The Cost To Build A New Dollar General Store Is ~40% Higher Than In 2019; Repurposing Former Rite Aid Drugstores May Be A Better Option For The Retailer
The re-tenanting and adaptive reuse of existing buildings--particularly former Rite Aid drugstores--may be a more cost effective way for Dollar General to develop new stores
Dollar General DG 0.00%↑ CEO Todd Vasos noted on the Company’s Q1 2025 earnings call that its cost to build new stores has increased over 40% since 2019.
That is a big deal — especially since Dollar General plans to open nearly 600 new stores in 2025 alone and perhaps thousands more in the coming years.
Less expensive options do exist for the Company to develop new stores.
Such as via the adaptive reuse and repurposing of vacant buildings.
Like former drugstores.
Hundreds of former Rite Aid, CVS and Walgreens properties have been repurposed as dollar stores over the past decade.
But quite a bit of drugstore real estate sits vacant and awaiting its next use.
Especially after the filing of Rite Aid’s second bankruptcy last month, a move that is expected to result in over 1,000 additional drugstore closures.
Dollar General has already backfilled some of the ~800 stores that Rite Aid closed following its first bankruptcy in 2023.
New Dollar General stores have opened at former Rite Aid sites in Shelby, Ohio, Bay City, Michigan and Algonac, Michigan.
The Bay City and Algonac, Michigan conversions were to DG Market, an expanded Dollar General store format that offers meats, fruits and vegetables in addition to general merchandise and non-perishable consumables.
Dollar General is also opening stores this year in at least 5 former Rite Aid buildings in Pennsylvania, including sites in Fairview Township, Hazelwood, Mechanicsburg, New Cumberland and Silver Spring Township.
More Rite Aid-to-Dollar General conversions in Pennsylvania may be on the way in the coming years as an additional 350 Rite Aid drugstores in the Keystone State are now expected to close in 2025.
Why may Dollar General lean into adaptive reuse and the re-tenanting of vacant drugstores rather than new construction?
Cost, time to occupancy and market share capture are likely the biggest reasons.
Many former drugstores can be acquired below the cost to replace the building.
Additionally, former drugstore properties can be retrofitted as Dollar General stores in a fraction of the cost (and time) it would take for new construction.
Plus many former drugstores come with a built-in customer and revenue base.
Dollar General executives have even acknowledged that drugstores are the Company’s “largest share donor” for its gains in the consumables category.
One other key item in Dollar General’s favor when reusing a vacant property?
It is often a simpler permitting and approval process than new construction — and more appealing to many municipalities.
Which is important since Dollar General is not always met with a warm welcome in communities where it seeks to locate.
More than 75 communities have voted down proposals for new construction Dollar General stores since 2019.
Finally, re-tenanting of a vacant building is the fastest way for Dollar General to open a new store.
For instance, Dollar General opened its new DG Market in Bay City, Michigan less than six months after Rite Aid closed.
At 10,000 - 12,000 square feet, former Rite Aid drugstore sites are larger than the average ~7,500 square foot Dollar General store.
But many of Dollar General’s larger format stores have been the product of adaptive reuse.
Like this conversion of a former restaurant in Elizabethton, Pennsylvania that opened in 2022.
Dollar General is also not the only dollar store operator that is taking over sites vacated by other retailers.
Last year its rival Dollar Tree acquired the designation rights for leases to 170 stores that retailer 99 Cents Only closed after its 2024 bankruptcy.
These former 99 Cents Only sites accounted for roughly 1/4 of Dollar Tree’s 2024 new store openings.
And earlier this year Dollar Tree acquired the designation rights for 148 leases for stores that Party City closed this year while in bankruptcy.
The bottom line?
Dollar General executives did not indicate whether they expect new store development costs to flatten or increase further.
But they do not expect that construction costs will return to 2019 levels.
So as Dollar General adds and relocates thousands of stores in the coming years, expect it to lean into adaptive reuse.
Particularly the repurpose of former Rite Aid buildings and other ex-drugstore properties.
It is likely to be cheaper and faster than new construction and may even result in better-located and more profitable stores.