Contributor: Eli Schultz
Dollar General has become a cornerstone for many passive real estate investors, especially those seeking NNN (triple-net) leases backed by an investment grade tenant. With thousands of small-format stores across the country, this discount retail giant offers steady cash flows, minimal landlord obligations, and a resilient business model. This analysis dives deep into Dollar General’s fundamentals and what they mean for NNN investors – from the company’s expansion and financial trends to lease structures, cap rates, and broader market dynamics. In true Forbes-like fashion, we’ll unpack why investment grade Dollar General properties continue to attract strong demand, and how recent economic shifts are impacting valuations.
Steady Growth and Market Position in Discount Retail
Dollar General’s growth over the past decade has been nothing short of prolific. As of early 2024, the company operates roughly 20,000 stores across 48 states – up from about 16,300 stores in 2020. This makes Dollar General one of the most ubiquitous retailers in America, with more U.S. locations than even Starbucks or McDonald’s. The chain’s strategy focuses on small towns and rural communities, which big-box retailers often overlook. In fact, around 70–80% of Dollar General stores are in towns with populations below 20,000. This rural dominance has turned Dollar General into “one of the most profitable businesses in the rural United States,” as noted by analysts. By planting stores where competition is sparse, Dollar General has built a loyal customer base seeking convenient access to low-priced essentials.
Crucially for investors, Dollar General is an investment-grade credit tenant with a solid track record. The company carries a BBB credit rating from S&P, signaling confidence in its ability to meet financial obligations (including rent). Even as economic conditions fluctuate, Dollar General’s value-focused retail model tends to hold up well. During tough times, consumers often “trade down” to discount retailers, a dynamic that boosted dollar store sales during the 2020 pandemic and subsequent inflationary period. Dollar General and its main rivals – Dollar Tree and its Family Dollar subsidiary – together added over 1,300 new stores in 2022 alone, highlighting the sector’s momentum. And while some competitors have hit bumps – for example, 99 Cents Only announced it would shut all 371 stores in 2024, and Family Dollar is closing hundreds of locations – Dollar General continues to expand aggressively. This ability to thrive while others retrench underscores a key point: Dollar General’s market position is resilient, which bodes well for landlords counting on long-term tenancy.
Financial Performance and 2024 Trends
Behind Dollar General’s rapid expansion is a business with large and growing revenue. In fiscal 2019, the company’s annual sales were about $27 billion; by fiscal 2023, net sales had surged to $38.7 billion. This represents compound growth that outpaces many retail peers, driven by new store openings and steady same-store sales increases. The company’s core product mix – a blend of consumables (food, snacks, cleaning supplies), household goods, and seasonal items – generates dependable foot traffic. Approximately 75% of Dollar General’s sales come from everyday necessities like food and hygiene products, which helps insulate it from economic swings. Even during the pandemic and ensuing inflation, Dollar General managed to eke out same-store sales growth as higher customer traffic offset slightly smaller basket sizes.
That said, 2023 proved to be a more challenging year on the bottom line. Rising costs and slim margins led to a notable dip in profitability. Dollar General’s net income for fiscal 2023 was $1.7 billion, down roughly 31% from the prior year’s $2.4 billion. Higher shrink (inventory losses), increased labor expenses, and a shift in sales toward lower-margin consumables all pressured margins. The company also faced higher interest costs on its debt as rates rose, with interest expense jumping more than 50% year-over-year. This profit slump hasn’t shaken Dollar General’s standing as an investment grade tenant, but it has prompted a strategic response from management. Executives rolled out a “Back to Basics” operational plan in late 2023 to tighten cost controls and improve store standards. By Q4 2023, there were signs of operational improvement, though the full turnaround is ongoing.
For NNN investors, a key takeaway is that Dollar General’s financial health remains solid despite short-term headwinds. The company is still comfortably profitable – operating over 19,000 locations with positive cash flow – and continues to invest in growth and store upgrades. Credit analysts have largely maintained the company’s investment-grade rating, reflecting confidence that Dollar General can navigate near-term challenges. In fact, some softness in earnings can reinforce the tenant’s commitment to its real estate – in downturns, retailers like Dollar General double down on driving sales from their stores, which can mean keeping locations open and leases intact even if margins are thinner. The slight dip in performance is worth monitoring, but from a landlord’s perspective, Dollar General’s rent checks are as secure as ever. Their long-term stability is evidenced by decades of continuous expansion and a history of weathering recessions with only minimal scars.
Aggressive Expansion Strategy and Evolving Store Formats
Dollar General’s expansion machine is still in high gear, albeit with a few new twists. In 2023, the company opened 987 new stores and remodeled over 2,000 existing ones – averaging roughly three new store openings per day. For 2024 and 2025, management signaled a slight moderation in new unit growth in favor of upgrading the huge base of existing stores. The plans for fiscal 2025 include about 575 new U.S. stores (down from approximately 730 planned in 2024) and the first-ever international locations, with 15 stores slated for Mexico. At the same time, Dollar General will undertake nearly 4,300 remodels or renovations in 2025, touching over 20% of its store fleet. This massive remodeling campaign, dubbed “Project Elevate,” aims to modernize stores with better layouts, expanded coolers, and fresh produce sections to boost sales. The chain has found that even “lighter touch” remodels can lift sales by refreshing stores that aren’t old enough for a full makeover but could use a facelift.
Part of Dollar General’s strategy is also diversification of its store formats. While the familiar yellow-and-black Dollar General stores (typically around 9,000–10,000 square feet on one-acre lots) remain the staple, the company is experimenting with larger and smaller concepts. DG Market stores, for example, are expanded format locations (often 12,000–16,000 square feet) that carry a broader grocery selection including fresh produce and meats. These have been rolled out in select markets, often by converting or enlarging existing stores, to appeal to customers looking for a fuller one-stop shop. At the other end of the spectrum, DGX stores are a small-format concept (around 3,000–5,000 square feet) designed for urban areas and dense metro centers. DGX stores carry a curated assortment of convenience and snack items tailored to city dwellers. As of late 2024, Dollar General also operates over 200 stores under the pOpshelf brand – a newer concept targeting a higher-income, suburban customer with more seasonal and home décor items (most priced at $5 or less). Notably, many pOpshelf locations are being opened as a “store-within-a-store” inside larger Dollar Generals or as standalone units in suburban shopping centers.
For NNN investors, these expansion moves have two implications. First, the relentless new store openings mean a steady supply of brand-new Dollar General properties coming to market each year. Developers often build these stores to suit Dollar General’s specifications, then sell them to passive investors upon lease commencement. Second, the focus on remodels and new formats indicates Dollar General’s commitment to long-term competitiveness – which helps protect the viability of the tenant. An upgraded store with more coolers for perishables or a new DG Market format, for instance, is likely to draw more traffic and strengthen the location’s performance (making it more likely the tenant will exercise lease renewals down the road). Investors should be mindful, however, of the possibility of store relocations: Dollar General occasionally replaces an older store with a new one nearby (for example, moving to a better intersection or a larger building). In 2023, the company relocated 129 stores. While the vacated sites often get backfilled or repurposed, a relocation can mean a lease not being extended at the original site. Thus, when evaluating an older Dollar General property, it’s wise to check if the company has opened a newer store in the same trade area. Overall, though, Dollar General’s expansion – whether via new stores or format innovation – underscores its growth mindset and reinforces why it’s viewed as a top-tier investment grade tenant in the net lease world.
Landlord-Friendly Lease Structures and Terms
One of the biggest attractions for investors in Dollar General properties is the landlord-friendly lease structure. Nearly all new Dollar General deals are set up as absolute NNN leases with long initial terms, meaning the tenant handles virtually all expenses and the lease runs for many years before expiration. The standard prototype store – a roughly 9,000 square foot building – typically comes with a 15-year base lease term. During this initial term, the landlord’s responsibilities are effectively zero – taxes, insurance, and maintenance (including roof, structure, HVAC, parking lot, etc.) are paid by the tenant. As noted by several net lease brokerage firms, Dollar General has one of the most landlord-friendly leases in the net lease world. This makes owning a Dollar General property about as “hands-off” as it gets in real estate, akin to clipping bond coupons.
Lease renewal options further extend the duration of these investments. It’s common for a Dollar General lease to include several 5-year renewal options beyond the initial term. For example, a 15-year lease might come with four or five 5-year options, which could extend the total occupancy to 35+ years if all options are exercised. Each option is at the tenant’s discretion, but the presence of options indicates the tenant’s interest in potentially staying long-term. Importantly, Dollar General’s leases have historically featured fixed rent escalations tied to these periods. Older Dollar General leases often kept rent flat during the initial term and then provided a 10% rent bump at each 5-year option exercise. However, newer leases have become even more attractive by building in periodic rent increases during the primary term. Many recent 15-year leases include 10% rental increases every five years right from the start. For instance, a lease might have a 10% bump at year 11 of the initial term, followed by additional bumps in each renewal option. These escalations provide a hedge against inflation and give investors some income growth over time – a relatively new improvement compared to a decade ago, when flat 15-year terms were more common. The move to add mid-term bumps reflects the strong demand for these assets: landlords have leverage to insist on rent growth, and Dollar General has been amenable to accommodate investor preferences in order to secure prime real estate deals.
It’s worth noting that not all Dollar General leases are identical. While the prevailing trend is the 15-year absolute NNN structure, some variation exists based on a store’s age or specific deal. Older stores (especially those built or leased in the 2000s and early 2010s) might be under double-net (NN) leases. In those cases, the tenant still pays most operating expenses, but the landlord may retain responsibility for the roof and structure. Additionally, older leases sometimes had shorter initial terms (for example, 10 years) before renewals. Historically, Dollar General did sign 10-year NN leases for some stores, though many of those have since been extended or modified. From an investor’s perspective, a NN lease or a shorter remaining term will usually come with a higher cap rate (i.e., lower price) to account for the additional risk or responsibilities. Savvy buyers often weigh these trade-offs: some intentionally seek “higher yield” Dollar General deals – older stores with 5–10 years left or landlord maintenance obligations – because they can be acquired at a discount and may still offer upside if the tenant renews. Others prefer to pay a premium for “coupon-clipper” deals – brand-new construction, 15-year absolute NNN leases – accepting a lower cap rate in exchange for zero management and a longer guaranteed income stream. In either case, the corporate guarantee behind every Dollar General lease (all stores are corporately operated, not franchised) provides confidence. Even if a particular store’s sales underperform, investors know a $38 billion revenue company stands behind the lease obligation. This combination of a strong guarantor and favorable lease terms is a defining feature of Dollar General NNN investments.
Cap Rates and Valuations: Location, Lease Length, and More
Cap rates for Dollar General NNN properties have seen significant movement over the past few years, reflecting broader market forces as well as deal-specific factors. Historically, dollar stores yielded higher cap rates than many other net-lease retail assets (like pharmacies or fast-food chains), mainly because they were in secondary or rural locations and weren’t always appreciated by institutional investors. It wasn’t uncommon a decade ago to see older Dollar General stores trading at cap rates around 8% or higher in small towns. However, as the company’s performance proved robust and investor demand swelled, cap rates compressed markedly. By mid-2021, the single-tenant dollar store sector hit record-low cap rates – Dollar General leases were averaging around 5.75% at the market’s peak. Ultra-low interest rates and a pandemic-era flight to essential retail drove a buying frenzy. One net lease research report noted that dollar store cap rates fell roughly 87 basis points from 2020 to 2021, reaching an average of about 6.1% across all dollar store brands by Q2 2021. Dollar General, being the lion’s share of that market (over 80% of new dollar store supply), was the primary beneficiary of this cap rate compression. In January 2023, even after interest rates had started rising, market data still showed dollar store cap rates hovering near 6.1% on average thanks to sustained buyer appetite.
Location and lease length play a pivotal role in where a given Dollar General deal falls relative to these averages. Urban or high-traffic suburban locations (which are less common for Dollar General but do exist, especially in growing exurbs or dense parts of the South) tend to command lower cap rates – investors will accept a 5–6% yield for a prime site. Properties in or near major metros, or in fast-growing states like Florida and Texas, often see strong competition among buyers and cap rates on the tighter end of the range. By contrast, rural stores in areas with sparse populations or slow growth are valued with more caution. These might trade in the high-6% to 7%+ cap rate range in today’s market, depending on the lease term remaining. The logic is straightforward: a remote location carries a bit more re-leasing risk if Dollar General ever leaves, so investors demand a higher return to compensate. Actual data bears this out – one commercial broker observed that as store location quality improves from rural to suburban to urban, the cap rate tends to compress and go lower. Every additional year of the remaining lease term also counts in pricing: all else equal, buyers pay more (i.e., a lower cap) for each additional year of guaranteed income. This sensitivity has become more pronounced as financing costs rose; a buyer who needs to secure a loan prefers a longer-term lease to align with debt terms.
To put numbers in context, as of late 2023 into 2024, cap rates have been on the rise after the historic lows of 2021. Market data showed that the average cap rate for dollar store properties rose modestly from about 6.3% to 6.5% during 2023, even as the Federal Reserve held interest rates steady. By the end of 2024, brokers were reporting Dollar General cap rates at or near a 10-year high – roughly the highest since 2013. In practice, this means many Dollar General deals in 2024 were penciling in the high-6% to low-7% cap range, depending on the specifics. For example, an asking cap of around 6.75% for a brand-new 15-year lease was not uncommon, whereas an older store with a shorter remaining term might be marketed at 7.5% or more. Compared to a few years ago, these higher cap rates represent better entry yields for investors – essentially a “reset” to more normalized pricing. Yet relative to alternative investments, Dollar General properties still generally offer a premium yield. Even at 6.5–7%, they yield a bit more than many other single-tenant retail assets of comparable credit. In short, Dollar General cap rates vary by deal, but they consistently provide attractive yield in the net lease space, with nuances based on location and lease profile.
Pricing Trends, Investor Demand, and Returns
The market for Dollar General NNN properties has evolved in tandem with cap rates, reflecting shifts in investor demand and the broader economic climate. During the 2020–2021 boom, Dollar General assets were white-hot. Investor demand for “essential retail” skyrocketed as Dollar General stores stayed open (and busy) throughout COVID lockdowns, reinforcing their reputation as recession-resistant. Properties frequently saw multiple offers from buyers seeking a safe haven for their 1031 exchange capital. The intense competition led to some frothy pricing – it was not unheard of for a brand-new Dollar General to sell at a sub-6% cap in 2021, meaning prices around $2+ million for the typical ~$120k annual rent. One industry report noted that by early 2023 the average sale price for dollar store properties had reached $3.7 million (across all brands), and the sector recorded $5.5 billion in trading volume in the prior 12 months. Dollar General alone accounted for about $1.5 billion of transaction volume in 2022, with an average sale price around $1.9 million per store. These figures underscore how coveted these properties became; many developers and institutional sellers took advantage of low cap rates to unload inventory at high prices, while individuals eager for steady returns snapped them up.
A defining characteristic of that period was how quickly Dollar General deals would trade. Brokers often maintained buyer waitlists. In some instances, if a Dollar General property was openly listed, it could go from listing to a signed contract in a matter of days – sometimes hours – with multiple bids coming in simultaneously. This feverish pace was driven by the scarcity of quality net lease assets under $2 million, a price point perfectly suited for investors executing 1031 exchanges. Dollar General properties filled that niche nicely – they were widely available due to ongoing new builds, yet still in short enough supply relative to demand. Many transactions were completed privately without ever hitting public listings, as developers lined up buyer interest even before construction finished.
Moving into 2023 and 2024, the landscape shifted. The Federal Reserve’s rapid interest rate hikes cooled the red-hot net lease market. As borrowing costs rose, some highly leveraged buyers pulled back, and capitalization rates began to inch upward. For Dollar General properties, this meant a modest pricing reset: higher cap rates translated to slightly lower sale prices on average (or at least slower price growth). For example, an asset that might have fetched a 6.0% cap in late 2021 might trade at closer to a 6.75% cap in late 2024, all else equal. With fewer buyers able to justify the ultra-low yields, transaction volumes declined from their peak. On-market inventory of net lease listings also grew, as sellers adjusted expectations and put more assets on the market. Despite this normalization, investor demand remains fundamentally strong for Dollar General. The buyer pool has perhaps shifted more toward all-cash and low-leverage buyers, who are less sensitive to interest rates. These investors see the current environment as an opportunity to acquire long-term Dollar General leases at yields not seen in years. In other words, a decade-high cap rate can be a double-edged sword: it reflects tighter capital markets, but it also offers new investors a better return on a very reliable tenant.
From a return on investment perspective, a typical Dollar General NNN deal today might yield a current cap rate in the mid-6% range, with the potential for a bit higher yield to maturity if rent escalations are in place. For an investor using little to no debt – a common scenario for 1031 exchange buyers – a 6.5% cap equates to a 6.5% cash yield, which is a solid spread over Treasury bonds or other passive investments. If modest leverage is used, and assuming interest rates stabilize or decline in coming years, the investor could see enhanced returns or price appreciation. It’s worth noting that the total return to an NNN investor includes both the cap rate income and any change in property value over the hold period. Dollar General assets have historically shown strong value retention – and even appreciation – as cap rates compressed over the last decade. While the recent uptick in cap rates has put slight downward pressure on values, many buyers anticipate that if interest rates ease in the future, cap rates could compress again, boosting resale values. In the meantime, investors are collecting rent from a thriving tenant. Furthermore, those built-in 10% rent bumps every five years can improve the yield over time. For instance, a 6.5% initial cap might become approximately 7.15% at the start of year 6 after a 10% rent increase, helping to offset inflation and supporting higher value down the road.
In terms of regional pricing trends, anecdotal evidence suggests that Sunbelt states – particularly in the Southeast and Southwest – see the most aggressive competition for Dollar General deals, partly due to local familiarity with the brand and favorable population growth trends. Midwest and Rust Belt locations, while still highly sellable, may experience cap rates that are slightly 0.1–0.3% higher on average than a comparable deal in a fast-growing state like Florida. However, the differences are not extreme because ultimately the tenant’s credit and lease terms are consistent nationwide. Investors from major markets often purchase Dollar General properties sight-unseen in other regions, equalizing demand across states. The key differentiator is less about geography and more about the specifics of each site and lease. A newer store in a growing area – whether in Georgia or Iowa – will fetch a premium, while an older store in a depopulating area will command a discount. Overall, Dollar General NNN pricing reflects a balance: investors crave the stable, long-term income, but they also account for higher financing costs. The result is an active market that is more rational than the exuberant conditions of 2021.
Broader Net Lease Market Trends and Outlook
Zooming out, the experience of Dollar General NNN properties mirrors the broader net lease sector. Over 2022–2023, as the Federal Reserve raised rates at the fastest pace in decades, cap rates for all net lease retail properties ticked upward after years of compression. By mid-2024, the average cap rate across retail net lease assets was around the mid-6% range, up from the mid-5% levels seen before the rate hikes. This trend aligns with what has been observed in the dollar store segment. However, the relative spread between asset types has remained consistent: investment-grade tenants like Dollar General continue to command lower cap rates (i.e., higher prices) compared to lower-credit or shorter-term leases.
Economic factors continue to influence these dynamics. Concerns about a potential recession or ongoing inflation often boost interest in necessity-based retailers like Dollar General. During economic downturns, consumers shift spending towards discount stores, making Dollar General’s business model relatively recession resistant. During past recessions and the COVID-19 pandemic, Dollar General continued to grow sales and open stores—a feat few retailers can claim. This resiliency is a significant reassurance for property investors who are less likely to face vacancies or defaults when the tenant’s business is built around essential consumer needs.
On the flip side, persistent high inflation and rising labor costs pose challenges. As seen in 2023, higher expenses related to wages, freight, and inventory shrink can compress profitability. Although Dollar General has substantial scale and supply chain efficiency to mitigate these effects, investors remain vigilant about management’s ability to control costs and adapt through measures such as raising prices or enhancing efficiency. A strategic focus on remodeling and optimizing existing stores, as well as a measured pace of new store openings, suggests that Dollar General is keen to maintain a healthy balance sheet and safeguard its long-term prospects.
Interest rates remain a critical factor for the net lease sector. If rates remain elevated for an extended period, cap rates for these assets may also stay higher, with investors factoring financing costs into their return expectations. Many net lease buyers use moderate leverage, often around 50-60% loan-to-value. When debt costs approach or exceed the cap rate, negative leverage can occur, which investors strive to avoid. For example, if commercial mortgage rates for NNN retail are around 6.0–7.0% and a deal is priced at a 6.5% cap, the cash flow margin may be tight. This dynamic has been one of the drivers for the recent rise in cap rates. However, if inflation eases and interest rates stabilize or decline in late 2024 into 2025, buyers could see an opportunity for cap rate compression, thereby boosting property values. Some investors are even positioning themselves to purchase now at higher cap rates, with the expectation of refinancing later under more favorable rate conditions.
A broader trend in real estate investing is the increasing focus on ESG (Environmental, Social, and Governance) factors and social impact. Although its influence on dollar store investments is still emerging, Dollar General has faced criticism for contributing to “food deserts” by undercutting local grocers while not offering fresh produce in all locations. In response, the company has added produce sections to thousands of stores. By 2024, over 5,000 Dollar General locations carried fresh fruits and vegetables to help address food access issues. Such initiatives not only improve community relationships but also enhance store performance, thereby reinforcing the tenant’s long-term viability—a factor that benefits both Dollar General and the investors leasing these properties.
Conclusion
The net lease market is in a period of adjustment, yet assets like Dollar General remain highly compelling. They combine strong tenant credit and a necessity-driven business model with the ease of a triple-net lease, making them attractive for investors seeking stable, long-term income. The current market environment has provided a better entry point for investors, with cap rates rising from record lows and translating to improved yield opportunities. Meanwhile, the foundational qualities that made Dollar General a standout investment grade tenant are intact. Whether you are a seasoned investor or a newcomer to the net lease space, Dollar General properties offer a proven model for reliable cash flow, minimal management obligations, and potential value appreciation as market dynamics evolve. With prudent due diligence—examining lease specifics, location quality, and store condition—passive NNN investors can confidently include Dollar General in their portfolios as a cornerstone of long-term income stability.
