Is the Dollar Store Surge—and Its Appeal to Budget-Conscious Shoppers—Likely to Last Beyond 2026?

Main Insights

• Following several years of robust expansion, Dollar General announced on Thursday that it anticipates a sharper slowdown in sales growth for the upcoming year than previously projected.

• Reduced SNAP benefits, slower wage increases, and higher fuel costs are all expected to prompt budget-conscious shoppers to cut back on non-essential purchases.

Discount retailers that have thrived as inflation squeezed consumers may now face similar financial pressures themselves this year.

On Thursday, Dollar General (DG) shares declined after the company projected that same-store sales would rise between 2.2% and 2.7% in fiscal 2026—a deceleration from the 3% growth expected in 2025 and slightly below what analysts had anticipated. The company attributed this outlook to ongoing uncertainty, especially regarding consumer spending patterns.

In recent years, dollar stores have seen exceptional growth, fueled by middle- and upper-income shoppers opting for lower-priced retailers as they grappled with high inflation and stagnant incomes. However, Dollar General’s latest guidance has raised concerns that increasing financial strain on its core low-income customers may now outweigh these gains.

Significance of These Trends

Economists have described the recent U.S. economy as "K-shaped," highlighting the widening gap between affluent and lower-income Americans. Many experts caution that the financial stability of wealthier households has distorted economic indicators, masking the hardships faced by many and potentially exaggerating the economy’s overall health.

The challenges confronting lower-income Americans are evident in Dollar General’s performance. According to CEO Todd Vasos, sales of the retailer’s “Value Valley” selection—500 items priced at $1—jumped roughly 18% last quarter, quadruple the company-wide average. “Right now, consumers are focused on value above all else,” Vasos told analysts during the company’s earnings call.

This year, low-income shoppers are contending with multiple obstacles. Experts note that recent reductions to SNAP benefits will leave 4 million Americans with little or no grocery assistance, following last year’s legislative changes.

Additionally, the conflict in Iran has driven up oil and gas prices, further straining Dollar General’s primary customer base. As of Thursday, the national average gas price had increased for the eleventh straight day and now sits over 20% higher than before the war.

UBS analysts noted in a recent report that “as oil prices rise, Dollar General typically sees weaker comparable sales and slimmer profit margins,” since its shoppers are more affected by rising fuel costs than the average consumer.

Additional Context

Not only are expenses climbing for lower-income households, but their wage growth is also lagging. According to Bank of America, after-tax income growth for the bottom third of earners slowed to just 0.6% in February.

In contrast, higher-income Americans are faring much better. The top third of earners saw their wages grow by 4.2% last month, creating a 3.6 percentage point gap—the largest since at least 2015.

This divide extends to consumer confidence as well. The University of Michigan’s Consumer Sentiment Survey showed little change from January to February, as improved outlooks among wealthier and stock-owning households were offset by declining sentiment among lower-income and non-investor groups.