Dollar General has close to 20,000 stores across the US. Here's how it keeps prices so low.

• More Americans are shopping at discount stores as the cost of goods soars. 
• Dollar General sells items at 20% to 40% less than full-price retailers, with most under $10.
• Its no-frills stores with few staff and limited product assortment help keep costs down.

More Americans are shopping at discount chains as inflation bites and the cost of goods soars. 

Dollar General, one of the best-known discount chains, is growing rapidly and now has more than 19,000 stores across the US.

The chain is known for selling products at 20% to 40% less than drug and grocery stores and keeping most of its prices below $10. Here's how it does so:

It offers a no-frills shopping experience

Dollar General leases – rather than owns – most of its stores, which helps it to keep costs down. Some of these stores are built specifically for the chain by developers, who take on the burden and cost of construction.

Its stores are small — on average 7,400 square feet, while the average Walmart store is 178,000 square feet — and have a bare-bones design: metal shelves, strip lighting, and low-cost signage.

Because of this, they are substantially cheaper to fit out. In 2017, Dollar General said it costs around $250,000 to open a new store; the company would not provide Insider with an updated number. 

Simon Johnstone, senior director of Retail Insights at Kantar, told Insider that by spending less on opening stores than its competitors like Walmart, it has been able to grow its network rapidly and open hundreds of new locations each year.

It is truly a no-frills shopping experience, suitable for the customer who wants to get in, buy what they need, and get out. 

It has a limited selection of products

Dollar General has a smaller selection of products in its stores. It stocks, on average, between 10,000 to 12,000 unique products or SKUs, while a supercenter like Walmart would have around 60,000 SKUs, for example.

Carrying a limited number of items gives Dollar General more buying power with its suppliers as it buys fewer types of products in bulk.

It keeps labor costs down

Dollar General's no-frills stores require less staff to run, therefore keeping labor costs down. This has been a point of contention in the past as workers say they're often overwhelmed and that thinly staffed stores can be more vulnerable to crime. 

Wages are also on the lower side versus competitors. According to a 2021 survey done by the nonprofit think tank, Economic Policy Institute, 92% of Dollar General workers earn less than $15 an hour.

For comparison, 51% of workers earn below $15 at Walmart, 3% at Target, and 48% at Kroger. This data was based on a survey of 20,933 hourly service-sector workers.

It carries private-label goods

Dollar General also stocks a selection of private brand goods. These products are often made specifically for the company, which means it isn't paying for a brand name and has greater control over manufacturing costs to keep its prices low for the consumer. 

It has a limited assortment of groceries, though this is on the rise

Dollar General has historically had a limited grocery assortment in its stores as these products have a shorter shelf life and bring in lower margins. 

However, in recent years, its been upping its role in grocery, seeing the value that these products can have in driving traffic to its stores. Because of this, it launched the DG Fresh initiative, which sought to drive costs down by bringing the distribution of frozen and refrigerated foods in-house. 

Dollar General packages items in small quantities

Instead of selling items in bulk, Dollar General sells small quantities of items to keep the cost of each transaction down.

It might seem like you are getting a better deal as the prices stay below $10, but ultimately, you're likely paying more on a per-ounce or per-item basis. 

Nevertheless, this lower-ticket value serves its core customer well, as they might not necessarily have the disposable income to shop in bulk.

It cuts costs in the supply chain

Dollar General is constantly looking at where it can cut costs in its supply chain.

The company has been expanding its private truck fleet in recent years to reduce its exposure to third-party carrier price fluctuations. In its fourth-quarter earnings call on Thursday, the company said it plans to have more than 2,000 private trucks by the end of 2023. 

Its stores are located predominantly in rural locations

Dollar General's strategy since the early 2000s was to go where Walmart wasn't. The majority of its stores in the US are located in rural and suburban areas, which cost less to run due to lower rent and labor expenses.