iStock.com/Althom
March 31, 2025
Are Dollar Tree and Family Dollar Both Better Off On Their Own?
Dollar Tree recently reached an agreement to sell Family Dollar for just over $1 billion, throwing in the towel after acquiring the struggling chain 10 years ago for about $9 billion.
The private equity firms Brigade Capital Management and Macellum Capital Management are partnering to acquire Family Dollar. The deal is expected to close by June.
The Family Dollar acquisition was expected to help Dollar Tree expand its customer reach and reduce costs to better compete against bigger players, including Dollar General, Walmart, and Amazon.
Dollar Tree, which has about 8,900 stores, has more locations in suburban areas and caters to consumers with relatively higher incomes. Family Dollar, with about 7,600 locations, offers a wider range of items, from groceries to cleaning supplies, while catering to lower-income consumers in urban and rural areas. Dollar Tree’s products are priced at $1.25, while Family Dollar offers a wide price range.
Family Dollar has also been underperforming in recent years as its low-income customers have been squeezed by inflation and the end of pandemic-era government aid. The chain’s broader mix also led it to face more price competition than the better-performing Dollar Tree chain.
In 2023, Dollar Tree announced plans to close about 970 underperforming Family Dollar locations. Last June, Dollar Tree announced it was exploring plans to sell Family Dollar.
The separation will allow the Dollar Tree chain to expand and build on the early success it’s having in upgrading stores to handle items priced as high as $7, which is helping extend its customer reach. This past year, Dollar Tree opened 525 stores, including acquiring 170 leases of 99 Cents Only Stores, and it expects to open about 300 in 2025.
Mike Creedon, CEO of Dollar Tree, said on a Mar. 26 analyst call, “Dollar Tree and Family Dollar are two different businesses with limited synergies, and each is at a very different stage of its journey. Separating them will enable each banner to be led and managed by a dedicated team that can focus exclusively on that banner’s distinct needs and on realizing each banner’s full potential. Separating will also enable investors to own a business they value more without also having to own a business they value less or that may not fit in their investment profile It should also make it easier for the market to properly value each business.”
Discussion Questions
Will the Dollar Tree and Family Dollar banners both equally benefit in returning to stand-alone businesses?
What lessons should be gleaned from the failed merger?
Poll
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Dollar Tree is better off without Family Dollar. The merger was a disaster from start to finish. Some $10.4 billion of value was lost in the process – both from the differential between the purchase and sale price, and for the losses accrued by Family Dollar since it was bought.
Dollar Tree was, and still is, a pretty solid business. Family Dollar never was. Stores in suboptimal locations, a portfolio that lacks investment, a creaky supply chain, and a price position that isn’t strong enough to drive loyalty – are all issues Dollar Tree inherited and has failed to resolve.
What the new owners of Family Dollar do to solve these problems remains to be seen. But, being private equity, you can guarantee the focus will be on generating a return, not necessarily on reforming the business for the long term.
As good as this acquisition may have looked on paper, clearly it was not. Dollar Tree paid a huge price for this lark – both in lost investment and management distraction. Dollar Tree is smart to take their lumps and move on. It seems like the best option for both brands now is to carry on separately. Key lesson: don’t get seduced by revenue growth and the promise of synergies that acquisitions like this almost always promise but often don’t deliver.
Your opening line reminds me of the old joke about sports “it looked good on paper… but the game is played on grass”: sub “concrete” (or linoleum) and we’d have a match.
Before I offer up any pearls – pearlets? – of wisdom, let me offer up props to Neil ‘Speedy’ Saunders, who was, once again, the go-to-quote in a wire service story (even if RW wasn’t mentioned, your presence here makes me feel I’m among my “betters”.)
Now back to the “worsers”: I think there are three big lessons here:
(1) hubris can make you imagine doing things you can’t
(2) beware of people who push “synergies” as a reason for merger
(3) the have nots will probably have even less soon.
I think this will make the dollar store world more efficient, because there will be fewer places for underperforming stores to hide; whether that’s “good” or “bad” is open to debate.
Ha! Thank you, Craig! I was up very early the day the sale was announced (I was in Las Vegas for Shoptalk) so managed to quickly respond to a journalist!
You must be a habitually early riser – you’d have thunk?!?! : this is the second or third (or fourth) time I’ve caught your name in a newspaper story.
Family Dollar and Dollar Tree merging never made any sense to me, so I’m not surprised it failed. It was a merger of apples and oranges. In this instance it was a merger between good apples and not-so-good oranges.
A strong focus on offering a variety of products at a single price point has led Dollar Tree to demonstrate consistent growth, resulting in a loyal customer base. In contrast, Family Dollar has had difficulty maintaining profitability due to its broader pricing structure and competition from other discount retailers. Therefore, Dollar Tree may have a better outcome when returning to a stand-alone business than Family Dollar.
This merger failed to meet customer expectations, highlighting the importance of aligning business strategies with customer expectations. The consistent pricing strategy of Dollar Tree resulted in a strong brand identity, while the varied pricing of Family Dollar resulted in customers becoming confused and diluted their loyalty to the company.
The merger also faced challenges in integrating operational efficiencies and cultures, highlighting the necessity of thorough planning and synergy assessments prior to pursuing such corporate initiatives.
Yes.
Just because they are both dollar store formats doesn’t mean the “synergies” added up. Lots of key differences between the two companies that made for incompatibility.
I’ll bet the leaders of the two companies thought there was synergy when they came together ten years ago. It turns out that similar businesses (discounted/low-priced merch) that cater to different demographics don’t have the synergy one might have thought. Because of the different customer incomes and mindsets, they are two very distinct businesses.
The PE firm buying Family Dollar at 10% of what it sold for ten years ago may be a low enough price to take a chance on rebuilding the brand. Focusing on a single market (versus two when Family Dollar and Dollar Tree were under one management/ownership group) will be an advantage.
Like others here, I consider “synergies” to be a trigger word when uttered as an excuse for a merger or acquisition.
Buying 7,000 low performing stores may have seemed like a power move at the time, but the move added complexity without creating value.
Expensive lesson.
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