The Grocery Gap

Supermarkets are slowly returning to the inner city. Some governments are clearing roadblocks to help build stores.
April 2006
Alan Ehrenhalt
By Alan Ehrenhalt  |  Senior Editor

In Brentwood, a rundown old working-class neighborhood a couple of miles north of the U.S. Capitol, two immense grocery stores sit perched on high ground, separated only by a railroad yard and a pair of stadium-sized parking lots. Boxy fortresses, virtually inaccessible on foot and patrolled by uniformed security guards, the Brentwood Giant and Safeway don't exactly evoke memories of the friendly shopkeepers who were plentiful here 40 years ago.

But they are welcome in Brentwood, and they offer a clue to the future of retailing in the tougher precincts of urban America. Slowly, timidly, supermarkets are returning to the inner city. Some are clearly doing well. The big chains don't like to give out data on individual stores, but on a typical Sunday afternoon the lines in the Brentwood Giant can stretch far beyond the checkout counters and into the cavernous aisles. That matches the anecdotal evidence from Boston, where the Stop and Shop in inner-city Dorchester is said to be one of the most profitable in the chain, and from New York, where the huge Pathmark store in Harlem has been so successful that the company opened a second one not far away early last year.

That's the good news. There's bad news, too. For every inner city that is gaining supermarkets, another seems to be losing them. Eleven stores closed in metro Detroit in 2005 alone. Downtown Atlanta--an area that is beginning to attract significant new residential population--lost the one supermarket that had been serving it for the past decade. In Los Angeles, where in the wake of the 1992 riots four large chains promised to open 32 new stores, fewer than half that number had been launched after a decade, and several have gone out of business.

In fact, though, the interesting question isn't why some supermarkets are closing. It's why more aren't opening. The idea that a well- managed store can succeed in the inner city has been commonly accepted by most specialists at least since 1990, when Pathmark went into Newark's Central Ward and began making money almost right away. The conventional wisdom is that the population density of an urban neighborhood can compensate for a lower median income, creating enough purchasing power to sustain the business.

To say there's a demand for the service is a considerable understatement. The absence of supermarkets in inner cities has been painstakingly documented in recent years. By 1992, Chicago had lost half of the 1,000 supermarkets that had served it in 1970. Boston had lost 68 percent. Sprawling Los Angeles, which in 1970 boasted nearly 1,100 supermarkets, was down to fewer than 700 two decades later.

Meanwhile, the opportunities to make easy money by opening new stores in suburban "greenfields" were slowly drying up. Even an affluent suburb full of young families can support only so many outlets. Food industry executives echoed statements such as the one that Todd Turner, of the Food Marketing Institute, made a couple of years ago: "In order to grow your business, you have to find someplace else where competition may not be quite as steep." In short, returning to the city seemed an obvious choice. It still does.

So why has the urban supermarket revival been such a slow, fitful process? The answer the chains often give is a simple one: operating costs. Inner-city stores carry with them an added security expense, they say, as well as some other cost-drivers that most people don't think about. For example, low-income shoppers make more trips to buy fewer products at a time, requiring more employees to serve them.

Those are plausible arguments, but research doesn't seem to bear them out. The most careful study, conducted by the U.S. Department of Agriculture in 1994, concluded that supermarket operating costs were essentially identical in the suburbs and in the inner city. Poor people all over the country were paying a surcharge for frozen dinners and wilted lettuce, but not because inner-city supermarkets were expensive to operate. It was because there were no nearby supermarkets. They were shopping at small mom-and-pop markets and convenience stores, and those really do have higher operating costs.

What's become increasingly clear in the past few years is that the problems of running an urban supermarket aren't a result of things going wrong after the store opens. The issue is the myriad obstacles that stand in the way of getting the store built.

As obvious as the needs are, and as well-documented as the opportunities for profit may be, it takes forever to get an urban supermarket deal done--10 years in the case of the first Pathmark in Newark; nearly as long before Publix opened its doors in the inner- city Atlanta neighborhood of East Lake. One reason is simple bureaucratic clumsiness. "Urban environments have an arcane development process and a lot of companies don't have the stomach for it," says Buzz Roberts, who has run a supermarket assistance program for the nonprofit Local Initiatives Support Corp. "You can do two or three stores in the suburbs in the time it takes to do one in the inner city."

Worse than bureaucratic slowness, however, is the underlying problem of land acquisition. A chain that wants to build a new store in an outer suburb rarely has to do more than deal with a single real estate developer and, at least until relatively recently, a local government that was eager to help. Merely acquiring the inner-city land for a 50,000-square-foot store can sometimes mean negotiation with 25 or 30 individual small property owners, some who are determined to hold out for a big windfall and some who may not want to see the store built in the first place.

All of this raises the question of what government can do about these problems. It obviously shouldn't enter the grocery business; it shouldn't be subsidizing the ongoing operation of the stores. But maybe it can clear up some of the roadblocks that prevent stores from being built.

At least that's what Dwight Evans thought. Evans has been in the Pennsylvania House of Representatives since 1981, representing a low- income district in northwest Philadelphia. His city may have the most dramatic grocery-gap problem in the country. Nationally, the number of supermarkets per capita is 30 percent greater in affluent neighborhoods than in poorer ones; in Philadelphia, a few years ago, it was 156 percent greater. In one study, 51 percent of inner-city residents reported having to leave their neighborhood to buy groceries.

Evans wasn't an expert on grocery stores, but he had a more important virtue: As the senior Democrat on the Appropriations Committee, he knew how to pry money out of the legislative process. In 1994, he pushed through the Fresh Food Financing Initiative, a bill providing $20 million over two years to help make some headway against the grocery gap. He used that appropriation to leverage a commitment of $60 million over a longer period from the Reinvestment Fund, a joint public-private economic development partnership that attracts financing from blue-chip banks and foundations in the Philadelphia area. He contracted with the Food Trust, another foundation-funded nonprofit, to manage the details.

The idea was to put virtually all the money into helping storeowners deal with pre-opening costs and problems. Evans thought that if everything went well, the program might be able to help launch 10 new Philadelphia supermarkets in four years. It's going to do quite a bit more than that. After two years, there are 11 urban supermarket projects underway with FFFI support, and more coming along. "It has exceeded my wildest imagination," Evans says. "It's feeding off itself."

The initiative's first project was a big facility in southwest Philadelphia, opened by Shop-Rite, a New Jersey-based regional chain with 190 stores along the East Coast. But most of the participants are smaller independents such as The Fresh Grocer, a local chain with eight Philadelphia stores and a reputation for being willing to go into any neighborhood where it can surmount the problems of land acquisition and construction. When The Fresh Grocer expressed an interest in going into a tough section of North Philadelphia, FFFI provided $500,000 to get the process moving.

As time goes on, there will be serious questions to ask about the Fresh Food Financing Initiative. Some of the stores will turn out to be bad investments and will fail, leaving the state nothing to show for its money. Others will take public money even though they could have done perfectly well without it. That's the downside of a program such as this.

On the other hand, there's ample evidence that FFFI is changing the city's retail food industry, and it is beginning to have an impact in other places as well. A bill pending in the California legislature would establish a new state agency to make grants similar to the ones being offered in Pennsylvania. Last month, the city of Chicago held a "Grocery Store Expo," in which economic development officials escorted 150 supermarket owners and managers on a daylong citywide tour, showing them available sites and detailing ways the city could help with pre-development costs.

Other cities will try other tactics. Some will fail. Some neighborhoods may just be too depressed these days to support a supermarket. But in the end, market forces will drive the outcome, and the evidence is growing that, little by little, the market is going to lure a crucial form of commerce back to central cities.Nationally, the number of supermarkets per capita is 30 percent greater in affluent neighborhoods than in poorer ones.