Why Dollar General Is Opening More Stores In Former Drugstore Real Estate
Dollar General is relying on adaptive reuse for more store openings -- especially of former Rite Aid drugstore buildings
Dollar General DG 0.00%↑ plans to open over 600 new and relocated stores in 2025.
While many will be developed via new ground-up construction, others will be the product of adaptive reuse and re-tenanting of vacant buildings.
Including of one property type in particular:
Former drugstores.
Hundreds of former Rite Aid, CVS and Walgreens properties have been repurposed as dollar stores over the past decade — and many more are on the way.
Drugstore-to-dollar store conversions have been accelerating since Rite Aid closed ~800 stores in 2024 while in bankruptcy.
~2/3 of Rite Aid’s store closings were clustered in just three states: Pennsylvania, Ohio and Michigan.
Which, not surprisingly, is where many Rite Aid-to-Dollar General conversions recently opened or are in development.
Dollar General is opening stores this year in at least 5 former Rite Aid stores in Pennsylvania, including sites in Fairview Township, Hazelwood, Mechanicsburg, New Cumberland and Silver Spring Township.
New Dollar General stores are also taking the place of former Rite Aid sites in Shelby, Ohio and Bay City, Michigan.
The Bay City, Michigan conversion was to DG Market, an expanded Dollar General store format that offers meats, fruits and vegetables in addition to general merchandise and non-perishable consumables.
Why has Dollar General leaned into adaptive reuse and the re-tenanting of vacated drugstores rather than new construction?
Cost, time to occupancy and site access are likely the biggest reasons.
High interest rates, increased building costs and challenges to obtain permits are making new store construction quite challenging for developers.
To build a new store for Dollar General, Developers must first acquire land, obtain site plan approval and building permits, construct the pre-engineered metal building mandated by the Company and turn the finished building over to Dollar General for interior work.
In return they generally receive a 15 year lease, often at a low fixed annual rent, with Dollar General on the hook for buildout and site expenses.
But the costs of land acquisition, construction and interest expense have all increased in recent years — and all while many real estate values have simultaneously declined.
These factors can often turn what may have been marginally profitable projects for many developers into deals where they could even lose money.
As a result, many developers have passed on starting new Dollar General projects which has reduced the Company’s pipeline of new construction stores.
Access to sites is another key advantage of drugstore adaptive reuse.
Not only is the building already constructed, but the former drugstore also has a built-in customer and revenue base available to Dollar General.
In fact Dollar General CEO Todd Vasos noted on the Company’s Q4 2024 earnings call that drugstores are its “largest share donor” for its gains in the consumables category.
A reuse of a vacant property is also typically appealing to municipalities.
Which is important since Dollar General is not always met with a warm welcome in many 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 also 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 just last month Dollar Tree acquired the designation rights for 148 leases for stores that Party City closed this year while in bankruptcy.
The bottom line?
As Dollar General continues to add and relocate stores, expect the Company to lean into adaptive reuse — particularly of former drugstore properties.
These projects will likely lead to reduced store development costs for Dollar General, a faster pace of new store opening and better access to sites.