foodliner. It is now a fitness centre, with the old grocery store sign still hanging outside. Sales tax revenue for the town rose by more than $60,000 between the years before and after the Dollar General opened. But the Foodliner alone was collecting around $75,000 a year in sales tax which is now gone.

On top of that, Nech paid an annual electricity bill of $37,000, which the city made money on, plus there was the break the council gave Dollar General on its utility bills. It remains to be seen how much business will transfer from the defunct grocery store to the Dollar General but the end result is the Haven’s main street is finding it even more of a struggle to survive with the diminished flow of people to pick up groceries.

For all that, while Alfers feels sympathy for Nech, he said the Dollar General is the future. “The Model-T put horses out of business. It’s hard to protect existing businesses,” he said. “I would still vote for Dollar General. If one state didn’t accept the Model-T it wouldn’t have changed the outcome. I think Buhler voted their sentiment. The question is, in five years will they have a Dollar General or something similar?”

The owner of Buhler’s grocery store, JC Keith, is acutely aware that seeing off Dollar General is not the only challenge. With decent paying jobs increasingly scarce in rural Kansas, a good part of the population of Buhler and Haven work in large towns with ready access to a range of rivals from Walmart to farmers markets. It’s easier for residents of what have become bedroom communities to stop at a major store on the way home from work and only use the local grocery shop for last-minute supplies such as milk.

“A majority of people in Buhler that work, work somewhere else,” said Keith, who is also a long-distance truck driver. “Chances are they drive right by some chain store on their way home.”

The threat from Dollar General prompted Keith to evaluate his way of doing business. He was already in the process of building a larger shop just down the road from the existing one, but now it will incorporate hot foods such as chicken and a salad bar. It will also open later.

For all his support for building the Dollar General in Haven, Alfers rarely shops there and regrets the loss of the Foodliner. “It makes a lot of difference to me. I shopped a lot at Foodliner,” he said. “Now I have a hard time time shopping at Dollar General. I like to cook. I like food items and spices you can’t get at Dollar General. I’m less loyal to any one store these days.”

Haven’s residents now have to travel out of town to find fresh food, although many do that for work in any case. The more immediate impact has been on those who are less mobile, like the elderly. The Centers for Disease Control and Prevention calculates that about a quarter of the population is unable to buy healthy food nearby. Dollar Generals are frequently to be found in those areas and some studies have made a direct link between the rise of dollar stores and unhealthy eating. But it is not that straightforward. Megan Rinehart worked at Nech’s Foodliner for six years.

“This isn’t a rich town. A lot of our customers bought not healthy stuff. They leaned towards what was fast and cheap. We had a pretty good selection of fresh produce. It was a matter of if they could afford it,” she said.

Food apartheid: the root of the problem with America's groceries Read more

An agriculture department study found that many of those on low income and reliant on food stamps were more likely to decide where to shop based on price than where the nearest store is. They drive past a grocery store to a Dollar General.

Alfers thinks Buhler will struggle to stave off the cut-price chain store because it is the future. Doug Nech is not so sure. He owned the Foodliner alongside a job travelling a dozen states as a church pew cushion salesman. Nech has seen the impact across the midwest of the store that put his own out of business. He views Dollar General as a juggernaut but that does not mean he thinks it’s invincible.

“Dollar General is building just as fast as it can. Nebraska. The Dakotas. You see it,” he said. “But somewhere down the line, as these small towns dry up, business for Dollar General is going to dry up just like it does for a grocery store. If there’s nobody new coming to town and your older population is dying off and they’re not getting replaced very quickly, who are they going to sell to?”