As more struggling Americans hit the bargain bins to get by, a bidding war is brewing for one of the of the country's biggest deep-discount retailers. The latest move came on Monday, when Dollar General offered to buy Family Dollar Stores for $8.9 billion, hoping not only to break up an agreed-to merger with its rival Dollar Tree but also to strengthen its share of the low-end retail market as traditional retailers like Walmart try to move onto its turf.


It is a view shared by Richard W. Dreiling, Dollar General's chairman and chief executive. "It's fair to say that the economy is creating more of our core customers," he said. "The middle-income customer is getting squeezed."

That has inspired Dollar General and Dollar Tree to expand their empires by pursuing Family Dollar, which started out selling household goods for a dollar more than five decades ago. Now many of its items -- like food products, underwear and home décor -- cost a bit more, though they are still heavily discounted.


Uniting Dollar General and Family Dollar would create a huge retailer in the deep-discount market. Together, the two would have almost 20,000 stores and more than $28 billion in revenue.

Bulking up could also better defend Dollar General against Walmart's efforts to move beyond its bigger-is-better model and into the smaller-store format used by the dollar stores.

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