New York’s city-owned grocery stores

New York’s city-owned grocery stores

So what is it with the left and grocery stores. In New York, the mayor held a press conference announcing the first of the city-owned grocery stores. At an initial projected cost of $30 million the city would own the land, cover major overhead costs and bring in a private operator to sell staple foods at discounted prices. The mayor said that this would mean lower prices on basics like bread and eggs. This will be the first of five city-owned grocery stores. Mamdani said that 65,000 New Yorkers live within a 10-minute walk of the proposed site. However, the site is not on a food desert (that’s not a chocolate cake) because there is a supermarket in the area along with several convenience stores (called bodegas in New York city), an Aldi and even a Whole Foods. There is also a fresh produce store a three minute walk from the site. So one wonders why this site for Mamdani’s store?

BTW, here is what Wikipedia says is a “food desert.” A food desert is an area that has limited access to fresh food. A food desert typically lacks the presence of a grocer and instead supplements it with convenience stores or fast food. It is interesting that Mamdani is not during the usual leftish whine about the poor pay more. Rather he and his cohorts are saying that the new grocery store will bring more nutritious food to the underserved. That implies that poor nutrition is somehow correlated with living in a food desert. Here is a statement from a paper at the American Journal of Clinical Nutrition:

“Food insecurity and the lack of access to affordable, nutritious food are associated with poor dietary quality and an increased risk of diet-related diseases, including cardiovascular disease, diabetes, and certain types of cancer. Those of lower socioeconomic status and racial and ethnic minority groups experience higher rates of food insecurity, are more likely to live in under-resourced food environments, and continue to bear the greatest burden of diet-related chronic diseases in the United States.” https://ajcn.nutrition.org/article/S0002-9165%2823%2966352-X/fulltext

So presumably, bringing nutritional food into underserved areas would foster better health. Right? Well not so fast my friends. Research shows this is not necessarily the case. Adding fresh produce markets does not mean that people will stop going to McDonalds (although higher prices might). Here is a study from the National Bureau of Economic Research entitled “Food deserts and the causes of nutritional inequality.” https://www.nber.org/system/files/working_papers/w24094/w24094.pdf

The study finds that food deserts have no meaningful effect on eating habits. Exposing low-income households to the same products and prices as those in high-income households reduces nutritional inequality by only 9 percent while the remaining 91percent of the nutrition gap is driven by difference in what shoppers prefer to buy. One of authors said “One of the conclusions in our study is that opening a supermarket in a food desert has very little impact on the nutritional composition of households’ shopping baskets.”

But even if this is known to those on the left, they would ignore it because it is counter to their false narrative. One wonders why $30 million? Couldn’t Walmart put one of its neighborhood markets on the site for less money and just have the city subsidize any losses? Wouldn’t that be cheaper? Alas, Walmart does not have a single grocery store in any of the five boroughs of New York city. I guess socialists don’t care for low prices after all. Well how about Aldi instead. Aren’t they known for their fresh produce? Also, why not remove property taxes, minimum wages, zoning regulations and any others for grocery stores in designated food deserts? I bet that would motivate some grocers to locate there.

Government-owned grocery stores don’t have a great track record. Socialists always shrug off failure saying “it will be different this time.” They simply don’t trust the market. Kansas City tried city-run markets and it was a failure. The store KC Sun Fresh, lost nearly $900,000 over the last year and is closing its doors after more that $18 million is subsidies. Currently large portions of the store’s shelves were bare or only partially stocked — including meat, produce and dry goods. One customer said “There’s no meat. There’s no vegetables. There’s no nothing. Are you going to take care of the community that’s surrounded around you? If not, sell the store to someone that can be more responsible.” Ironically, there’s a grocery store right down the street that is doing well. Mamdani should take heed but he says that his city-run grocery stores will “operate without a profit motive,” there will be no “price gouging” as he alleges private stores do. The stores would not have to pay property taxes, would buy and sell at wholesale prices and charge lower prices than other stores in the city. His five proposed stores are budgeted at $70 million with $30 million to the first store.

To be fair, my hometown of Atlanta has a city-owned grocery store – the Azelea Fresh Market – that is doing well. The city paid $8 million to open the store and is in an area with no grocery stores – a food desert! The mayor said that the city had failed to entice the major grocery stores to come into the market and said “well screw it, we’ll do it ourselves.” And so they did. The store is publicly funded but privately operated by a major grocery store chain. The goal is for the store to become profitable without any government subsidy within three years. The store is such a success that it is already aiding the construction of a second planned store 6 miles away, expected to open next year. That site will be a challenge since a grocery store had gone out of business there. Unlike in New York, profit is not a dirty word in Atlanta which wants its stores to be profitable. Atlanta officials think that with for-profit supermarket management they can avoid the failures of some other government grocery experiments. Any profit lost from cheaper staples is partly made up upstairs, where there is a sandwich and sushi counter. Wine and beer sold at typical prices. 

There seems to be a simple reason why government-owned and operated stores fail – profit. Atlanta recognizes this but New York does not dooming those stores to either fail or to be cash drains on the city. We know that government-owned grocery stores in communist countries like Russia don’t operate as efficiently as profit-driven stores in the US. I guess Mamdani thinks his will be better.

But actually there is a large – huge – government-owned grocery store chain in the US. It’s the military commissary system funded at $1.5 billion a year. The government-backed stores do have lower prices. They pay no rent and are heavily subsidized. It leverages scale, limits markup but also is lacking in the variety of commercial stores. The losses are never realized being in the overall military budget The telltale sign is if military personnel feel the need to go off the base the purchase items that might – or might not – be sold on base. I have pointed out in the past how military medical services are not as extensive as those provided in the private sector – this is especially true for drugs. Many have argued that the commissaries need to be transformed to be more like successful commercial grocery stores. For decades, the Defense Commissary Agency (DeCA) has struggled to meet the intent of providing good, discounted groceries to service members, their families and veterans. This does not seem like a model for success. If the Federal government’s socialist stores are a market failure, will New York’s Mamdani and other socialist mayors take heed?