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When retailers are on the prowl for viable new markets, higher poverty and unemployment rates aren't the first characteristics they look for. But in a new day and age of retailing, those once undesirable factors are actually turning out to be nonissues for supermarkets that see the potential profit in the nation's inner cities.
Among the supermarket banners that have become more common in urban areas in the past decade: Food Lion, Fresh Grocer, Giant Food of Landover, Jax Markets, Pathmark, Save-A-Lot, ShopRite, and Stop & Shop, to name just a few. These operators cite patience, creativity, and commitment as the key traits that come in handy for successful inner-city retailing.
But they see a lucrative reason for going where other retailers have feared to tread.
The supermarket industry as a whole has made significant strides in serving urban neighborhoods in recent years, observers tell Progressive Grocer, marking a decided turn away from a period when the trend was to flee cities. Part of the reason for the return is that cities themselves are recognizing the challenges of inner-city retailing and making an effort to entice food retailers. A supporting factor is that researchers have revealed a link between health problems suffered by urban population segments and lack of access to fresh foods.
"In the past 10 years that I've been looking at this, I think the discussion has definitely changed from one of making the business case, to one of 'How do I do it successfully?'" notes Todd Turner, v.p. of membership and urban affairs at the Food Marketing Institute.
Deirdre Coyle, s.v.p. at not-for-profit organization Initiative for a Competitive Inner City (ICIC), concurs that there have been some real success stories in inner cities. "There has been recognition that there's an opportunity there," she says. But, she stresses, "There's still plenty of opportunity to reach underserved areas."
According to Boston-based ICIC's research, the nation's inner cities account for $90 billion in buying power, but at least 25 percent of the demand is unmet. ICIC is in the process of reexamining what's been happening over the past decade and should have initial findings by the end of September, says Coyle.
Part of the reason supermarkets have become more open to inner cities is that governments and nonprofit organizations have become more open to helping retailers deal with their challenges. Pennsylvania, a pioneer in this area, put together a state Fresh Food Financing Initiative in September 2004 to provide retailers financial aid in offsetting initial capital costs that come with being in underserved areas ("underserved" can also include nonurban areas). Financing for extra security is just one example of how the initiative would help bring down upfront costs, notes David Adler, communications coordinator at The Food Trust, one of the groups that manage the $80 million fund.
To address the dearth of supermarkets in Philadelphia in particular, The Food Trust released a report earlier this year, Philadelphia's New Markets: Ripe Opportunities for Retailers. The group's research showed that crime in Philadelphia is actually decreasing, contrary to popular belief, and that the city's high population density makes for a compelling business proposition.
"The report finds that in neighborhoods without supermarkets, dollars are leaving. People are going to find a way to buy food," notes Adler.
There are, of course, very real challenges, which cities can help supermarkets work through, he adds. Cost of land assembly is a major issue, for instance. "We've advocated making food retail development a priority in urban development," he says.
Of the 11 projects that have been approved for funding from the Fresh Food Financing Initiative, one belongs to Fresh Grocer, a growing regional independent that's already made a dent in Philadelphia's urban areas.
Fresh Grocer's new store will be built next year in Progress Plaza, a new development in Philadelphia that will be the "first African-American shopping center in the country," according to Adler.
The store will be 55,000 square feet, which is the typical size of Fresh Grocer's urban stores, explains co-owner Pat Burns. "The customers we serve like to cook, and appreciate wholesome foods. That's what we specialize in. We carry organic and natural foods, plenty of produce, a huge selection of fish, and fresh meat cut on the premises."
Fresh Grocer has been operating in inner-city areas since 2001. "Our first urban store was at 40th and Walnut streets near the University of Pennsylvania campus in west Philly," says Burns. "The city approached us because they were redeveloping the area. When we started doing market research, we became very interested. We were kind of surprised at the lack of supermarkets in west Philadelphia."
Today Fresh Grocer has three other stores in Philadelphia, as well as stores in Drexel Hill, Upper Darby, and Villanova, Pa., and Wilmington, Del. The company plans to open five new stores throughout the Delaware Valley next year, including an urban site in Jersey City, N.J.
During the time that Fresh Grocer has expanded, Philadelphia's politicians have been extremely supportive of supermarkets, notes Burns. "Rep. Dwight Evans, who's really spearheaded initiatives, understands how supermarkets revive neighborhoods."
For Fresh Grocer, there have been a lot of positives to being in inner cities, in Burns' view. The issues that have deterred other retailers -- crime and training among them -- haven't been deal-breakers. "We have a very sophisticated security system with monitors that customers see when they walk in the store. It makes them feel safe, and it also serves as a deterrent for people who don't want to do the right thing," he says. As for training, "that's a big challenge everywhere," he observes.
He's had to be a little more creative with customer parking -- for instance, the store at Walnut and University has a garage on top of it. Additionally, product selection has to be finessed when the footprint goes smaller to fit tighter locations. "Each location is unique as far as what the area's needs are," he notes.
Windy City progress
As the country becomes more concerned with health, more states and cities seem to be following Pennsylvania's example. Chicago, Baltimore, and California are a few of the places that are beginning to address the issue in more depth, notes FMI's Turner.
The Chicago Department of Planning and Development co-hosted the city's first-ever Grocery Expo in February of this year. The purpose: to encourage grocers to invest in inner-city communities. Mayor Richard M. Daley was among the attendees.
At the expo, city planners identified urban sites suited to new store construction. Retailer attendees received neighborhood demographic and shopping studies, as well as information on financial incentives available in Chicago.
One food advocate in Chicago has decided not to wait for supermarkets to catch up, however. LaDonna Redmond is the founder and president of a community-based organization called the Institute for Community Resource Development. Her group is working to form its own employee-owned supermarket in the Austin neighborhood on Chicago's west side. She has attracted the interest of several corporate banks and has been in talks with community development corporations (CDCs).
"We're making the case that healthy food access should be part of community development plans," says Redmond. "Then we can interest commercial development. We've also been talking to philanthropists about their role in ensuring healthy food is available in the inner city."
In California, meanwhile, several independents, such as Bill MacAloney's Jax Markets, have discovered the value of inner-city customers. But there's still room for improvement, according to a report released last fall by PolicyLink, a national nonprofit research and advocacy organization. The report, Healthy Food, Healthy Communities: Improving Access and Opportunities Through Food Retailing, cites the higher incidence of obesity-related health problems among people of color, and urges action from policymakers and business leaders to "make it easier for Californians to make healthy choices."
In another California development, earlier this year California senator Elaine Alquist introduced a bill seeking to require the Department of Housing and Community Development to establish a so-called "healthy food retailing initiative" to provide residents of underserved communities with retail food markets that would offer "healthy, high-quality, and affordable food."
Even in cities where there aren't formal initiatives in place, however, supermarkets are finding that developers and politicians seem more eager to address their needs. Giant Food, LLC of Landover, Md. began working with city officials and a developer in Washington, D.C. several years ago to find an additional inner-city location. (The retailer had already opened a store in the Brentwood section of northeast Washington D.C.)
Giant Food decided to build a 52,563-square-foot full-service food-and-pharmacy combination store at the historic Tivoli Theatre site in downtown Washington. The theater had closed in 1976 but reopened in January 2005, along with the grand opening of the Grupo de Artistas Latinoamericanos (GALA) Hispanic Theatre. Giant's store opened in June 2005.
The company has been very happy with the store's performance, notes Giant Food spokesman Jamie Miller. "It includes probably one of the largest Hispanic selections in any of our stores. The community is really diverse." Giant worked with a developer to build a multilevel parking garage with the store, which was an important element, he adds.
"We're looking at other urban locations," adds Miller. The retailer had a groundbreaking for a store in southeast Washington earlier this year.
Further south, in North Carolina, regional operator Food Lion has experimented with several urban locations over the years, according to spokesman Jeff Lowrance. "We sometimes go where other retailers don't go because they're sticking to one footprint. We have a mix of stores to work with."
One of Food Lion's urban success stories is a unit in Durham, N.C., which it opened in April 2004. The project was initiated by a CDC in the city, although originally another supermarket was going to occupy the building. Food Lion decided to pounce at the opportunity, although, Lowrance admits, "These projects are usually slow to develop." In the Durham case, it was several years before the store actually opened.
Nonetheless, the wait was worth it, says Lowrance. "We've been really pleased with the store. We made it into a North Carolina Central University Pride store, because it was so close to the campus. We incorporated the school colors of maroon and gray in the decor and added other tie-ins."
An unexpected addition came from the CDC and local police, who worked together to put a police department substation in the store. That meant Food Lion didn't have to worry about extra security costs.
But the major key to success in Durham and other urban locations is the fact that the communities want the stores there. "When we're looking at inner-city sites, we always try to get a sense of whether the community will embrace the store," says Lowrance. "If they take pride in their community and want the store to do well, that alleviates all the other concerns that are attached to inner cities."