Why are there no grocery stores in poor neighborhoods?

by on November 16, 2007 at 10:02 am in Food and Drink | Permalink

Well, there are some, you will find Ralph’s all over Los Angeles.  But why aren’t there more?  (This query is posed here, here, and here, among other places.)  Factor #1 in my view is lack of cars.  Living in an inner city has its downsides, to say the least, but at least you don’t have to buy a car.  Yet the modern grocery store is designed for car transport, both how you get there and how you get the groceries away and of course the radius of advertising.  With fewer cars per capita the tendency is for smaller, more local stores, which is precisely what we see in poor neighborhoods.  Not surprisingly poor people are most likely to have cars in LA, and thus most likely to have grocery stores there as well.  For that matter real grocery stores are not all that common in wealthy but relatively carless parts of major cities, such as Manhattan.

Crime is surely a factor as well, what do you all think and what other natural experiments come to mind?

1 BlogReader November 16, 2007 at 10:41 am

Grocery stores tend to be much larger than a typical store and the price of real estate is high when you don’t have many options vs the suburbs where you could build anywhere and have people drive to it.

The flip side to this is the various grocery delivery services (Amazon Fresh comes to mind, the various local grocery stores are trying it out as well) can only really work in dense urban areas.

Seattle’s going to get a grocery store downtown which hasn’t had one in over 25 years. There is a Ralph’s (small) and the Pike Place Market (kinda fun). A Whole Foods moved in just north of downtown as well.

2 ALB November 16, 2007 at 10:47 am

In the Hyde Park neighborhood of Chicago–the UofC’s relatively prosperous neighborhood, surrounded by poor neighborhoods–the answer may soon turn out to be “incompetent management on the part of the grocery co-op board.” See ChiTrib here.

3 Mo November 16, 2007 at 10:48 am

There are tons of grocery stores where I live in Manhattan. They’re smaller than the suburban ones, but there are two within a block of me in each direction. They just happen to deliver to get over the carless problem.

4 justin November 16, 2007 at 10:52 am

It’s interesting to see the effects on pricing that having fewer grocery stores in poor neighborhoods creates. With less substitutes grocery stores are able to actually charge more per item in poor areas. This seems like it would create a big incentive for competition to come in and absorb the above normal profit. The reason it doesn’t I think has to do with crime. Crime is worked into the store’s costs.

5 D. Barnes November 16, 2007 at 11:00 am

1. Mo, hate to break it to you, but there aren’t any parts of Manhattan that count as a gritty inner city any more.

2. The outer parts of Brooklyn, however, like East New York, do, and are woefully underserved by grocery stores.

3. Supporting the car theory: there’s a large Pathmark grocery store with a decent selection of food and decent prices at Atlantic & Flatbush. It’s on top of a large subway interchange that connects out to the outer parts of the borough, like East New York. It’s the busiest grocery store I’ve ever seen – and there’s always a huge scrum of gypsy cabs and livery vehicles outside, to take people home with what are often monumentally huge grocery purchases.

6 D. Barnes November 16, 2007 at 11:20 am

Mo, you’re right, my apologies. We’re in violent agreement.

7 Acad Ronin November 16, 2007 at 11:26 am

I lived in central Tokyo (within the Yamanote line) for a number of years. There shopping appeared to be built around foot and car, and shops were small, though some were small supermarkets. Homes were small also, so individuals in effect stored their food in local shops, dropping by every day or so to replenish their larders. Much of this seems analogous to the pattern in older US cities. In addition, until the passage of the Large Scale Store Act, the small retailers in Japan had effectively blocked the creation of larger shops. This too has its parallels in the US with some cities apparently trying to block the entry of Walmart.

8 Jarick November 16, 2007 at 11:43 am

It’s not just ownership of cars, it’s parking. Nowhere to park and it’s a hassle to drive downtown anyway.

Mostly what I see are a bunch of small independent “markets” that carry a limited selection of foods. Oftentimes, they will cater to the population (Hispanic, Asian, Middle East, etc).

Another thing I notice, the more rural the area, the larger the store. Out in the country, you have the massive Wal-Mart with the grocery store. Suburbs, you have the chain grocers (revenue maximizers) along with your “high end” grocers (product differentiation). Uptown, you have the boutique grocers with limited parking and building space. Downtown, it’s the corner market stores the size of a gas station with no parking.

Probably a correlation between many factors, most of which I’m assuming will be availability/price of land.

9 eric November 16, 2007 at 11:51 am

The last of the big box grocery chains left Detroit last summer. Too much ‘slippage’, ie, theft, and ‘difficulty in staffing’. The main problems in poor neighborhoods are due to poor people, not the other way around.

see:
http://www.detnews.com/apps/pbcs.dll/article?AID=/20070705/METRO/707050349

10 GreatZamfir November 16, 2007 at 12:02 pm

Just to add a data point: I never heard about this here in the Netherlands, and as far as I can tell the poor areas in my city have no specific lack of supermarkets. This might be a Dutch phenomenon (people here use bikes to go supermarkets, the rich even more than the poor), but I used to live in UK in the poorest part of the city, and there were more supermarkets han I ever saw in Holland, ranging from miniature Pakistani shops to a 50-checkout-desks Tesco’s and a Lidl. ( The Lidl is, just like the Aldi, a German low-cost supermarket concept aimed squarely at poor people)

If there are no grocery shops in your poor areas, where do people shop?

11 Thelonious_Nick November 16, 2007 at 12:09 pm

When I lived in Nashville in mid-1990s, I had an Arabic friend who had recently opened a small grocery store with a couple of partners in a very poor area. I went to visit him and see his store one day, and in the half-hour I was in the store chatting, he caught a teenage girl shoplifting redhanded. He let her go with a warning that he would tell her mother, who he apparently knew, if he caught her again, but she seemed totally unremorseful. He told me this happened multiple times daily.

12 Grant Gould November 16, 2007 at 12:26 pm

One grocery store manager told me that a prohibitive problem is the cost of plate glass insurance. People expect a grocery store to have a huge amount of glass frontage — indeed, that’s how people recognize grocery stores. Glass insurance rates vary tremendously by neighborhood.

A side effect of this is that people perceive poor neighborhoods as having even fewer such stores than they do, because what stores there are have atypical storefronts.

13 Floccina November 16, 2007 at 12:49 pm

Do people in these neighborhoods sell groceries from cars trunks? This could also keep grocery stores away as these underground economy marketers would not pay taxes and so could have lower prices.

This is only tangentially related, but a black friend of mine told me that you could buy black market antibiotics in the poor majority black neighborhoods in our city.

14 John Kunze November 16, 2007 at 2:26 pm

Shoplifting is no doubt explains some of it, but labor issues, inventory costs, and low margins are very important. And customer characteristics/preferences also matter.

Harlem has many bodegas as well as fruit/vegetable stores, meat stores, fish stores, stores with only paper towels, soap, and can goods, etc., but supermarkets play a smaller role than elsewhere. Many stores do not earn enough to pay taxes and minimum wages, so they cut where they can. They can get away with skimping where a larger supermarket could not. A small store owner and his family may work 12 hour days for less than minimum wage and some “slippage” often feeds the family. (It would be nice to have solid evidence of this.) Thus smaller firms predominate in the market.

Food stores are generally low margin businesses. Real estate and inventory costs (interest on tied up capital) are the major expenses other than labor. Poor customers are more likely to choose the cheapest brand or product than to pay higher margins at a store that kept more varied inventoy. There are Manhatten supermarkets with 15 types of milk in 3-4 sizes. A bodega will have 3 types in 2-3 sizes, saving on real estate and inventory costs.

Beside fewer cars, poor customers often have smaller refrigerators/freezers and lower opportunity costs of time than those of the middle class. So they make more trips to market in a week and can efficiently split their shopping between several different stores. Bodegas are also able and willing to run a tab for regular customers they know. An owner of a bodega can “know” who to trust better than a supermarket clerk.

15 tde November 16, 2007 at 2:38 pm

“Not surprisingly poor people are most likely to have cars in LA, and thus most likely to have grocery stores there as well.”

?

16 Mr. Beefy November 16, 2007 at 3:14 pm

It would suck to be poor or homeless. Why do people choose to be?

As for grocery stores, let them have cake.

17 Aaron Haspel November 16, 2007 at 3:42 pm

Brian (comment #2) and tde (comment #29) are confused about the meaning of “Not surprisingly poor people are most likely to have cars in LA, and thus most likely to have grocery stores there as well.” Tyler, I am sure, is saying that poor LA residents are more likely to have cars, and thus grocery stores, than poor residents of other areas. He isn’t saying poor LA residents are more likely to have cars than other LA residents.

18 ZBicyclist November 16, 2007 at 4:19 pm

Supermarket operators such as Aldi seem to do well in low-income areas. This is likely because they have optimized their format:

1. Move into vacant existing storefronts, possibly closed supermarkets.

2. Fight cart theft by charging a 25 cent deposit for a cart.

3. Small number of SKU’s, EDLP format (saves ads and labor for price changes), relentlessly low price point (relative AND absolute).

4. Generally 2 employees: 1 mostly checks, 1 mostly stocks.

5. Charge for bags so people bring their own.

6. No phone in the store — employees don’t waste time, $0 phone bills.

(etc.)

If you are standard supermarket chain you are none of these things and you are competing with a format which is optimized for a different set of circumstances.

Chains like this fly under the radar. There are NINE Aldi supermarkets within 5 files of the University of Chicago campus, for example, but Hyde Park residents (including my daughter) feel there are no supermarkets — in part because the supermarkets have adapted to the larger (in this case poorer) community.

19 Dan B November 16, 2007 at 4:25 pm

Huh? The blogosphere has recently been discussing this article about the very issue of lack of grocery stores in poor neighborhoods. How did Tyler miss it–

http://www.dallasnews.com/sharedcontent/dws/dn/opinion/viewpoints/stories/DN-berg_15edi.ART.State.Edition1.369033a.html

20 joan November 16, 2007 at 5:03 pm

Supermarkets are designed for large quantity shopping, which requires a car, and if you have a car location is not that important. But for a car to be useful for grocery shopping the store must also have a parking lot, and city neighborhood whether rich or poor the land is expensive, so a store must have a large customer base to justify the cost of a parking lot. If you are going carry what you buy, location near your home is important so lots of small stores serve the needs of residents better. The waterfront area in Jersey city has suburban type malls with supermarkets and large parking lots next to expensive apartment towers that have only recently been developed. A test case would be to see how long this lasts before the parking lots are developed, and whether the supermarkets can survive without the parking.

21 Sam November 16, 2007 at 7:48 pm

I think if Tyler wrote “supermarkets” instead of “grocery stores”, then his comments would be more apt.

There are very few stores I would consider a supermarket in Manhattan, while small grocery stores are pretty plentiful in middown at least, though they seem more like glorified minimarts. Home delivery for a small charge is very common.

A store which might be good for some side discussion are the two Home Depots in Manhattan. There was a story on them in the New York Times about the time the midtown store on 59th opened, about the adaptations Home Depot had to make.

22 shawn November 16, 2007 at 8:18 pm

…i’d always taken Sowell’s point on this, in his basic economics, as the primary reason:

it’s more expensive to run the store with crime (even if you don’t get burglarized, you have to protect against burglary), and with the insanely low profit margin on supermarkets (they make money in volume), it becomes hard to support those extra costs.

23 Chris Meisenzahl November 17, 2007 at 7:34 am

Drs. Williams and Sowell have commented on this before. The price of crime and higher insurance make it not worth it for many would-be entrepreneurs.

24 Yancey Ward November 17, 2007 at 1:37 pm

Like Sam, I also think Tyler has mucked up this discussion by his choice of words. There is clearly a difference between a “grocery store” and a “supermarket”.

The car thesis is solid, in my opinion. If you can’t drive to the market, then you have to be able to walk to it in a reasonable amount of time. This means that the numbers of food outlets has to be much higher than in suburban/rural areas, and thus the size of such markets has to be much smaller. The cost of land/taxes, labor and crime also cut against the larger supermarkets locating in poor, urban environments.

Also, Ned is quite correct in something he said- a large national supermarket/grocery chain would face real PR problems if it charged different prices for goods at closely spaced markets whose only difference was their siting in a poor vs wealthier neighborhood.

25 Craig November 18, 2007 at 11:24 am

There’s not enough money in poor neighborhoods to support large supermarkets. It’s impossible to maintain an expensive business when 75% of your patronage occurs the first week of the month when the Food Stamp cards are recharged and the Welfare checks are mailed.

26 SW November 19, 2007 at 5:27 pm

I do agree that the lack of cars among the lower class that live in poor neighborhoods has something to do with their being no major chain grocery store there. It is inconvenient for people as well as the grocery store to build near poor neighborhoods. I also believe that crime plays a major factor, even if the crime rates are not any higher than the town before and the place just looks run down, the company might back off on its offer. I know where I live; in a small North Carolina town major grocery store chains are prevalent, mainly in the urbanized area of the town. It employs many people that do not have college or high school degrees, upping the county’s employment rate which is overall very good for our economy. I think people also sway toward more of a well known place to do their shopping, where you can get your name brand products that you see on television and not the generic brands (even though much cheaper) that you would find in a local grocery store. Food advertisement is big in America; almost every other commercial you see is about food like Nabisco or Campbell soups. So thinking from a major grocery store chains perspective, wouldn’t you go to a place where you know people can offered your products? And for that matter go to a place where you know your business would make a profit?
Now I also do believe that local grocery stores are good, it might be a way for many entrepreneurs to get their start. Opening up a local grocery store/eatery is also common in places in North Carolina, but it also is harder for them to turn a profit than it would be if a real grocery store would come to town. As for places like Manhattan, it is hard for a grocery store chain to find good land or a market for their supplies. I believe that those are the places that real entrepreneurs can make money, those cities do not want big chains of stores of anytime to come in, it is all about the local people. That’s why it is great to go to New York and get a taste of local color, and then you kind of get the idea of what it is all about.

27 翻译公司 February 25, 2008 at 9:26 am
28 Andrew June 12, 2008 at 11:09 pm

Here in Canada, there are quite a few supermarkets in poor areas. The thing is, the three big supermarket chains each have “discount” brands respectively which sell lower-end merchandise at lower prices and offer fewer services (e.g. you have to pay for bags). Their full-priced brands are generally located in wealthier neighborhoods and their discount brands are located in poorer neighborhoods.

29 ac March 17, 2009 at 4:50 am

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