Grocery Stores and Co-ops

Supermarkets and Grocery Stores

Research shows that the presence of supermarkets and grocery stores that sell healthy food in a community lead to not only better dietary choices, which helps individuals maintain a healthy weight. They also contribute to the economic health of an area by creating jobs, anchoring complementary development, and boosting housing values nearby.

While supermarkets and grocery stores are an excellent strategy for increasing healthy food access in a community, they are complex businesses that operate on thin profit margins. Each community must first determine whether they have the capacity and demand to support a supermarket or grocery store. To learn more about questions to consider when planning your food retail strategy, go to the Assessment Tool.

Despite the challenges, groups across the country have successfully worked in partnership with food retailers to develop and expand supermarkets and grocery stores in underserved communities.

Food Cooperatives (Co-ops)

Food cooperatives (co-ops) are worker- or customer-owned businesses that sell grocery items to their members. Co-ops operate on a shared equity model where residents invest in the co-op by giving their money and/or time, and often receive a discount on the food they buy as a member.

Food co-ops can take the shape of retail stores or buying clubs and are often committed to consumer education, product quality, and member control. Co-ops usually support local community economic development by creating jobs and selling produce grown on nearby family farms. To find family farms in your area, visit LocalHarvest.

Key Challenges & Strategies

Key Challenges
 

General Challenges

  • Lack of sufficient capital. Grocery operators in both urban and rural areas cite lack of access to financing as one of the top barriers to the development of stores in underserved areas. This challenge especially impacts independent and regional supermarket operators, who may be more willing to locate in underserved communities than their peers in the industry, but who don't have their own large capital funds.
  • Perception of profitability. Supermarkets—with annual profit margins averaging one percent—are focused on a very tight bottom line and often cite lack of profitability as a barrier to investment in underserved communities. A survey of retail executives found that their top three concerns were insufficient customer base, lack of consumer purchasing power, and perceived crime.
  • Complexity. One of the biggest obstacles for communities that want to bring a grocery store to their area is the amount of time and complexity involved in commercial real estate development. Supermarket developments are exceptionally large, risky, and difficult deals to pull together, and often require specialized negotiation skills and expertise.
  • Workforce development needs. Full-service grocery stores require a number of well-trained employees to operate effectively, in addition to highly skilled workers in their specialty meat and produce departments. Recruitment and retention of personnel contributes to high operating expenses for healthy food retail.


Urban-specific Challenges

  • Costly site assembly. Urban sites, unlike suburban green-field sites, typically require a developer to demolish existing buildings or clean environmentally contaminated sites. Assembling a site large enough for a grocery store or other food retail outlet often requires pulling together numerous smaller parcels, held by multiple landowners, significantly increasing the time and complexity of development. The need to remediate former industrial sites can further increase costs. Negotiating the zoning and regulatory processes involved in land acquisition can also be burdensome.
  • Higher development costs. In many urban areas, developers plan for up to 30 percent higher costs than in nearby suburbs. This is because construction costs are often higher in urban areas. In addition, the development process can take longer and cost more where there is a cumbersome approval and permitting process.


Rural-specific Challenges

  • Competition with large chain stores. Rural grocers often struggle when they compete against large chain stores that can offer customers low prices and a greater selection of products due to their corporate structures. Rural grocers can navigate around these challenges by engaging their local communities, providing customers with high levels of customer service and convenience, and encouraging business networks and support systems with neighboring small businesses.
  • Meeting minimum buying requirements. Many independent grocers cite the challenge of meeting minimum buying requirements set by their food distributors as a barrier to operating and sustaining a successful store in rural areas. Grocers can overcome this obstacle by entering into cooperative buying agreements with other grocers or private institutions, such as schools and restaurants.
  • Population density. In rural communities with low population density and limited public transportation services, it can be challenging for grocers to sustain their stores at convenient locations for all residents. It is important for rural grocers to remain aware of their store's trade areas. Grocers can also tailor the size of their stores to meet the needs of the community.

 

Key Strategies

 

  • Create state and local public-private partnerships that fund grocery stores. Many regions have created grocery financing programs modeled on the Pennsylvania Fresh Food Financing Initiative (FFFI) to support healthy food retail projects across the country. These grant and loan programs create a regional commitment to improving fresh food access in the area. These programs are designed to help operators overcome key development barriers and meet the financing needs of fresh food retail operators who plan to operate in underserved communities.
  • Develop partnerships. Community organizations are often critical partners in grocery store development. Community development corporations (CDCs) may advocate for a city to provide assistance, garner community support, negotiate zoning and regulatory issues, help stores obtain below market-rate financing, and assist with employee selection and training. Community-based organizations and food councils can advocate for local grocery store development by engaging public agencies, seeking high-level political support, and conducting neighborhood activities designed to solidify resident backing.
  • Partner with community groups to find and keep good employees. Community organizations can assist stores in identifying and training employees. This reduces the stores' costs for employee recruitment and training, improves employee retention, and can increase the likelihood that jobs in the store will go to neighborhood residents.
  • Engage local residents. Retailers say that community involvement is essential for success in underserved markets and can increase community acceptance, which leads to higher patronage and lower theft rates.
  • Support grocers with financial and other incentives related to taxes, development, land assembly, and energy costs. State and local governments can prioritize supermarkets and other healthy food retail by providing incentives to encourage supermarket development. Local governments can also appoint a staff member to help grocery developers and retailers through the planning process. For a detailed overview of the types of incentives government can use to better support grocery stores, go to State and Local Government Incentives under the Funding section of this website.
  • Adapt store formats to fit existing sites. Given the difficulty in finding large sites in cities—and increasing interest in more compact urban development patterns—some supermarkets are adapting their site requirements to work within the constraints of the existing urban environment, experimenting with smaller store formats, reducing their parking requirements in areas with heavy foot traffic, and renovating existing structures. In Boston's Lower Mills neighborhood, for example, the Shaw's chain located a new 40,000-square-foot supermarket — 70 percent of its average store size — in a retrofitted chocolate warehouse. Smaller grocery stores can also be a more feasible option for areas with limited land.
  • Customize market information about specific development opportunities that highlight demand and/or leakage (i.e. dollars from the community spent on grocery purchases outside the community). Accurate information about the underlying market potential in areas that are underserved is crucial for attracting new food retail investment. In the last 10 years, a new consensus has emerged that urban retailers have underestimated the potential of emerging markets in many inner-city areas. Innovative market analysis that incorporates community input can provide a better understanding of the different fresh food retail models that are likely to succeed in different communities. Engaging local residents early on through surveys, focus groups, and community meetings can help retailers understand and meet the unique needs of communities by stocking the types of products reflective of residents’ cultures, religions, and eating preferences.

Advancing Equity

Grow Your Business with Equity

Grocery stores and food co-ops can improve health outcomes, increase employment opportunities, spur economic development, and create access to opportunity for residents of low-income communities and communities of color. Integrating equity into your economic plan will help grow your grocery store or food co-op. Below are some strategies to increase store profits by building a sustainable community of opportunity where everyone can participate and prosper.

 

  • Engage residents and community groups in the grocery store or co-op planning process. Involve diverse community members in all stages store planning from idea to implementation. Residents and stakeholders can provide crucial insight into issues such as location, hiring, and product mix. The following Community Engagement Resource Guides are helpful for thinking about how to engage your community: Community Engagement Resource Guide: What It IsCommunity Engagement Resource Guide: Why Use It, and Community Engagement Resource Guide: Checklist.
  • Choose a location that maximizes equity benefits. To ensure a broad customer base, select a site in a low-income neighborhood, or a community of color, that maximize benefits for these residents. If possible, select a site that is close to a public transportation stop to meet the needs of transit-limited customers. In addition to improved food access, locating your store in a low-income community will facilitate local hiring; workforce development; and, if done well, a commitment from the community to support the store.
  • Employ members of the community. Consider partnering with a community organization to assist with identifying and training employees. Grocery store jobs are often an opportunity to employ workers who have previously been excluded and overlooked. Target your hiring to un- or under-employed residents of the local community, and especially people re-entering society from prison or jail. Provide employees with living wage jobs that include benefits and opportunities for career advancement.
  • Make the grocery store or co-op an inviting, appealing asset to the community. In addition to offering healthy food, the physical appearance of the store can help revitalize a neighborhood. If possible, engage your community by providing a broad range of services such as a health center, educational opportunities, and community programming.
  • Accept government nutrition program benefits. SNAP and WIC benefits provide direct, effective support for low-income families to purchase healthy and nutritious food. Accepting these benefits increases your customers’ purchasing power.
  • Provide transportation to increase purchase size. Consider providing free or low-cost transportation to customers in exchange for minimum purchase sizes. Grocery shuttle services can effectively reduce costs related to more frequent, smaller per-trip purchases of consumers, and these programs can usually pay for themselves.
  • Respond to consumer demand and cultural preferences. Offer products that reflect the preferences of your local consumer base. Understanding the details about customers’ product preferences — not just whether customers like apples, but what type of apples they like and how they like the apples to be packaged — will help develop a dedicated customer base. Successful retailers conduct focus groups with residents, solicit input on products at community meetings, and order new products upon customer request.
  • Cultivate relationships with local suppliers. Develop relationships with local suppliers to better meet the specific preferences of diverse customers. Buying products from local entrepreneurs also contributes to local economic development by supporting small businesses.
  • Support shoppers transitioning to healthier diets. As possible, offer cooking demonstrations, healthy food incentives, and nutrition consultation to provide customers with multiple entry points to improve their diets. Situating a community health clinic at your store can also attract passersby to become grocery store customers. Building demand for healthy food can both improve community health and increase store revenue.

 

Check out PolicyLink’s Grocery Stores Tool in the Equitable Development Toolkit – It’s available online here.

Tools and Resources

Tools for Obtaining Market Information

  • PolicyMap's Limited Supermarket Access Analysis: In 2012, with support from the Community Development Financial Institutions (CDFI) Fund, The Reinvestment Fund completed a nationwide analysis that identified communities across the nation with unmet demand for healthy food retail options.
  • Consumer Expenditure Survey: When your community seeks to attract a supermarket, it may be helpful to detail consumer demand. Free, easily available data can show how much residents spent per year on food to prepare at home. These data compiled by the Bureau of Labor Statistics describe how much, on average, each household spends on various groups of items, including food, by income, and before taxes.
  • U.S. Census Bureau: The Census Bureau compiles information similar to the Consumer Expenditure Survey, highlighting consumer demand in an area.


Examples of Cities Using Market Information

  • City of Baltimore: The City of Baltimore used research compiled by Social Compact to highlight that an estimated $217 million in grocery leakage to stores in the surrounding suburbs could support an additional 633,000 square feet of grocery retail space in Baltimore.
  • City of Milwaukee: The City of Milwaukee's Department of City Development used a state-of-the-art methodology using detailed income tax filing data and other current information on residents' spending patterns to describe the income concentration and spending power around commercial districts. The city mapped the purchasing power and economic assets of all commercial districts in the city. The purchasing power profile reports were then posted on the City of Milwaukee's website. Milwaukee's data showed that some of the strongest retail markets in the city have been ignored, in part due to marketing stereotypes, misconceptions about income status, and persistent "urban legends" about the absence of workers in inner-city neighborhoods.

Key Resources for Funding Grocery Stores

  • Regional Financing Partnerships: As the importance of grocery stores in communities has been elevated on the national agenda, federal, state, and local funding programs have been created specifically for grocery store projects. For a list of grocery funding programs across the country go to the Public-Private Partnership Funding Programs.
  • Financing/Funding Packages for Each Specific Project: For more information on finding unique funding for your grocery project, go to Funding.


Other Key Resources for Developing Supermarkets and Grocery Stores


Key Resources for Funding Co-ops

  • Public-Private Partnerships: As the importance of grocery stores in communities has risen on the national agenda, federal, state, and local funding programs have been created specifically for grocery store projects, including co-ops. See the Public-Private Partnership Funding Programs for a list of existing healthy food retail programs in the U.S.
  • The Food Co-op Initiative Seed Fund: This fund was created to provide early development capital to co-op organizing groups that wish to partner with the Food Co-Op Initiative, a 501(c)3 nonprofit. In addition to the grant award, the Initiative committed to regular follow-up and assistance with local teams.
  • Cooperative Fund of New England: This community development financial institution (CDFI) has played a leading role in financing the Northeast’s cooperative food movement. As a CDFI it has served as a financer, lender, and advisor to nearly every food co-op in the area. Read more about their work in this Profile.

Other Key Resources for Developing Co-ops


Success Stories

Grocery Stores

  • Philadelphia's Fresh Grocer Progress Plaza: Located in North Philadelphia, Progress Plaza is the nation's oldest African American owned and operated shopping center. Progress Plaza had been in disrepair for more than a decade after its anchor tenant, a supermarket, moved out. In 2009, with help from the Pennsylvania Fresh Food Financing Initiative, the Fresh Grocer, a full-service grocery store, opened its doors and brought fresh fruits and vegetables back to the community.
  • Pennsylvania's Bloss Holiday Market: Located in a small but growing rural community in Tioga County, Pennsylvania, Bloss Holiday Market is a 7,500 square-foot store that is open seven days a week. The only other grocery store within 15 miles is a Walmart. With help from the Pennsylvania Fresh Food Financing Initiative, store owners Ryan and Melanie Shaut purchased and renovated the store in 2008 focused on serving the needs of the community while modernizing the store.
  • California's Northgate Gonzalez Market: In fall 2012 Northgate Gonzalez Markets opened a new store in Inglewood, California. The retailers received $7.5 in financing and investment from the California FreshWorks Fund, a statewide financing program that supports healthy food retail in underserved communities. The new 30,000 square foot, full service market was recently visited by the First Lady. Read about their work on the California Fresh Works site.
  • Nojaim Brothers Supermarket: For more than 90 years, this neighborhood institution has served as Syracuse’s only independently owned grocery store, and a community hub. With support from the New York Healthy Food and Healthy Communities (HFHC) Fund and Healthy Food Financing Initiative, third-generation store owner Paul Nojaim was able to renovate and expand the store, which reopened in October 2014. Through Nojaim’s leadership, the store also works with local universities, agencies, and hospitals to connect primary care services and healthy eating and support youth work-force training programs. Learn more about their story in this Profile
  • Pyburn's Farm Fresh Foods: In Houston, Texas, his local, immigrant-owned chain of grocery stores opened its newest location in the South Union neighborhood, an area classified as a Houston “food desert.” A nearly launched citywide healthy food financing initiative supported the retail development and groundbreaking of its new store, which will serve as a new community anchor and create local jobs for residents. Read more in this Profile


Co-ops

  • Vermont's City Market/Onion River Cooperative: The co-op received support from the city of Burlington for its expansion. The city of Burlington, Vermont, issued a request for proposals for development of a downtown grocery store. The city decided that it would own and provide a long-term lease to the retailer. In the end, the community supermarket selection committee recommended that the city council support a proposal for expansion of the local Onion River Cooperative as the full-service downtown grocery store. Today, City Market in Burlington is the nation's second-highest grossing food cooperative in the United States. It provides a range of fresh food and household items at affordable prices. For more info on Burlington's request for proposals, see Grocery Store Attraction Strategies.
  • Philadelphia's Mariposa Food Co-op: This member-owned food cooperative sells fresh produce and educates consumers on the benefits of healthy eating. It secured financing for a $2.5-million eco-renovation that will contribute to the economic development of the city's recovering commercial corridor. In addition to the construction jobs created by the project, the new store created and saved 45 permanent jobs. Read more about Mariposa in this Profile.
  • Oakland's Mandela Foods Cooperative: This worker-owned, full-service cooperative opened in a predominantly African American community in Oakland in 2009. Mandela Foods Cooperative provides local jobs, supports regional family farms, and improves healthy food access in a community historically underserved by grocery stores. For more information about Mandela MarketPlace, read this profile, as well as this in-depth case study and accompanying photo essay