July 25, 2007
A Tale of One Grocery Co. and Two Cities
Kroger is opening a Ralphs in downtown Los Angeles. It will be the first new
grocery store opening up in that part of the city in 57 years.
Kroger is not opening a new store in Detroit and it appears that neither tax
incentives nor political bullying is likely to get the chain to build in the
city that it left three years back.
Why does the company believe it is worth taking a chance on one inner city
location while steering clear of another?
According to the Los Angeles Times, the area where Ralphs is located
has been revitalized with upscale bars, eateries and new hotels. The chain
is following the upscale trend with its own high-end Fresh Fare format.
Reportedly, Ralphs was surprised to see more than 1,000 people on hand when
the store opened its doors to the public for the very first time.
Back in Motown, there is no such joy as locals struggle to understand why
Kroger bought 20 Farmer Jack stores recently but none were within Detroit’s
city limits.
Sam Riddle, chief of staff to Detroit councilwoman Monica Conyers, told The
Detroit News, "This is no mystery to us. This chain has systematically
and consciously avoided the city of Detroit, and when you look at the demographics,
it shows potential institutional racism at the corporate level."
Ms. Conyers, who is the wife of Congressman John Conyers, met last week with
Dale Hollandsworth, manager of integrated communications at Kroger, to discuss
incentives Detroit might offer to get the grocery chain to open a new location
inside the city. The councilwoman has also threatened to use her connection
to her husband to seek a federal inquiry into the matter.
David Livingston, principal with DJL Research and a member of the RetailWire BrainTrust,
told the News, "If a store can’t make it on its own, those tax
incentives are worth nothing anyway. It goes a lot further than dollars and
cents up front. A store has to know it can make money in the long term. They’re
not in the business to lose money."
Jane Shallal, president of the Associated Food and Petroleum Dealers, said
members of her group were willing to discuss buying Farmer Jack locations and
wonders why the city was not discussing tax incentives with them.
Discussion Question: What is the solution to the clear
need for well-run supermarkets in communities such as Detroit and the legitimate
desire and need for businesses to make a profit?
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Q: What is the solution to the clear need for well-run supermarkets in communities such as Detroit and the legitimate desire and need for businesses to make a profit?
A: Remove Ms. Conyers (and those like her) from office.
Though I have sympathy for her constituents–even those who voted for her–her ill-considered efforts at political intimidation make a bad situation worse…or perhaps it’s hopeless already.
Mrs. Conyers does not seem to understand the basics of business in America. People run businesses to make a profit. Much money is spent on surveys to determine the revenue a particular location might produce. This has to be weighed against the cost of doing business in that location. Crime statistics drive insurance premiums and other cost of doing business. Many brave retailers have opened stores in high crime areas. The prices they have to charge to make a profit, however, usually makes them unpopular with the communities they serve. In short, Mrs. Conyers is looking for someone to blame and Kroger is a handy target. I would submit that Kroger isn’t contributing to crime in Detroit. If Mrs. Conyers was really concerned about solving the “Supermarket Problem” she might spend more time addressing the crime in her own backyard.
Of course profitability is the number one concern when any chain decides to open a new store. If in L.A. there is a genuine revitalization effort going on, then there may be opportunities for a new store to make money. I’m not exactly sure what incentives were handed out but I would love to see a complete comparison between L.A. and Detroit as to the goodies each city offered. Retailers don’t want to open stores and have them as a liability. But then again, perhaps the opening of a brand new store will create this aura of revitalization and lead to growth. The bottom line is that you want customers to come to your store and spend money. Research indicates that downtown L.A. is a place where that can happen. If new supermarket’s are needed in Detroit, then it’s time for city council to step in and do what’s needed to bring chains back into the city.
Many food retailers have tried to serve urban Detroit with grocery stores in the past several decades. Eventually all were unsuccessful and left town. This has created a void that should be voided. A new approach seems to be needed.
Now the solution to the clear need in urban communities such as Detroit for well-run, profitable and sustainable supermarkets has become the province of industry consultants, political dignitaries, analysts and observers, but this concerned group hasn’t been able to produce any new stores to meet the need.
Since the City of Detroit has a highly-vested interest in this important matter, perhaps it could build a test store to serve its citizens and invite a good food chain or independent retailer to operate it on an adequate fee basis. Maybe that might span more supermarkets to serve the unserved.
Detroit would be better off offering those tax incentives to one of the better capitalized Chaldean independents, who are much better skilled at operating inner city stores which cater primarily to an African American clientele. In my opinion, the Chaldeans do not get enough credit for their operating abilities. Not offering these incentives to retailers of Middle Eastern descent is to me a form of racism.
It’s possible that Kroger might have wanted to take one store in Detroit but keep in mind; they had already purchased 20 and did not have to get FTC approval. Perhaps that one extra store would have put them over the Hart-Scott-Rodino Antitrust Act which I think has a current purchase limit of $59.8 million. Kroger certainly was not going to put the company through a costly and time consuming FTC investigation for one extra store that they probably didn’t want anyway.
Contrary to some politician’s belief, business is not an arm of the state in a free society. The aim of business is to serve the customer and make a profit. If both goals (these are mutually exclusive) can’t be met then a business should not invest. We usually hear politicians bully business to meet their own agenda. There is a saying in the investment community that capital will flow to where it is welcome (and, conversely, will not flow to where it is bullied in the long term).
So the answer to politicians such as Conyers is to follow the course and policies that will make capital want to flow. The difference between Los Angeles and Detroit is that Los Angeles is welcoming capital but being creative and pro-active (i.e. the gentrified neighborhood that attracted Kroger to build a Farmer Jack’s supermarket).
So, I would offer the challenge to Detroit to be come more capital friendly rather than critical of a business that is making a business decision on where to locate based on economic factors.
Again I will restate: Business is not arm of the state in a free society…if we want the benefits of a truly free society upon which our Nation (the United States) was built and has prospered.
The lack of having sufficient numbers of nice supermarkets in inner-cities is one factor that hurts not only people already living in the city, but also contributes to preventing new residents from locating into the area. Cities need to provide tax incentives and other benefits to help supermarkets and also other types of businesses make it profitable to operate. Cities will not achieve the desired tax revenues, however, the economic benefits overall will be very worthwhile for the city. With all that said, I’m not too sure that supermarket chains should be bullied into opening stores in any location where they choose not to because at the end of the day, it really should be their own decision where they choose to open stores in a free enterprise system. I hope that cities like Detroit, and others, will figure out the economics and make it irresistible for Kroger and other supermarket chains to come back to the market. Everybody wins.
The Ford Foundation has an excellent booklet, “Win Win – The Double Bottom Line–Competitive Advantage Through Community Investment.” It points out that Pathmark, Sears, and Target, among other large companies, have made good profits doing business in previously shunned areas. For example, the Newark Pathmark is #2 in sales among the entire chain, according to the booklet. There’s no doubt that it takes special efforts to locate stores successfully in economically disadvantaged areas, but it’s clear that when done skillfully, the rewards will be worthwhile. Attempts to bully or embarrass retailers into taking these locations are more likely to backfire compared to making insightful economic projections.
The long term answer to Detroit’s woes is contained in the LA Times article concerning Ralphs: “…the area where Ralphs is located has been revitalized with upscale bars, eateries and new hotels.”
As a long time resident of both Detroit and its suburbs at various times, it is clear to me that Detroit is still struggling to recover from its decades-old “Coleman Young hangover.” This mayors’ disastrous administration did nothing but polarize Detroit’s ethnic communities, create a climate of fear and mistrust, drive the city to the brink of bankruptcy and accelerate the flight of businesses and the middle class out of the city. To this day Detroit has not fully recovered. Its Renaissance remains a mostly unrealized dream, decades behind some of its sister rust belt cities.
Ms. Conyers’ unfounded criticism of Kroger will only perpetuate the old wounds and make it even less likely the company will ever return to the city. She and her City Council colleagues must address those factors that will attract new capital and business interests back to Detroit. Until then, very little will change.
Whle it is easy to sit at the highest of levels and boil this problem down to a profit motive, the real problem exists in the difficulty of actually running the store. Finding the right management, employees and providing the right work environment is the challenge or perhaps the stopper.
Having spent my time working both inner city stores and suburbia stores, there is no question that the job of management in the inner city locations was focused not on the running of the store but in maintaining a grip on the multiple forms of shrink. I would echo Gene Hoffman’s suggestion that the city put up a test store. Find the people in the community that want change and enlist them into a management and hourly training program and then entice a chain such as Kroger to oversee the store for a fee and the rights to supply. In essence a sort of Limited partnership where the chain has no capital invested and thus no downside.
It is fine for the senators wife to want change but there is an answer available without using the baseball bat. It would take time and effort, and undoubtedly be more difficult than a simple phone call.
Mari makes good points that should be part of attempts to find a solution to this problem.
If the city is really serious about getting Kroger or any other chain supermarket they need to do the following.
1. The city will lease the property at the going rate and then sublease to Kroger (or whoever) for $1 per year. Basically free rent.
2. They city will provide police officers free of charge for store security.
3. The store will be in a sales tax free zone where there is no sales tax charged on anything purchased in the store.
4. No taxes will be assessed on the store property.
Our firm, Mari Gallagher Research & Consulting Group, released a report last month entitled Examining the Impact of Food Deserts on Public Health in Detroit. You can view the report free online at http://www.marigallagher.com. We studied the distance to the closest grocery store by block in Detroit and the larger Metro area–over 50,000 blocks–and paired that with health data. What we found is that most of Detroit is a food desert and that communities with worse grocer access suffer more from diet-related diseases and premature death. It is a statistically significant relationship. Grocers like Kroger are not only needed from a quality of life and full-service retail perspective, but also from a public health perspective. But Kroger is not the only answer. Grocers like ALDI also provide a different type of mainstream food shopping option. Independent grocers can also be part of the solution, especially since so many are already the norm in Detroit. The current problem with these smaller, independent grocery stores is that most of them are what we call “fringe” locations, such as convenience and liquor stores. They specialize in money orders, cigarettes, lottery tickets, and a small assortment of prepackaged products high in salt, fat, and sugar. By encouraging them to upgrade their facilities and offer at least some fresh and healthy food products, the retail climate as well as public health would improve. How can that be done? One way is award the USDA Food Stamp retailer status only to the most deserving food stores. In Detroit, after visiting 200 stores that sell food and comparing them with the official Food Stamp retailer list, we recoded store categories and found that of all Food Stamp retailers in the Motor City (basically all food stores), 92% are fringe locations (such as gas stations, liquor and party stores, convenience stores, bakeries and even some dollar stores). Only 8% were small, medium, or large grocery stores or supermarkets. In Detroit, this affects not only Food Stamp residents but all residents. Many of these fringe stores would likely close were it not for Food Stamp dollars artificially propping them up–dollars that could flow instead to decent independents as well chains with healthier and less expensive food offerings. We are not saying the Food Stamp program is bad. In fact, it’s needed. But perhaps it’s time to make it more competitive, with more competitive and healthier food options. Detroit really needs it.
To the supermarket chains who are making a position in key downtown major cities, it will be an “asset” in disguise. Cities are clamoring for this trial or commitment by supermarkets. And, don’t you think these cities are giving major incentives? Downtowns like Chicago, L.A. and Detroit suggest the next tier of cities are ripe. Just do your homework, as Dominick’s and others have done. Find major cities that are rebuilding their downtowns for the future and current residences.
The research proves that people and companies are settling in the downtown, and yes, inner city too. Look at what Chicago did in the “Cabrini Greens” area.
So who wants a piece of this enormous opportunity, even with some of the industry’s skepticism? Why? Higher margins and city incentives outweigh the other possible expenses that NEED to be looked at location by location in the city.
Why are the supermarkets just killing each other in the suburbs?
Hmmmmmmmmmmm
It is unfortunate that Kroger is not looking to inner-city Detroit, but I can understand why. Inner-city Detroit still has some work to do before it will be back to its old glory. There is so much room for redevelopment and “cleaning up” before a retailer such as Kroger would be enticed to come back.
From first hand experience, as I live outside of Detroit, it is depressing when you drive through the city. Condemned buildings, a large homeless population and no demonstration or evidence whatsoever of steps to revitalize what was once a beautiful city.
It comes down to the fact that the City of Detroit needs to step up and do more to revitalize so that more businesses will look to it for future development. That also includes Kroger. In the meantime, there are still the private “mom and pop” grocery stores around the area that can fill the void while a big box retailer waits to come into the area.
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Q: What is the solution to the clear need for well-run supermarkets in communities such as Detroit and the legitimate desire and need for businesses to make a profit?
A: Remove Ms. Conyers (and those like her) from office.
Though I have sympathy for her constituents–even those who voted for her–her ill-considered efforts at political intimidation make a bad situation worse…or perhaps it’s hopeless already.
Mrs. Conyers does not seem to understand the basics of business in America. People run businesses to make a profit. Much money is spent on surveys to determine the revenue a particular location might produce. This has to be weighed against the cost of doing business in that location. Crime statistics drive insurance premiums and other cost of doing business. Many brave retailers have opened stores in high crime areas. The prices they have to charge to make a profit, however, usually makes them unpopular with the communities they serve. In short, Mrs. Conyers is looking for someone to blame and Kroger is a handy target. I would submit that Kroger isn’t contributing to crime in Detroit. If Mrs. Conyers was really concerned about solving the “Supermarket Problem” she might spend more time addressing the crime in her own backyard.
Of course profitability is the number one concern when any chain decides to open a new store. If in L.A. there is a genuine revitalization effort going on, then there may be opportunities for a new store to make money. I’m not exactly sure what incentives were handed out but I would love to see a complete comparison between L.A. and Detroit as to the goodies each city offered. Retailers don’t want to open stores and have them as a liability. But then again, perhaps the opening of a brand new store will create this aura of revitalization and lead to growth. The bottom line is that you want customers to come to your store and spend money. Research indicates that downtown L.A. is a place where that can happen. If new supermarket’s are needed in Detroit, then it’s time for city council to step in and do what’s needed to bring chains back into the city.
Many food retailers have tried to serve urban Detroit with grocery stores in the past several decades. Eventually all were unsuccessful and left town. This has created a void that should be voided. A new approach seems to be needed.
Now the solution to the clear need in urban communities such as Detroit for well-run, profitable and sustainable supermarkets has become the province of industry consultants, political dignitaries, analysts and observers, but this concerned group hasn’t been able to produce any new stores to meet the need.
Since the City of Detroit has a highly-vested interest in this important matter, perhaps it could build a test store to serve its citizens and invite a good food chain or independent retailer to operate it on an adequate fee basis. Maybe that might span more supermarkets to serve the unserved.
Detroit would be better off offering those tax incentives to one of the better capitalized Chaldean independents, who are much better skilled at operating inner city stores which cater primarily to an African American clientele. In my opinion, the Chaldeans do not get enough credit for their operating abilities. Not offering these incentives to retailers of Middle Eastern descent is to me a form of racism.
It’s possible that Kroger might have wanted to take one store in Detroit but keep in mind; they had already purchased 20 and did not have to get FTC approval. Perhaps that one extra store would have put them over the Hart-Scott-Rodino Antitrust Act which I think has a current purchase limit of $59.8 million. Kroger certainly was not going to put the company through a costly and time consuming FTC investigation for one extra store that they probably didn’t want anyway.
Contrary to some politician’s belief, business is not an arm of the state in a free society. The aim of business is to serve the customer and make a profit. If both goals (these are mutually exclusive) can’t be met then a business should not invest. We usually hear politicians bully business to meet their own agenda. There is a saying in the investment community that capital will flow to where it is welcome (and, conversely, will not flow to where it is bullied in the long term).
So the answer to politicians such as Conyers is to follow the course and policies that will make capital want to flow. The difference between Los Angeles and Detroit is that Los Angeles is welcoming capital but being creative and pro-active (i.e. the gentrified neighborhood that attracted Kroger to build a Farmer Jack’s supermarket).
So, I would offer the challenge to Detroit to be come more capital friendly rather than critical of a business that is making a business decision on where to locate based on economic factors.
Again I will restate: Business is not arm of the state in a free society…if we want the benefits of a truly free society upon which our Nation (the United States) was built and has prospered.
The lack of having sufficient numbers of nice supermarkets in inner-cities is one factor that hurts not only people already living in the city, but also contributes to preventing new residents from locating into the area. Cities need to provide tax incentives and other benefits to help supermarkets and also other types of businesses make it profitable to operate. Cities will not achieve the desired tax revenues, however, the economic benefits overall will be very worthwhile for the city. With all that said, I’m not too sure that supermarket chains should be bullied into opening stores in any location where they choose not to because at the end of the day, it really should be their own decision where they choose to open stores in a free enterprise system. I hope that cities like Detroit, and others, will figure out the economics and make it irresistible for Kroger and other supermarket chains to come back to the market. Everybody wins.
The Ford Foundation has an excellent booklet, “Win Win – The Double Bottom Line–Competitive Advantage Through Community Investment.” It points out that Pathmark, Sears, and Target, among other large companies, have made good profits doing business in previously shunned areas. For example, the Newark Pathmark is #2 in sales among the entire chain, according to the booklet. There’s no doubt that it takes special efforts to locate stores successfully in economically disadvantaged areas, but it’s clear that when done skillfully, the rewards will be worthwhile. Attempts to bully or embarrass retailers into taking these locations are more likely to backfire compared to making insightful economic projections.
The long term answer to Detroit’s woes is contained in the LA Times article concerning Ralphs: “…the area where Ralphs is located has been revitalized with upscale bars, eateries and new hotels.”
As a long time resident of both Detroit and its suburbs at various times, it is clear to me that Detroit is still struggling to recover from its decades-old “Coleman Young hangover.” This mayors’ disastrous administration did nothing but polarize Detroit’s ethnic communities, create a climate of fear and mistrust, drive the city to the brink of bankruptcy and accelerate the flight of businesses and the middle class out of the city. To this day Detroit has not fully recovered. Its Renaissance remains a mostly unrealized dream, decades behind some of its sister rust belt cities.
Ms. Conyers’ unfounded criticism of Kroger will only perpetuate the old wounds and make it even less likely the company will ever return to the city. She and her City Council colleagues must address those factors that will attract new capital and business interests back to Detroit. Until then, very little will change.
Whle it is easy to sit at the highest of levels and boil this problem down to a profit motive, the real problem exists in the difficulty of actually running the store. Finding the right management, employees and providing the right work environment is the challenge or perhaps the stopper.
Having spent my time working both inner city stores and suburbia stores, there is no question that the job of management in the inner city locations was focused not on the running of the store but in maintaining a grip on the multiple forms of shrink. I would echo Gene Hoffman’s suggestion that the city put up a test store. Find the people in the community that want change and enlist them into a management and hourly training program and then entice a chain such as Kroger to oversee the store for a fee and the rights to supply. In essence a sort of Limited partnership where the chain has no capital invested and thus no downside.
It is fine for the senators wife to want change but there is an answer available without using the baseball bat. It would take time and effort, and undoubtedly be more difficult than a simple phone call.
Mari makes good points that should be part of attempts to find a solution to this problem.
If the city is really serious about getting Kroger or any other chain supermarket they need to do the following.
1. The city will lease the property at the going rate and then sublease to Kroger (or whoever) for $1 per year. Basically free rent.
2. They city will provide police officers free of charge for store security.
3. The store will be in a sales tax free zone where there is no sales tax charged on anything purchased in the store.
4. No taxes will be assessed on the store property.
Our firm, Mari Gallagher Research & Consulting Group, released a report last month entitled Examining the Impact of Food Deserts on Public Health in Detroit. You can view the report free online at http://www.marigallagher.com. We studied the distance to the closest grocery store by block in Detroit and the larger Metro area–over 50,000 blocks–and paired that with health data. What we found is that most of Detroit is a food desert and that communities with worse grocer access suffer more from diet-related diseases and premature death. It is a statistically significant relationship. Grocers like Kroger are not only needed from a quality of life and full-service retail perspective, but also from a public health perspective. But Kroger is not the only answer. Grocers like ALDI also provide a different type of mainstream food shopping option. Independent grocers can also be part of the solution, especially since so many are already the norm in Detroit. The current problem with these smaller, independent grocery stores is that most of them are what we call “fringe” locations, such as convenience and liquor stores. They specialize in money orders, cigarettes, lottery tickets, and a small assortment of prepackaged products high in salt, fat, and sugar. By encouraging them to upgrade their facilities and offer at least some fresh and healthy food products, the retail climate as well as public health would improve. How can that be done? One way is award the USDA Food Stamp retailer status only to the most deserving food stores. In Detroit, after visiting 200 stores that sell food and comparing them with the official Food Stamp retailer list, we recoded store categories and found that of all Food Stamp retailers in the Motor City (basically all food stores), 92% are fringe locations (such as gas stations, liquor and party stores, convenience stores, bakeries and even some dollar stores). Only 8% were small, medium, or large grocery stores or supermarkets. In Detroit, this affects not only Food Stamp residents but all residents. Many of these fringe stores would likely close were it not for Food Stamp dollars artificially propping them up–dollars that could flow instead to decent independents as well chains with healthier and less expensive food offerings. We are not saying the Food Stamp program is bad. In fact, it’s needed. But perhaps it’s time to make it more competitive, with more competitive and healthier food options. Detroit really needs it.
To the supermarket chains who are making a position in key downtown major cities, it will be an “asset” in disguise. Cities are clamoring for this trial or commitment by supermarkets. And, don’t you think these cities are giving major incentives? Downtowns like Chicago, L.A. and Detroit suggest the next tier of cities are ripe. Just do your homework, as Dominick’s and others have done. Find major cities that are rebuilding their downtowns for the future and current residences.
The research proves that people and companies are settling in the downtown, and yes, inner city too. Look at what Chicago did in the “Cabrini Greens” area.
So who wants a piece of this enormous opportunity, even with some of the industry’s skepticism? Why? Higher margins and city incentives outweigh the other possible expenses that NEED to be looked at location by location in the city.
Why are the supermarkets just killing each other in the suburbs?
Hmmmmmmmmmmm
It is unfortunate that Kroger is not looking to inner-city Detroit, but I can understand why. Inner-city Detroit still has some work to do before it will be back to its old glory. There is so much room for redevelopment and “cleaning up” before a retailer such as Kroger would be enticed to come back.
From first hand experience, as I live outside of Detroit, it is depressing when you drive through the city. Condemned buildings, a large homeless population and no demonstration or evidence whatsoever of steps to revitalize what was once a beautiful city.
It comes down to the fact that the City of Detroit needs to step up and do more to revitalize so that more businesses will look to it for future development. That also includes Kroger. In the meantime, there are still the private “mom and pop” grocery stores around the area that can fill the void while a big box retailer waits to come into the area.