Is it just a matter of zoning laws? Because in strictly economic terms, it seems to me like it would be very advantageous to open a grocery store in a neighborhood that is devoid of them.
In: 3
One of two ways.
1) A big box store like Walmart opens a store in a small town. They crowd out the small-town stores (most notably, grocery stores) that specialize in selling things you can buy for cheaper at Walmart. No one has money anymore because all those stores the townsfolk used to own shut down. Walmart sees their profits drop because no one has money. They then close that location, leaving the town with no options at all unless the people drive several miles out of their way.
2) A grocery store is in a place where poor people live. It used to not be that way, though it is now. Those people can’t afford much of anything beyond their basic needs and often need help from the government just to meet those basic needs. The store doesn’t have to stay where it’s not making money, so they close that location down. All those poor people now have no place they can access to buy food.
Even if pure economics suggest it’s beneficial to open where there are not competitors, there are other considerations like crime/theft risks, ability to attract and maintain workers in that location, whether product mix would be efficient to sell.
A major chain that has access to the capital to open might decide it’s too risky and profit potential isn’t worth it — the store would be more likely to get robbed/deal with shoplifting; they might have trouble getting qualified workers willing to commute to a bad neighborhood, and those who live there may not be dependable; it’d take extra time/effort to customize product mix for a different income/ethnic demographic, etc.
Conversely, somebody who knows the area well and might be able to better build a store that would cater to the needs of the area might have issues getting loans/capital to open such a store. Banks might view the area as too risky compared to opening elsewhere, and not want to lend. And suppliers might not be willing to extend lines of credit, etc. necessary to keep such a business afloat.
Grocery stores make very little money, and only do so if they have advantageous deals with suppliers, high markups, or economies of scale. The 1st thing is not something that every company can do, they all try but most fail. High markups only work for certain types of grocery stores like high end or ethnic stores where their clientele can afford the high markups – food deserts are typically in lower income areas where this isn’t possible. Economies of scale obviously require large volumes, which only happens if there is a large amount of demand, which isn’t really the case in many food deserts due to issues with transportation or not having the time or knowledge to cook from scratch.
There have been efforts to open grocery stores in food deserts before but they typically go out of business due to these factors.
Latest Answers