Key Challenges & Strategies →
- 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.
- 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.
- 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.
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.
- For more information on how to create the partnerships to support healthy food retail in your community go to the Public-Private Partnership Primer.
- For more information about existing regional financing initiatives that can support grocery projects across the country go to Public-Private Partnership Funding Programs and review the Funding section of this website for a program in your region.
- 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.