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Can Grocery Stores Serve as Community Anchors?
Above: Philadelphia Mayor Michael Nutter shops at one of the Brown’s Grocery Stores (courtesy of CSMonitor)
We’ve talked at length about the importance of the food cluster. From urban agriculture to kitchen incubators, there are myriad opportunities to use food as a fulcrum for inner city job growth and business development.
Inner city grocery stores are another tool for urban revitalization.
Though often associated with “food deserts” – or geographic areas underserved by traditional supermarkets – grocery stores can have significant impacts on their local communities, far beyond nutritional and health benefits.
In a recent webinar, UpLift Solutions, a nonprofit working within the grocery industry, outlines the economic impact of supermarkets.
First, grocery stores provide hundreds of job opportunities. These markets hire the least-skilled workers and provide on-the-job training. Certainly, the entry-level positions at grocery stores don’t pay the highest of wages, but they offer a starting point for otherwise hard-to-hire residents, such as those who have been unemployed for long periods of time or who have a criminal record. The sheer size of the grocery industry offers significant opportunities for upward mobility. In fact, in some cities, grocery store employees are unionized, ensuring higher wages and benefits.
Second, grocery stores have been shown to increase nearby residential home values by 5-7%. Increased home values mean greater tax revenues for the city. In a city where the residential tax rate is $14 per $1,000 in home values, a $200,000 home would have a tax bill of $2,800. If the property value increases by 7%, the tax bill would increase by $196 per year. While this may not seem like a huge increase to city coffers, when many houses experience an increase in property values, the new revenues over several years begin to accumulate.
Third, grocery stores attract other retail uses to the community. In larger shopping plazas, the grocery store attracts other retail stores. The idea is simple: grocery stores are places where people need to go frequently (unlike, say, a suburban mall). When shoppers go to the grocery store, they are attracted to the nearby retail stores. The retail stores get a boost simply due to the traffic going to and from the grocery store. As they say, a rising tide lifts all boats.
But urban supermarkets aren’t without their problems. As the webinar explained, traditional grocery stores only have a 1% profit margin. If a traditional grocery store were moved from the suburbs to an inner city location, it would experience a 4% loss—or a 5% total gap in profitability. Contrary to popular belief, it’s not theft that leads to lower profits. Instead, a lack of transportation options in inner cities causes people to shop less frequently. Moreover, the shopping pattern of the urban poor works contrary to the way the traditional grocery model is designed: in urban markets, people buy fewer gourmet goods and high-margin items. Finally, the workforce is less prepared, requiring grocery stores to provide on-the-job training. As such, training in inner city neighborhoods costs about 400% more than it does in suburban locations.
So if inner city grocery stores cannot be profitable, how can we get entrepreneurs to develop such markets?
The Grocery Store as a Community Anchor
UpLift suggests a model in which the grocery store acts as an anchor for the neighborhood, providing additional programming and wraparound services for low-income residents.
A grocery store with a bank or credit union inside would benefit from high foot traffic. But the bank could also provide on-site financial literacy programs for grocery employees and shoppers. Education would touch upon topics such as predatory lending and the harms of cash checking services. This model has been implemented in the Brown’s Super Stores chain in Philadelphia with great success. In fact, Brown’s has since been rated one of Philadelphia’s best places to work.
Because grocery stores offer options for healthy, nutritious foods, they have significant health benefits for local residents, such as lower rates of heart disease, obesity and diabetes. While this is important, grocery stores could also work with community health clinics to provide additional services on site, such as nutrition, health and fitness education.
Moreover, providing these additional services allows grocery store operators to access new sources of revenue. The focus on community healthcare is particularly useful in accessing dollars from foundations and larger health networks.
What’s the Public Sector’s Role?
UpLift explains that the burden cannot be put on any one sector for achieving success. While entrepreneurs must be prepared to solve their own problems, there are two major ways the public sector can get involved in inner city grocery store expansion: First, revisit public incentives—many are currently anti-retail. For example, workforce development incentives tend to support high-tech or high-skilled jobs, not grocery store jobs. This effectively creates a permanent underclass, because the worse-off workers are unable to go from no work experience to a high-tech job. There must be middle of the road opportunities.
Second, the public sector should support (i.e. fund) local CDFIs that are willing to lend to urban grocery stores. Traditional banks usually only provide debt financing, whereas CDFIs provide some measure of flexibility (debt and equity financing) to help ensure that high-impact projects are built. CDFIs have proven successful in lending to housing developments, charter schools, and community health centers. CDFIs now have an opportunity to enter the urban grocery store market.
What do you think? Should inner city grocery stores be used as an employment stepping stone for inner city residents? Would the inclusion of additional community services make urban grocery stores more viable?
April 8th, 2013