A woman is piling products on the counter. “Where’s the cake mix?” she asks store owner Bassem Kablaoui.
He points her down an aisle lined with everything from cereal to hairbrushes and a few boxes of yellow cake mix. Old coolers sit dark and empty in the back, where a kaleidoscope of gallon juice jugs weighs down a weathered pallet.
Another woman comes in with her child and purchases a soda and chips while Kablaoui shoos away a bleary-eyed man, high on crack. “Get out of here; you know you can’t come in here.”
A girl enters who, Kablaoui later explains, is a prostitute. “I don’t judge,” he says.
When first lady Michelle Obama called out the c-store industry for its poor influence on food deserts—large geographic areas with little or no access to affordable, healthy food—in her launch of the Let’s Move anti-obesity campaign, she likely envisioned a retailer such as Kablaoui.
His store, Lowry Food Market, sits on an otherwise empty intersection on the north side of Minneapolis, a neighborhood that is the focus of urban revitalization efforts, but still rife with crime and barren lots. Inside the 900-square-foot store, on the bottom floor of an old, twostory brick building, you’ll find beverage coolers filled with soda and energy drinks, racks of potato chips and candy bars, a pegboard of hair accessories, batteries and packs of pens.
You will also find signs of a retailer trying to better serve his community. Front and center is a repurposed soda cooler, filled with fresh fruits and vegetables: grapes, lemons, oranges, apples, strawberries, avocados, lettuce. On tables bookending the cooler sit bananas, potatoes, onions and garlic. A display of pasta and canned tomatoes suggests a balanced dinner. The section is flanked by posters of children enjoying fruit, and reminders that “WIC is accepted here.”
And cycling through the door—along with some unsavory characters—are young professionals and mothers with small children, purchasing bags full of groceries.
Kablaoui’s store is part of a pilot program that helps Minneapolis retailers in underserved areas sell fresh produce. “Healthy corner store” programs such as this can be found around the country, in every major metropolitan area—Los Angeles, Chicago, Detroit—as well as regional pockets. They are simply one facet of a complex, at times disjointed effort to restore access to healthy food for all Americans, in areas abandoned by supermarkets.
Advocates point to a strong link between food deserts and childhood obesity, because lower-income families tend to have the most restricted access to fresh foods. Not only is solving the crisis the right thing to do, they say, but it would also ultimately curb the chronic diseases burdening the country’s health-care system.
Now, after a singling out from the first lady, the c-store industry finds itself cast in the role of villain, while challenged to transform into a hero.
Retailers in other channels, such as Walmart, Walgreens and Supervalu’s Save-A-Lot chain, are stepping up, launching prototypes and programs custom- designed for these neighborhoods. Retailers already in food deserts—typically independent c-stores such as Lowry Food Market, quick-serve restaurants (QSRs) and liquor stores—are increasingly being asked by neighborhood groups and politicians to shift their traditional mix toward more healthy food.
But of course, nothing worthwhile is ever easy.
Steve Montgomery, president of b2b Solutions LLC, Lake Forest, Ill., ran c-stores in food deserts from the mid- 1980s to mid-1990s for Dairy Mart Convenience Stores and BP’s Amoco in Cleveland, Milwaukee and Tampa, Fla. He remembers the stores’ importance to their neighborhoods, serving as a “social club” for locals. He also remembers the wear and tear, the high security costs and the challenges of providing a one-stop shop in a 1,200-square-foot gas station.
Industry outsiders may think it’s simply a matter of offering fresh food to buy, but for a convenience retailer, it is a series of gambles, according to Montgomery.
“Customers have got to want to buy it. For that, they need to know how to use it and why it’s important. They have to [be able to] afford to buy it, so the retailer has to be able to source it in an economical way. He’s got to have a place to put it. It’s very worthwhile; it’s just not easy,” he says. While leading chains are taking stabs at improving their healthy food offerings, and NACS has launched a campaign to tackle the issue, the food-desert street fight is primarily being fought by small retailers who don’t make the annual trade show or read industry magazines. Instead, like Kablaoui of Lowry Food Market, they understand their role in their communities and want to do better, but must confront decades of bad habits while attempting to turn a dime. Whether chain or corner store, all of these retailers face the same question: Can a convenience store grow in—and nourish—a food desert?
On the Fringe
Mari Gallagher receives an alert every time someone does a search on Google. com for the term “food desert.” “Everyone uses it a little differently,” though not everyone is using it accurately, she says. For Gallagher, principal of Chicago- based Mari Gallagher Research & Consulting Group, definitions are important; her research firm coined the term “food desert,” first through its research on Chicago’s urban food wastelands, and later through studies on Birmingham, Ala.; Savannah, Ga.; Boston; and Detroit.
As Gallagher defines it, a food desert is “a large geographic area that has no or distant mainstream grocery store.” That term—“mainstream”—refers to a store with offerings that support a healthy diet on a regular basis, such as meat, dairy and fresh and frozen fruits and vegetables.
Contrast that with a “fringe” store. “It’s not inherently bad,” she says, “but if it’s the primary source of food, your diet and health over time will likely suffer.”
These fringe stores tend to specialize in “lottery tickets, tobacco, pop, chips, maybe some ketchup,” Gallagher says. “They’re a convenience store—you run in, run out.” The problem arises when these fringe sites—which can also include quick-serve restaurants, drug stores and liquor stores—are the only place in the neighborhood to buy food. The U.S. Department of Agriculture (USDA) conducted a study in 2009 to determine how many communities have limited access to nutritious and affordable food. By its measure, 11.5 million Americans live in low-income areas more than a mile from a supermarket.
Whether people in food deserts truly rely on the local c-store for most of their food is open to debate. For example, the same USDA study found that c-stores make up only 2% to 3% of low-income consumers’ food expenditures. Meanwhile, 86% of redemptions of food stamps in 2008—Supplemental Nutrition Assistance Program (SNAP) benefits— occurred at supermarkets or large grocery stores, suggesting these consumers were traveling for their main grocery trips.
But is it convenient? The study says that people living in low-income areas spend 19.5 minutes traveling to a grocery store, compared to the national average of 15 minutes.
Gallagher’s firm has proposed the idea of “food balance” in determining how close a mainstream grocery store should be to a community. Ideally, a mainstream retailer should be about the same distance from a community as a fringe retailer. While a fringe retailer can also become mainstream if it makes some critical changes—namely, to significantly shift its assortment toward healthy foods and staples—even small tweaks are welcome.
“We’re not saying don’t sell chips, don’t sell ready-made hot dogs; but can you also put out fresh fruit on the counter?” says Gallagher.
“There’s not one single problem, and not one single solution, and we’re not saying that the grocery store is the be-all, end-all,” she continues. “Small stores are already in existence. They’ve overcome start-up costs. You change things immediately, whereas it takes longer to develop a new store.”
The fact that some grocery retailers have already gone belly-up in fooddesert communities suggests big barriers to entry. Peter Larkin, president of the National Grocers Association, an Arlington, Va.-based group that represents independent grocers, highlights the hurdles.
“Operating costs are generally higher in food deserts, and the margins can be lower,” he says. “Average sales typically are lower. Depending on the mix, we have lower gross profit because of the lower penetration of some of the highermargin departments that are in stores. Also, just about any store that a grocer is going to invest in and develop is going to take time to turn a profit.”
Government Intervention
Despite policy makers’ initial focus on grocery stores, the convenience channel could be better equipped—thanks to lower overhead costs—to advance Michelle Obama’s vision and serve a fill-in need for healthy meal and snack options.
“The definition of food deserts has historically all been about grocery stores, and that’s probably not going to change,” says Julie Fields, director of government relations for NACS. “But we see an opportunity to assist in filling the void where these food deserts exist because we do sell the basics.”
To support this effort, NACS has formed the Nutrition Campaign Committee, which includes more than a dozen c-store chains, several manufacturers and distributors. It has three tasks: educate the industry on the nutrition debate and develop metrics to measure progress; find a balance in the assortment of better-for-you options with the help of suppliers; and highlight the industry’s current good efforts.
An underlying goal is to head off any “far out” mandates on the federal level, says Fields, citing local zoning restrictions that prevent c-stores from locating near schools. Similarly, NACS wants to ensure that c-stores remain part of the solution.
“The government doesn’t need to come in and say, ‘We have to build a grocery store every 5 miles across the country,’ ” says Fields. “We would like to look at alternatives. What if there could be grant programs, or partnerships with the USDA where c-stores can fill that void, as opposed to trying to wrangle big grocery stores into a space that doesn’t financially make sense?”
The Obama administration has provided some financial incentives through the new Healthy Food Financing Initiative, aimed at eliminating food deserts within the next seven years. The initiative, a collaboration between the USDA and the Departments of the Treasury and Health and Human Services, would make available $400 million to community-development financial institutions, nonprofits and businesses that present strategies toward eliminating food deserts (see p. 52).
That assistance includes federal tax credits, belowmarket- rate loans, loan guarantees and grants to attract private-sector capital. Projects include consumer education initiatives, store construction and expansion, and rural cooperatives.
Ann Wright, deputy undersecretary of the USDA, believes government participation is crucial to tackling the fooddesert issue because the market has proven it cannot fix the problem on its own.
“This problem will be solved using the full range of interventions and businesses that provide healthy foods, whether you’re a farmers’ market, a community garden, a corner store or a convenience store,” Wright tells CSP. “Every sector and retailer is looking at their role differently.
“Convenience stores are often the closest or only retail outlet offering food to high-need areas,” she continues. “Now is the opportunity for c-store retailers to expand their healthy-food offerings and to encourage consumption of healthy foods through marketing and promotion of those foods.”
But the Healthy Food Financing Initiative did not avoid this year’s fiscal crisis, and the agencies are now waiting to hear how much financing they can expect this year and next.
“We still don’t know where the rest of this year’s money is going to come from, and how much,” says Wright. “We have to assume that those programs will stay in place and, if they do, grants will go out the door.” In addition to the uncertain funding situation, the three agencies’ many incentive programs can be confusing for retailers to navigate—an “alphabet soup,” as NGA’s Larkin calls it. Some trade associations have called for a government liaison to help direct retailers to the right agency and program. (Michelle Obama and Let’s Move executive director Robin Schepper declined to be interviewed for this feature. See Mitch Morrison’s editorial on p. 12.)
Urban Revival
While the federal government provides the road map and financial incentives, state and community-based entities— including retailers, community nonprof- its, city government agencies and private donors—are doing much of the grunt work in tackling food deserts.
One of the most promising models is the healthy corner store initiative. Dozens of such programs exist throughout the country, all aimed at enabling retailers in food deserts to improve their healthy food offering, providing procurement, marketing and merchandising guidance and sometimes community outreach.
In Minneapolis, the Healthy Corner Store Program is in a six-month pilot stage. Along with Lowry Corner Store’s Kablaoui, nine other retailers are part of the program. Each worked with a store operations manager at a local co-op to develop a merchandising plan and received help with pricing and margins. Existing coolers were retrofitted to emphasize the low-cost investment. Bix Produce Co. LLC, a produce distributor in the Twin Cities market, supplies producehandling training, and project partners conduct regular food-prep demos for customers in the stores.
Aliyah Ali, project specialist for the Statewide Health Improvement Program at the Minneapolis Department of Health and Family Support, says the participating retailers’ sales are picking up, “but it’s a spectrum; some stores are breaking even, some are starting to see a sales increase. One of the stores has seen sales increase by 50%.”
The most successful retailers have been consistent and sought out what the neighborhood wanted.
“The investment in the community is a huge piece. All the components at some point have to work,” Ali says. “But if the owner is not invested in it, there’s no way it’s going to work.”
For Kablaoui, produce handling and waste represent his biggest challenges. While he might make more money on a banana than a bag of chips, “we sell many, many more chips than bananas,” he says, estimating he moves $400 in chips per week, vs. $60 in produce.
Regardless, he’ll keep selling it—in part because he’ll try anything to make a sale, but also to meet state requirements on WIC certification, which requires stores to carry a variety of seven perishable produce items.
“So far we’re doing fine. Better than fine, to be honest,” he says. “Even before the program I always had seven, eight fruits and vegetables. So this enhanced it. Now I have about 14 kinds.”
In Hartford, Conn., the Healthy Food Retailer Initiative has been giving retailers incentives to sell fresh produce since 2006. The program currently has 25 participants, from a high of 40. Martha Page, executive direct of Hartford Food System, understands that not every store can be a part of the solution.
“I am struggling with the idea that every store is worth working with,” she says. “Some of these very little stores, you can be a marketing genius and you’re not going to ever get them to give up selling snack foods, so you very quickly run out of space to do almost anything else.”
Most of the programs’ participants have served their communities for 10 to 20 years. The other successful traits they have in common: WIC certification and a larger footprint.
Detroit Fresh has 18 stores in its network. The program equips sites with marketing material, baskets, shelves and basic produce-handling information, and connects them to one of two local produce distributors. Community outreach educates neighbors who otherwise might not enter these stores—often seen as just liquor stores—that fresh foods are available.
Kami Pothukuchi, associate professor of urban planning for Wayne State University and director of Detroit Fresh, says the project has no illusions about replacing grocery stores: “Our strategy is to get people to snack healthy because people are spontaneous in their choice to go down to the corner to get a snack.”
The program is trying to build capacity, “and some stores are there, and some stores are still getting there,” Pothukuchi says.
“This is hard work—and it’s harder because there’s no backstop,” she continues. “We can come in and provide the incentives and the carrots, but there’s no stick.” Instead, programs such as Detroit Fresh rely on retailers’ goodwill and their desire to be valued by their communities.
“They’re not going to make money off of it—at best it’s a break-even deal for fruits and vegetables,” she acknowledges.
“But they’re seeing the positive attention, and they feel that’s worth it.” “It’s not going to be the most lucrative endeavor, especially with respect to other things that they’re carrying in the store,” says Ali of the Minneapolis initiative. “It takes time to start orienting the community and letting them know you sell it, and for them to start buying it, too.” But ultimately, good intentions will not dry up food deserts if the healthy corner store initiatives don’t bear fruit for retailers. “They value the idea of being perceived as a healthy asset in their community,” says Page of Hartford Food System. “But you won’t be much of a healthy asset if you’re not making money.”
Rural Efforts
While an inner-city neighborhood may be the stereotypical food desert—and in fact, about 82% of these areas are urban—rural communities are not immune.
“In a rural area ... you have a lower population density, so you don’t have enough people to support a store on every corner like you used to,” says Mark Wright, assistant vice president of sales for The Nielsen Co.’s retail, restaurant and estate division. “So you’re more likely to find them shopping in supercenters, Walmarts and bigger stores that are farther apart than in a store on Main Street that no longer exists.”
It is precisely this dynamic that played out in Brewerton, a town of approximately 3,500 in north central New York. The local superette closed its doors after a Walmart supercenter opened 5 miles away. After town officials heard that local retailer Nice N Easy Grocery Shoppes was planning on knocking down an existing store and rebuilding it, they approached the chain about repurposing the site.
“They said, ‘We would love to have Nice N Easy in town, but we would like you to have a more extensive line of meat products, produce and cereals’—some things we don’t stock a lot of in a typical c-store,” says John MacDougall, CEO of the 81-store chain, based in Canastota, N.Y.
It was a challenge Nice N Easy, whose stores were already produce-centric, was willing to take. Opening this summer, the site will be 6,500 square feet and have an expanded grocery offering, including packaged red meat, and a produce and frozen section double the size of the typical Nice N Easy store. It will also sell more paper products and pet food. The store will include the chain’s Easy Street Eatery made-to-order sub offering. The chain worked with Nielsen’s Claritas division for site analysis and to fine-tune the assortment. (See “So You Want to Serve a Food Desert” on p. 52.)
To supply the site, Nice N Easy is in discussions with several wholesalers who typically serve small grocers, including the independent grocery store chain IGA, based in Chicago. “They are looking to downsize to smaller stores, into the format we’re talking about,” says MacDougall. “So there’s a meeting of minds that says maybe a 6,000- to 8,000-square-foot store is a good idea, particularly in markets that have been left behind because a Walmart went in 10 miles down the road.” However, this midsize format was somewhat tough for some of Nice N Easy’s supplier partners and even employees to embrace. “For some people, that sell has been pretty tough,” says MacDougall, “because if you really know the c-store business, in many ways, most stores out there have begun to shrink down, carrying less products, and turning into cigarette, candy and snack stores. ... And [here] we’re going in the opposite direction.”
While operating with a Walmart supercenter in the distance might give some retailers pause, Nice N Easy is confident it can compete. MacDougall points out that the defunct superette, with a butcher and large produce section, had much higher overhead. Its frozen section was too small. And the Nice N Easy will be better located, on the exit of an interstate, with gasoline and diesel as traffic drivers.
Sonja Hubbard, president of E-Z Mart Stores Inc., Texarkana, Texas, is a NACS Nutrition Campaign Committee member. A few of her 306 sites sit in rural food deserts, where many customers rely on food stamps. Hubbard says E-Z Mart is still figuring out its approach.
“We’ve done some resets, added items and are trying to get some things going in some select stores,” she says via e-mail. “The items have met with mixed sales and we’re just now in the process of revamping, refocusing and trying to see what is working and what isn’t in an effort to enhance [it].”
One item that has sold “relatively well” is frozen chicken breasts, which have an $8.99 price point. Most of those purchases have been made with food stamps, according to E-Z Mart.
A Desert with No Road
One serious hurdle c-stores in a food desert face, whether in rural or urban markets, is distribution—not necessarily because of the location itself, but due to lack of access to fresh produce or other healthful items in a traditional distributor’s arsenal.
At the beginning of its pilot, the Minneapolis Healthy Corner Store Program teamed up with Bix Produce to deliver fresh fruits and vegetables to participants. But because orders were smaller than for a typical grocer, Bix had to break down a case size—the cost of which was passed on to the store owners in the form of a $150 order minimum. “The retailers were willing to pay a little more, but the bottom line was it still turned out to be too expensive,” says Ali, the program’s project specialist.
Project planners continue to work on the procurement piece, while retailers are back to purchasing produce at grocery stores, mass merchandisers and club stores such as Sam’s Club and Restaurant Depot. Kablaoui checks prices at all the stores on his 20-mile drive to the store every day to see who has the best price. And for him it goes beyond fresh produce. His shelves are lined with cereals and other staples bearing Walmart’s Great Value private label.
While seemingly necessary, this tactic might be perpetuating the problem, says Ron Coppel, senior vice president of business development for distributor Eby-Brown Co. LLC, Naperville, Ill. “[They] wouldn’t have a supply issue if they would trust a supplier to bring products to them, stay put in their stores, and do a better job of marketing their stores to their customers,” says Coppel. “They create supply issues for themselves by thinking they will save a few pennies by driving back and forth.” In some of the healthy corner store initiatives, operators are joining together to reduce the cost of distribution—sort of an inner-city buying group. Others are looking to groups already established by independent grocers to let them in on the hub.
“We’re a high-cost channel to serve,” says Montgomery. “For a produce truck to stop, with fuel at $4 a gallon in Chicago, you’d have to be doing a lot of volume. So you either have to pick it up, or get that delivery combined with other deliveries.”
But Is There Demand?
For many retailers—small and large—adding healthy foods to the mix remains a risk.
“They’re all throwing out produce that doesn’t sell,” says Page of the Hartford Food System participants. “But when a larger retailer does it, it doesn’t hurt quite so much. As a percentage of the total, it represents a much smaller percentage. If I have to throw out a case of strawberries, and it’s one of eight fruits I carry, then it’s going to hurt.” There is also some debate about classic supply-demand economic principles. Do c-stores have a responsibility to foster a healthier America?
“I don’t like the word ‘junk food’— this gets to my philosophy about how we try to coddle people,” says John Zikias, vice president of marketing for Thorntons Inc., Louisville, Ky. “Kids need to be guided by parents; parents need to make decisions based on lifestyle.”
Montgomery says, “If you’re a consumer and have a limited amount of money, will you buy [healthy food] where there’s no bulk [pricing], or are you going to buy something you can fill your family’s stomach with? I truly believe in the entrepreneurial spirit. If I can make money… selling produce, I’m going to do it. But if my customers aren’t looking for it, then I’m going to sell them what they want. I have an obligation to my bank to make the mortgage payment.”
And the argument by Zikias and Montgomery touches on a sensitive nerve: What if the pursuit for healthier diets is merely a noble quest with few followers?
“You cannot just work on the supply side of the equation,” says Page. “In fact, part of what we need to do is figure out ways to create the demand, or stimulate latent demand that is there. If in fact [consumers] don’t expect to find healthy food in the local corner market, you won’t necessarily shop for it there, but you will shop for chips. So the owner says, ‘Why should I carry it, if no one’s buying it?’ ”
In its report on food deserts, the USDA said that in studies comparing food intake before and after healthy options were made available, either at existing stores or through new stores, “The findings are mixed—some show a small but positive increase in consumption of fruits and vegetables, while others show no effect.” Sticking points may include merchandising, marketing and price.
“A lot of people use the excuse, ‘I’d stock healthier food, or I tried, but no one buys it.’ It’s a little more complicated than that,” says consultant Gallagher. “I don’t doubt ... it’s a reality in some places. But on the other hand, some small providers might not be that well-versed—they don’t specialize in those kinds of foods. They don’t know how to display them, or they don’t get them at the right prices.”
For example, a Hartford retailer complained about poor produce sales and high waste. As it turns out, he had the fruits and vegetables at the back of his store. After it was moved up front, sales doubled. “You can’t choose healthy food if you don’t have access to it,” says Gallagher. “We can’t preach personal responsibility if people can’t find these foods.”
Detroit FRESH’s Pothukuchi says price is also a powerful motivator: “Nutritionally dense foods tend to be more expensive than the energy-dense, highly processed foods that are high in fat, sugar and salt. Even with food stamps, it’s hard ... for families to consistently have healthy diets that include adequate amounts of fruits, vegetables and whole grains.”
To this end, while Gallagher has no strong opinion on sin taxes, she does believe that the government should stop subsidizing “nonhealthy” foods—citing, for example, the effect of corn subsidies on the low price of high-fructose corn syrup. Instead, she argues, money should be directed to subsidizing healthy options.
Zikias does not consider price an insurmountable sticking point. “We offer a great-size apple for 89 cents,” he says. “You can buy a bag of chips for $1.29, and a candy bar is $1.19. I don’t think price is always the issue. I think education is. ... People sometimes don’t think about what they’re eating.”
Jarrett Paschel, vice president of strategy and innovation for shopper research firm The Hartman Group, Seattle, echoes this. “Many times it’s repeated that eating healthy costs too much,” he says. “I think the larger problem is, for people in [food desert] areas, they wouldn’t know what to make of that.
“If you’re living on food stamps and welfare, it’s not just much more convenient, it’s easier to wrap your head around getting a cheap burger at McDonald’s than it is going to the grocery store and thinking about fixing corn chowder.” Paschel’s point: It’s not just about price or product availability. It’s about changing cultures—how people eat and how they think of food.
Here, tinkering with the food-stamp system may help. Gallagher and others have urged the USDA to further restrict the types of foods that can be bought with SNAP food benefits. Some cities, such as Detroit, reward SNAP participants who buy fresh food at farmers’ markets with additional benefits to be used exclusively on more produce.
Whatever the approach, each of the two-dozen retailers, consultants, community activists and suppliers interviewed for this story seem to agree: Lasting change in food deserts must be powered from within these communities.
“The American tendency is to drop down whatever you’re trying to do, rather than trying to figure out what the impulse is,” says Paschel. “The impulse has to be there organically. I think it could be cultivated, but I think you’d have to build it from the community upwards as opposed to having just a bunch of policy people throwing money at it.”
Corner Success Stories
Across the United States, dozens of “healthy corner store initiatives” are providing marketing guidance, distribution arrangements and merchandising support to retailers in food deserts, as well as community outreach. They include:
- Philadelphia. The nonprofit Food Trust and state-run Fresh Food Financing Initiative have helped open 26 supermarkets; guided a 130% increase in food-stamp redemption at farmers’ markets; and signed up 500 corner stores in the Healthy Corner Store Initiative, which offers a small cash incentive to sell fresh produce as well as coolers for storage after a trial period.
- Minneapolis. In Minneapolis, the Healthy Corner Store Program sets retailers up with a store operations manager at a local co-op to help develop a merchandising plan and get help on pricing and margins. A specialty wholesaler supplies produce-handling training. Some of the 10 participants are breaking even, while others are seeing sales increase by 50%.
- Hartford, Conn. The 25 participants in The Healthy Food Retailer Initiative reserve 5% of their shelf space for healthier selections, including produce, dry grocery and frozen foods. Having a larger store footprint and being WIC-certified are the biggest predictors of success.
- Detroit. The Detroit FRESH program currently assists 18 retailers in selling produce, including merchandising and marketing support, and connects them to a local distributor. After retailers show commitment—they must sell two types of fruit and vegetables—the program does community outreach, which typically helps boost sales by 15%.
So You Want to Serve a Food Desert
The decision to open a store in a food desert is seemingly fraught with risk, but the elements a retailer needs to consider are fairly basic:
- Assess Demand. “You certainly want to understand the marketplace: What are the demographics and who are the people who live around it? How much money do they have to spend? What are their purchasing preferences?” says Mark Wright of Nielsen’s retail, restaurant and real estate division. Those in urban areas would need to study the area to finer levels of detail, he says, examining the population by city block, or even the ZIP+4 level.
- Find a Site. As Wright says, in a built-up market, a retailer might need to consider available buildings that could support a nonstandard format, such as a 5,000- to 7,000-square-foot site without gas. Expect real-estate prices to be surprisingly high in urban areas.
- Connect with a Supplier. Steve Montgomery, president of b2b Solutions LLC, says a cornerstone item in any of these areas is milk. “I would choose a distributor who is bringing me milk, vs. one who wouldn’t,” he says. Also, “I would also try to make sure I had a good sandwich offering.” He points out that a consumer in this type of market may look for bulk over quality of ingredients. While major distributors say they can supply food deserts, they discourage splitting orders—in other words, buying some product at a warehouse store, and others supplied by the wholesaler. Perfect the Assortment. “Particularly in urban areas, where populations are so concentrated, and so diverse … you may have seven different ethnicities or countries of origin within a half-mile of your store,” says Wright. “Assortment becomes much more critical in a situation like that.” Nielsen offers lifestyle/consumer segmentation tools to better understand the target audience and can build predictive models on different offerings.
Assess the Results. Here, the typical metrics apply, says Wright, citing total profitability of the store, sales per square foot, sales per employee, shrink and turns in key categories. There is a premium for ensuring the space is well used. “There is opportunity in these areas,” he says. “Think of it as an unexplored frontier in retailing. Done right, there’s money to be made and clients to be found.”
About That $400 Million …
If you’re wondering how you can get in on the $400 million through the Healthy Food Financing Initiative, there are a lot of steps between the cash and your store. That money is funneled through the USDA, Health and Human Services and the Department of the Treasury, who in turn make it available to community development financial institutions (CDFI; non-government organizations that act like an alternative lender to mainstream banks for lowerincome areas) and nonprofits engaging in a food-desert program.
Nonetheless, opportunities exist. As cited in the story, the fiscal crisis has left the agencies uncertain of how much money it has to allocate to food-desert programs, but the following are useful opportunities for c-store retailers to research.
Under the CDFI Fund, the New Markets Tax Credit Program permits taxpayers to receive credit against federal income taxes for making equity investments in lowincome communities. The credit provided to the investor totals 39% of the cost of the investment and is claimed over a sevenyear credit allowance period. At press time, application schedules for 2011 were yet to be announced; check the CDFI Fund website (www.cdfifund.gov) regularly for updates.
Meanwhile, for communities of 50,000 people or fewer, the USDA’s Business and Industry Loan Program guarantees lowinterest loans. A retailer would visit a lender to take out a loan to do upgrades on some locations—perhaps expand shelf space for healthier foods or do some sort of promotional activity around healthy eating. The lender would then go to the USDA, who would provide a guaranteed backing for up to 90% of the loan. That provides some assurances to the lender that the loan is safe, and it encourages them to lend in instances where they might not do so. Visit your state USDA office for more details.
Other Channels Tackle the Desert
A few retailers have found opportunity attacking the food desert challenge head-on. They include:
Save-A-Lot. This no-frills value chain, owned by Supervalu, aims to open 160 sites in 2011. Focus is on low overhead: The 15,000-square-foot stores carry 2,000 SKUs, with about 70% private-label. Employees are limited to 25 per site and have multiple responsibilities. Customers do their own bagging and must buy or bring bags. About 50% of customers are on government aid. (See related story, “A Lot for a Little,” on p. 67.)
Walgreens. In August 2010, Walgreens debuted an expanded food offering at 10 sites in Chicago food deserts. This includes more than 750 new items, such as fruits and vegetables, frozen meats and fish, pasta, rice, beans, eggs, whole-grain cereals and other healthy meal components. According to spokesperson Vivika Vergara, “customer response has been very positive,” and Walgreens is “looking at opportunities to bring expanded food selection to other food deserts across the country.”
Walmart. As part of a larger effort at meeting the first lady’s Let’s Move goals, Walmart is tinkering with a 15,000-square-foot Walmart Express format. The first will open this summer in Arkansas, with plans to open dozens of sites in Chicago over the next five years, according to the Chicago Tribune. The focus will be on groceries, with some sites featuring pharmacies.
Just Deserts
First lady Michelle Obama has singled out convenience stores for selling unhealthy food to consumers in “food deserts.” To what degree do you think she’s right?
She’s 100% correct. Most c-stores offer little to no healthy foods or groceries, and can do much better. 11.8%
She’s partially right. While some c-stores do a great job providing healthy food, the rest have room for improvement. 49.7%
She’s 100% wrong. Most c-stores offer healthy foods or groceries, and the industry is being used as a scapegoat. 38.5% Source: CSP Daily News Poll. Based on 195 respondents.
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