Food Deserts

Felix Salmon draws my attention t some recent work by Nathan Berg on the lack of proper grocery stores in poor neighborhoods. As Berg has it, the crux of the matter isn't that executives look at the idea of putting a supermarket in the poor neighborhood and then reject that option. Rather, they rely on the absence of stores in neighborhoods like that as a heuristic and the option never even gets to the analysis stage.

If that's true, of course, then there may be a lot of money sitting on the table for an enterprising sort somewhere to make and the question becomes why nobody's trying to fill that niche.

Comments

well, I'm sure with all your contact from harvard, you can scrape together some VC financing to correct this problem and make yourself a ton of money.

Good luck with that.

I didn't find the op-ed convincing.

Has he ever been to a ghetto grocery store? Sure they save money by paying lower rent (and never cleaning). But the items offered are totally different; people with money buy much more prepared food with high markup. I'm sure that's what is subsidizing the ridiculously low costs on many of the staples as well as making the bulk of the profit margin.

Posted by Preston | November 16, 2007 9:13 AM

what's the one thing poor people don't have a lot of ?

what's the one thing a business needs to survive ?

Posted by cleek | November 16, 2007 9:16 AM

It doesn't help that we spend billions on subsidizing crap that makes high fructose corn syrup cheaper than a salad. The weird thing is that some ghetto grocery stores I've been to have the crappiest staples (fruits, veggies, bread, etc.) and yet have a random sample of heavily marked-up brand name cereals at $5 a box and low-to-mid priced caviar. You never see anyone buy the caviar except for the random middle-aged white lady who comes in every so often from across town when she's lost.

But scenarios like the one MY sketch above are a good reason why the whole libertarian, "Economist"-style argument about there never being $20 on the street being utterly bullshit.

Posted by Reality Man | November 16, 2007 9:21 AM

Having lived in poorly served areas without good stores, I've thought about this question. These are my thoughts, with no data.

I always thought the dynamic of lack of grocery stores in poor urban neighborhoods had to do with cars. Anyone with a car can relatively easily choose among a wide variety of grocery stores. There is little cost to driving a bit further to go to a better store. If you don't have a car, on the other hand, there is a tremendous benefit to going to a nearby store. in general, you either go to a tiny neighborhood store or the closest grocery store. If the closest grocery store isn't very close, you go as rarely as possible.

So, there are several dynamics here. First, in areas where cars are not available, competition is not much of a factor. People go to the closest store. Second, you can't build a grocery store everywhere. Up to a point, the larger the store the better. Big stores rely on a large customer base and there may not be a sufficient number of customers for whom the large store is the most accessible store, even in a densely packed urban environment.

So, its not clear to me that an entrepreneur could find a spot for a good grocery store in a poor urban neighborhood. Such a store would probably only attract nearby customers which may not be enough to sustain the store.

Posted by John Kubie | November 16, 2007 9:24 AM

what's the one thing poor people don't have a lot of ?
what's the one thing a business needs to survive ?

Yeah, that's right, cleek. Poor people don't have much money, so they don't buy any food.

Environmental lead poisoning, ladies and gentlemen. America's unnoticed tragedy.

Posted by ajay | November 16, 2007 9:25 AM

In the Midwest there is a chain called FoodLand which was started by a guy who was once a manager at a mainline grocery store and thought that as the mainliners pulled out of the inner city there must be a market there. They carry around 4000 SKUs (compared to 28,000 for the typical mainline store) and generally only have 1 low-end brand name and 1 generic for each item (that is, two types of cornflakes on the cereal shelf rather than 17). They seem to do OK as a business but I have seen even that chain give up and pull out of some neighborhoods.

Cranky

Posted by Cranky Observer | November 16, 2007 9:55 AM

Actually, I believe Tesco is targeting this niche, more or less, in their US operations. I know that they're going small and looking for neighborhoods that are underserved, although I don't know if they're targeting "poor" neighborhoods per se.

Posted by OhioBoy | November 16, 2007 9:56 AM

Posted by Toady | November 16, 2007 9:59 AM

If that's true, of course, then there may be a lot of money sitting on the table for an enterprising sort somewhere to make and the question becomes why nobody's trying to fill that niche.

Wal-Mart is trying to fill that niche. Regrettably, their efforts to do so are often fought tooth and nail.

Posted by Native Tongue | November 16, 2007 10:00 AM

Poor people don't have much money, so they don't buy any food.

it's a shame i didn't say that... you could've had a real funny one there!

my ZIP code has a median income of $71K. that's more than double the median income of the town where i grew up ($34K). now $34K isn't poor, but guess which town has more and better grocery stores. go on, guess. guess which town has the upscale grocery stores and which has a couple of run-down local chains.

now, is that because people in upstate NY don't buy food, or is it because grocery store chains don't bother putting stores in places where they won't make money ?

Posted by cleek | November 16, 2007 10:02 AM

At least back in the '90s, two factors conspired to prevent supermarkets from opening in urban areas: zoning laws and the political clout of the bodega owners. Matthew is probably too young to remember, but in the 80s, there were no supermarkets at all in Harlem. Pathmark, which had operated in several other urban neighborhoods for year, tried to open a supermarket in Harlem, but that was met by mass protests from the Dominican community, who thought that Pathmark was trying to put the bodegas out of business. Because of the zoning laws, they were able to keep Pathmark out of Harlem for years.

The happy ending to the story is the election of Rudy Giuliani, who not only eased the zoning laws, but also found a partner for Pathmark to work with. And, as a result of Rudy's work, Harlem had its first supermarket in 30 years.

Posted by Al | November 16, 2007 10:13 AM

I believe that Magic Johnson discovered this phenomenon in the movie theatre market and has been extremely successful in opening cineplexes in poorer neighborhoods.

Posted by DH in DC | November 16, 2007 10:26 AM

I have a suspicion that grocery-store economics rests on a complicated mix of operating and capital expenses. Note, e.g., that downtown groceries tend to be small and dirty even in high-rent neighborhoods. On the other hand, supermarkets anchoring run-of-the-mill suburban malls are comparatively huge, clean, and well-stocked.

Posted by MattF | November 16, 2007 10:33 AM

Preston is correct: at suburban mega-grocers, the high-ticket mark-ups subsidize everything else. There's little money in groceries, which is why Wegmans (and others like it) can barely be called a grocery store any more.

Posted by Capser Milquetoast | November 16, 2007 10:33 AM

I personally would love to see Yglesias and Berg running a grocery store in East New York. They are, after all, so much smarter than both the executives of Shop-Rite and the hundreds of immigrants who run stores in my neighborhood.

Posted by y81 | November 16, 2007 10:51 AM

At least in my experience in Philly, grocery stores (and other businesses like movie theatres) also have to take into account security costs. A private developer had to finance an independent movie theatre at a commercial development on Broad Street right next to Temple's campus b/c no national theatre would open up in the space. (There was also a shooting at the theatre the week it opened, so it tells you something about the neighborhood). I imagine the situation is worse with consumer goods stores like markets b/c of the risk of shoplifting. I am sure the cost of proper security is taken into account when deciding on locations.

It also doesn't help when the leadership in a neighborhood is tone deaf and/or not willing to change. In my neighborhood in Fairmount, a coffee shop wanted to open on Girard Ave. But the neighborhood association refused to grant the lease b/c it wasn't in keeping with the character of the neighborhood.

Posted by Civilized Crank | November 16, 2007 11:15 AM

"I believe that Magic Johnson discovered this phenomenon in the movie theatre market and has been extremely successful in opening cineplexes in poorer neighborhoods. "-Posted by DH in DC

Not just cineplexes, but shopping centers anchored by cineplexes. Even so, it is probably an easier problem to solve. People are probably more willing to travel farther and use public transit for movies and non-grocery shopping.

I grew up without a car. I remember taking the bus to the mall for clothes shopping, but walking to the corner store or supermarket.

Posted by Njorl | November 16, 2007 11:15 AM

It's the distribution/logistics costs, which are inordinately high in any urban area but especially so in lower income areas where poor security & highway access et al complicate typical urban problems. Grocery is a low margin/high volume business - poorer areas may not be able to drive volume (yes, lots of underserved shoppers, but low incomes limit total value of each individual's purchases) and the distribution costs certainly kill margins.

I lived on Upper East Side of NY in late 1970s-early 1980s, an upscale neighborhood. And the local Sloan's supermarket was smaller, far more expensive and frankly nastier ("fresh" chicken looked like it had been imported from Australia without the benefit of refrigeration) than the supermarket in Astoria that I used to go to when I lived there in the mid-1970s. Astoria was much lower income (immigrant Greeks, blue collar) but the store had much better highay access and parking for trucks.

Of course, the social Safeway and Whole Foods in Georgetown were the bomb when I lived there in the 1990s. But again, it wasn't just higher incomes, it was also ease of logitical access.

Posted by Gene | November 16, 2007 11:15 AM

Another thought.

Supermarkets sprang to life after WWII, and their terrific success seems to be organized around the car and suburban living. Since then, other than the scanner, there appears to have been little development in grocery shopping. Attempts at internet-based grocery shopping seem to be minor.

What if grocery shopping were re-organized around the urban shopper, with internet the focus and every shopper in mind. Let's permit extreme, jetson-type solutions, and see how far we get.

First, most obviously, you wouldn't need a store, just a warehouse. but, how to make the shopping experience satisfying? Put loads of video cameras around the warehouse so a shopper could examine the goods.

Second, automate the warehouse, so, that, as the shopper shopped, his-or-her shopping cart is literally filled. And, with the video cameras, the shopper could watch the process.

Third, have an efficient delivery system. Deliveries would be made once-daily from central warehouses to apartment buildings. Each apartment would have a delivery stall (in the basement?), much like a mailbox. Deliveries would go to the delivery stall.

The point: I doubt that a young entrepreneur, driving around, searching for good spots for grocery stores really is a solution. We live an age of emergent technology which can serve needs and make life's chores less onerous. Lets see if we can find creative solutions that are truly better than aging paradigms.

Posted by jk | November 16, 2007 11:27 AM

guess which town has the upscale grocery stores and which has a couple of run-down local chains. now, is that because people in upstate NY don't buy food, or is it because grocery store chains don't bother putting stores in places where they won't make money ?

Petitio principii and the excluded middle fallacy in the same sentence. Nice one.

The research suggests that it might be c), neither of the above. It also points out that food spending doesn't tend to decline as fast as income - poor people spend a higher percentage of income on food. Which is as you might expect.
Now, you're talking about luxury chains versus downmarket chains. I'm willing to believe that upmarket stores tend to open in rich areas. But that's not the topic of the research, is it?

Posted by ajay | November 16, 2007 12:06 PM

Is anybody else surprised or disappointed that the headline of this post seems to have the correct spelling of "desert"? I almost assumed it would say "Food Desserts."

Posted by too many steves | November 16, 2007 12:12 PM

I don't think NYC is all that representative of what most urban poor neighborhoods are like in the US. A lot of poor neighborhoods are much more diffuse and spread out, and they don't just have crappy local stores. They have almost no local stores at all. And it's not just grocery stores they lack. It's pretty much everything you can think of. People end up doing their grocery shopping at convenience stores, or the occasional "Mr. Wic" joint, and their "banking" at the local check-cashing outlet.

And contrary to the thoroughly idiotic cleek, poor people do have money and there is a lot of money to be made off of the poor. Just ask the payday loan operators, companies like TitleMax.

In neighborhoods like this you often see various "outreach" centers--storefront charity operations with names like "Light of Hope" and so on. I've felt for a long time that places like this might well do more psychological harm than they do actual good. By placing a "Light of Hope" charity center in the middle of someone's neighborhood, you're saying to the residents that they're basket cases in need of help just to survive.

For years I've thought that some smart, well-funded charity, instead of setting up second-hand clothings stores and so on should instead open up grocery stores and banks in poor areas. These should be run, for all intents and purposes, as for-profit enterprises. But the charitable funding could be there to make sure they don't devolve into ripoff joints (check cashing or beer and lotto stores).

Posted by Rob Mac | November 16, 2007 12:21 PM

I grew up in Baltimoe MD. There were not many good grocery stores. Around 2000 or so Safeway and Giant each built two big beautiful suburban style grocery stores. They are doing great business. I think in Baltimoe it just took them a while to find plots.

Posted by cheflovesbeer | November 16, 2007 12:39 PM

Actually, I believe Tesco is targeting this niche, more or less, in their US operations.

I'd read that it would be closer to the Tesco Metro model, serving the commuter class that works in downtown areas and wants to pick something up on the way home.

Now, there are confluences there, especially in cities with a downtown commuter class alongside a low-income residential class. But Tesco's looking for people who'll buy upscale ready-to-cook meals and bagged salads.

Posted by pseudonymous in nc | November 16, 2007 12:45 PM

"What if grocery shopping were re-organized around the urban shopper, with internet the focus and every shopper in mind."

Nice thought, but 32% of the population has never gone on-line, let alone had regular internet access. This group is likely to be highly represented in the areas least well served by existing supermarkets.

Posted by Njorl | November 16, 2007 1:36 PM

One reason traditionally given is that costs are higher in poorer neighborhoods (fewer high margin items sold, more security costs) and so prices have to be higher. Supermarket chains with stores in wealthier/suburban neighborhoods thus will charge more in poorer neighborhoods and that fact will be easily discoverable. This will bring complaints and political pressure and the result is they close the poorer neighborhood store.

This sounds plausible, and was an argument made in the 70s, IFRC. Whether it is actually true, I do not know.

Another reason might be that supermarket chains only have a few models for doing business, perhaps only one. (For example, they know how to run stores with lots of parking and reasonable high margin item sales.) If an area does not fit their model, they stay away from it. The costs of additional models (in management time, training, ability to move employees about) is too high.

Here are 2 data points: (1) The chins in Manhattan and not (at least do not have the names of) national chains. The grocery business in Manhattan is very different from the grocery business elsewhere. (2) Safeway closed its location in south Berkeley CA and was replaced by The Berkeley Bowl Market which seems to do very well but has a different model. Safeway apparently could not adjust out of its business model in that area.

Posted by David Margolies | November 16, 2007 1:38 PM

Safeway apparently could not adjust out of its business model in that area.

Which is somewhat ironic, because Safeway's HQ are in another nearby city just off the East Bay, and not some remote exotic location where everyone would be unfamiliar with Berkley

Posted by Kenny | November 16, 2007 2:23 PM

The Pete's Fresh Market in Pilsen, Chicago, is the best supermarket I've ever been to, anywhere. It's huge and while there are certainly fewer kinds of gourmet olive oil than at Whole Foods, there is a much larger and more varied selection of produce, meat, ethnic food, etc. The neighborhood isn't desperately poor as a whole but it certainly isn't rich either: 28% below poverty line, median household income $28,000.

Posted by Christopher M | November 16, 2007 2:25 PM

And in a post next week, Mr Yglesias will tie it all together and wonder why there are no grocery stores in that big blue area east of Miami.

Posted by Kolohe | November 16, 2007 2:33 PM

"there may be a lot of money sitting on the table for an enterprising sort somewhere to make and the question becomes why nobody's trying to fill that niche. "

Not as much as you might think. Grocery stores, with the exception of big boys with globalized supply chains, is a low margin, somewhat high risk enterprise. Three things make it difficult:

Logistics (simply getting the product downtown is more expensive than to a big box store in a suburb)

Insurance (if you're in a high(er) crime area your insurance company will make you pay through the nose for it)

Local (usually racial) politics. Sad but true. there is a independent store about 8-10 blocks from me, and black-owned. The large Hispanic community has it's own store a few blocks away from that. I've never seen Hispanics in the former, and never seen blacks in the latter.

Posted by Adam | November 16, 2007 3:17 PM

In 2002, I stopped in at the nice new supermarket near the corner of Florence and Normandie where the 1992 LA riots broke out. Good store, lots of fresh produce, but what struck me was how the bread section was devoted to white bread, compared to how little white bread is bought by white suburbanites these days.

Isn't it about time to retire the "white-bread suburbanite" stereotype?

Posted by Steve Sailer | November 16, 2007 6:54 PM

There is a group of locally-owned grocery stores in the Northeast that focuses on ghetto neighborhoods. It's called C-Town. Perhaps Matt never saw one when he lived in Manhattan. They don't have any stores in the West Village or the Upper East Side. There is one in my town though. I've never set foot in it. I go to the Costco or the Shoprite, or the occasional out of town jaunt to Whole Foods or Trader Joe's.

Pseudomonas is right about Tesco: they are building small, upscale stores here focussed on prepared meals. Sort of like a Whole Foods scaled down to the size of a Trader Joe's.

Posted by Fred | November 16, 2007 9:22 PM

I'd just like to point out to Reality Man that I actually did find a $20 bill literally lying in the middle of the street (not the sidewalk) once. It was in San Marino, one of the wealthiest cities in America.

Posted by Adam Villani | November 17, 2007 5:58 AM