Why are dollar stores a microcosm for America's shrinkflation problem?

Dollar stores remain one of the most common options for shoppers across the United States, particularly in low-income communities. That's why many raised their eyebrows when Dollar Tree, one of the largest dollar store brands in the nation, announced it was raising the price cap in its stores to $7. 

Dollar Tree executives said in an earnings call that this decision was partially being made because they were seeing higher-income customers frequent their stores, claiming their "fastest-growing demographic is north of $125,000 a year in income." But the price bump also shined a spotlight on another growing factor of dollar stores: shrinkflation. 

Even President Joe Biden has criticized shrinkflation, the practice of downsizing products while keeping prices the same or higher. However, some reports have indicated that dollar stores have become the worst offenders of the practice, even more so than grocery chains. Why is this the case, and why have these stores become a microcosm of America's larger shrinkflation problem? 

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What did the commentators say?

While dollar stores use the allure of single-digit prices to bring customers in, they "actually end up costing customers more in the long run," Sasha Rogelberg said for Fortune. This is especially true for essential products, since "toilet paper, soap, and groceries cost more per unit price at dollar stores than they do as other large retailers."

And despite what Dollar Tree executives said, statistics show the majority of dollar store customers sit in low-income brackets. These customers are "sensitive to the price hikes that are associated with inflation," Brian Numainville, the principal of retail consulting The Feedback Group, said to Fortune. So "instead of raising prices and alienating customers, these retailers opt to cut the size of their products while keeping the prices the same," said Numainville. This allows dollar stores to create the "illusion of a good deal while keeping their profit margins wide."

This shift in pricing marks a noted change from prior years in the economics of dollar stores. Previously, these stores "have done a pretty good job setting themselves as a great price alternative to the Kroger's, Albertsons, and Giant Foods," Gary Guthrie said for Consumer Affairs. But the recent rise in shrinkflation shows that dollar stores "apparently can play this game as well."

The rampant shrinkflation, as in other types of stores, has "resulted in tasty profit margins for both Dollar General and Dollar Tree," Bill Wilson said for Supermarket News. At least three out of four Americans are concerned with shrinkflation, Wilson said, but "many dollar store shoppers are locked into their go-to place for groceries because there are no other options."

Indeed, while simply shopping elsewhere may seem like an obvious solution, customers "already shopping at dollar stores may not have a choice," Rogelberg said for Fortune. The "thousands of dollar stores cropping up across the U.S. may seem like a win for shoppers looking for convenience," but "dollar store expansions have also forced out independent grocers and created food deserts in the areas they occupy." This means that dollar stores, which are "heavily reliant on cash-strapped shoppers with few options," have "little motivation to do away with shrinkflation."

What next? 

Beyond Biden, the government has been working to try and stem the flow of shrinkflation — at dollar stores and beyond. Sen. Bob Casey (D-Pa.) introduced the Shrinkflation Prevention Act this February to "crack down on corporations that deceive consumers by selling smaller sizes of their products without lowering the prices."

Corporations are "shrinking their products without reducing their prices — anyone on a tight budget sees it every time they go to the grocery store," Casey said. Biden has expressed similar sentiments, saying companies are "trying to pull a fast one by shrinking the products little-by-little and hoping you won't notice ... I'm calling on companies to put a stop to this."

The shrinkflation doesn't necessarily appear to be helping to avoid other drastic measures; Dollar Tree and its subsidiary, Family Dollar, announced it will close nearly 1,000 stores in the next few years due to a lackluster 2023. While this may help the company, it is "likely to leave a void for Americans with already limited shopping choices," CNN said.