It's worse than that. In many cases the dollar stores now get skus of items made for them that are "cheaper" than a sku in Walmart but for a more expensive unit price than Walmart as they shrink the product.

Paying 10 to 20 cents more for an item can still be a better deal than traveling further away to a larger store. The mis-pricing is completely unacceptable, though.

But because these stores exist, they lead to grocery stores no longer existing, because they eat the majority of the profit from grocery stores. This forces people to shop at the dollar stores because it's the only thing nearby. The dollar store model increases prices, reduces consumer choice, and makes us less healthy.

Do they make higher margins?

On particular items, yes. As a whole, no. They have a lot of loss leaders, then rely on being generally overpriced to make that up. Grocery stores also rely on this, but at a larger scale, and when their higher margins dry up, they go out of business.

Dollar stores target grocery stores margin products, to drive them out of business.

I haven't seen that happen, maybe it does in some places.

In my hometown, we had a grocery, but it closed in the earl 90s. They didn't get another on until the lat 00s. It was open a few years, had bare shelves most of the time and convenience store level prices when they did have something. In the late 10s, a Dollar General opened... so far, it has remained open, has much better prices than the previous attempts, and is generally much better stocked. The town hasn't grown in that time. But Dollar General is existing where no one had managed to survive before.

We'll see how it goes long term.

Dollar stores are one of the primary drivers of food deserts. Info on this is a quick google search away, as there's a ton of research around this: https://anderson-review.ucla.edu/how-dollar-stores-contribut...