Dollar General StoreThanks to the recession and its long, slow recovery, discount stores are in vogue, and the hottest of the markdown merchants are dollar stores like Family Dollar (FDO), Dollar Tree (DLTR), and Dollar General (DG). Their revenues are exploding, earnings are off the chart, and stock prices are on the rise.

That's good news for investors. But what about everyday shoppers? Are they really getting their money's worth when shopping at these discount stores?

You would think the biggest discounts could be found at dollar stores; it's right there in the name. If it's a dollar it must be cheap, and if it's a dollar it must be a discount.

But a discount is more than just the cost of an item -- it's the amount that item is discounted versus the competition.

A true discount retailer will make less money on each item it sells than its competitors. And this is where dollar stores start to look a lot more expensive than competitors.

For example, for every dollar it sells, Dollar Tree makes $0.35 in profit and $0.067 in net income for owners. At Walmart (WMT), just $0.24 of each sale is profit and only $0.035 ends up in the owner's pocket. So who is the best discounter?

Q1 2012 Sales Growth
Gross Margin
Net Margin
Dollar Tree
Dollar General
Nash Finch
Source: Company earnings releases.

It turns out that grocery stores are actually the most discounted places to shop (although that is skewed somewhat with food's high turnover).

And the least discounted? You read the chart right -- it's dollar stores.

Discount Stuff or Just Cheap Stuff?

Dollar stores tend to carry a lot of off-brand items that cost less to begin with. So in order to do a true apples-to-apples comparison, let's look at the cost of some well-known name-brand products that can be found both at dollar and big-box stores.

I looked up the price for Tide laundry detergent, Planters mixed nuts, and Huggies diapers at both Dollar General and Wal-Mart. These were the first three products I looked up (which you'll have to take my word for) so I'm not picking and choosing winners here, just looking to do an apples-to-apples comparison. What you can see below is that on a per-unit basis, Walmart is significantly cheaper than Dollar General with every one of these products.

Tide Laundry Detergent
Planters Mixed Nuts
Huggies Snug & Dry Diapers, Size 4
Dollar General
$10.95 -- 75 fl. oz
$0.15 per oz
$4.30 -- 8 oz
$0.54 per oz
$19.50 -- 74 count
$0.26 per diaper
$11.97 -- 100 fl oz
$0.12 per oz
$6.48 -- 15 oz
$0.43 per oz
$22.94 -- 98 count
$0.23 per diaper
Walmart discount vs. Dollar General
Source: Company websites

Here's where it gets interesting: Walmart may be cheaper on a per-unit basis, but what is also true in every case is that the price tag on each of these items at Dollar General is less than the price tag of the item at Walmart.

Size matters. Sizing products differently is a trick retailers use to obscure the true cost of their products. And from this small sample it appears that your dollar doesn't go as far at Dollar General, and the retailer makes more money on each dollar you spend.

So be a smarter shopper. Just because a store has "dollar" in its name doesn't mean it's less expensive than the competition. In fact, it's likely that you're paying more at a dollar store than you would at Walmart or Target for the same item. Keep that in mind next time you are looking for a discount. It may just save you some money.

Motley Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool. The Motley Fool owns shares of SUPERVALU. Motley Fool newsletter services have recommended creating a diagonal call position in Walmart Stores and buying calls on SUPERVALU.

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Cel Forgotit

You left out that Dollar Tree has detergent for $1, yielding $0.02 per ounce.

December 17 2013 at 1:52 PM Report abuse rate up rate down Reply

I am typically to bogging I actually appreciate your articles. This article has really peaks my interest. My goal is to bookmark your blog and maintain checking for first time data.

September 17 2013 at 10:23 AM Report abuse rate up rate down Reply

Some people don't have more than $1 to spend - and they need what they need when they need it - they don't have the luxury of saving up to buy bigger quantities

June 28 2012 at 10:42 AM Report abuse +1 rate up rate down Reply
1 reply to jacqueline's comment

When you're comparing an $11 item to a $12 item the "luxury of saving up to buy bigger quantities" argument is invalid.

October 11 2013 at 12:50 AM Report abuse rate up rate down Reply

To truly compare "apples to apples" you should compare the exact same items AND the exact same SIZE packages. Of course you will get a lower unit price if you are buying a larger quantity. The stories comparison is simply not accurate and sort of meaningless. And frankly, I usualy have no interst in buying a 5lb can of tuna, so I like the conevenience and good values I find at Dollar General.
And Dave and Trish are exactly right, they are NOT Dollar stores, more like the old time general stores, but with good prices.

June 28 2012 at 10:33 AM Report abuse rate up rate down Reply
1 reply to tweinman's comment

You clearly don't understand retail then. The reason the author couldn't compare EXACT sizes is because places like Dollar General purposely carry sizes that are a little smaller than other stores so the can sell it for a lower price, so it looks like you are getting a better deal. He wasn't comparing a 5lb can of tuna to a 6 oz. can of tuna, he was comparing a 75 oz jug of Tide to a 100 oz jug of tide. Not really all that different in size if you saw them side by side, and as for the diaper comparison trust me if you need 74 diapers, you'll need 98.

October 11 2013 at 12:56 AM Report abuse +1 rate up rate down Reply

Don't you get it? Have you never been poor? If I have only $11 to spend on laundry detergent, I can't take advantage of the deal at Walmart because their laundry detergent is $12. This example is simplistic, but if I have limited funds, I have to buy the size I can afford that week, which may not be the least expensive size by unit. The only fair comparison would be if Walmart sold the same size product. And never forget the state sales tax. It is higher on higher priced products, even if they are a good deal. So, if I truly have only $11, the detergent needs to sell for around $9.75 in Virginia, to allow for the sales tax.

June 28 2012 at 9:30 AM Report abuse +2 rate up rate down Reply
1 reply to bhahkw's comment

No you don't get it. If you were more concerned with how far your money actually went, you'd realize that spending that extra dollar now could save you $10 over a year. Think of it like this: If you do 1 load of laundry a day and you use 1oz of laundry soap per load, you will have to buy 5 jugs of Tide at Dollar General at $10.95, it would cost you $54.75. If you bought Tide at Walmart you would have to buy 4 jugs at $11.97 that would cost you $47.88. It all adds up and the longer you pay a higher price per unit, the longer you will have "limited funds" and before you go pulling that "have you ever been poor" card out, I make $9/ hour and I'm 40, I've been poor for 40 years.

October 11 2013 at 1:05 AM Report abuse +1 rate up rate down Reply
General Wrath

Just Chinese Trash, not even worth a dollar. Chinese items should have a landfill tax as that is where they end up.

June 28 2012 at 7:01 AM Report abuse +3 rate up rate down Reply

We have a Dollar Tree and a Wal-Mart in our town. I have found items at Wal-Mart that cost nearly $4 that sell for only $1 at Dollar Tree. The Dollar Tree here carries alot of name brand products, bread, chips, cleaning supplies...the same exact brand as Wal-Mart carries that cost over $3 per item. It makes you stop and think...if this tiny little Dollar Tree store can sell these same items for $1, how much of a profit Wal-Mart is making selling the exact same item. You would think that Wal-Mart, since it would be buying more of these items in bulk, would gain a bigger discount from the manufacturers and would pass that savings onto its customers. Instead, Wal-Mart marks the items up more than any other store. I know Wal-Mart execs who say consumers would be surprised, in many instances, the markup is over 5000%. But all stores rip us off. A small bar/pool hall here sells bags of potato chips for $1.59. The staff stated that they buy the bags for 4 cents from the manufacturer. If the manufacturer sells the chips for 4 cents a bag, imagine how LITTLE the FARMER is making for selling the potatoes to the factory....

June 28 2012 at 4:06 AM Report abuse +2 rate up rate down Reply
1 reply to Dixie's comment

I agree, you can often find real bargains at the Dollar store on cleaning products, certain foods etc.. it is really a pick and choose kind of thing. Some foods are cheaper at the grocery store, some at the dollar store. Nothing wrong with the cleaning products, bath products, and make up either! I've seen brand name stuff at our dollar store!

June 28 2012 at 10:08 AM Report abuse rate up rate down Reply
Freddy De Joint

My grandmother use to have a saying about peoples eye growing without really knowing what they want to buy

June 28 2012 at 3:14 AM Report abuse rate up rate down Reply
Mike Williamson

I've never seen anything in a dollar store that wasn't crap. This also applies to WalMart. They do exactly the same thing--odd sizes, odd amounts, rebranded crap, to persuade you it's a deal.

June 28 2012 at 2:17 AM Report abuse +1 rate up rate down Reply

The above article sounded less like a news story & more like an advertisement for Walmart.

June 28 2012 at 12:25 AM Report abuse rate up rate down Reply