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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 leads to not only better dietary choices, which helps individuals maintain a healthy weight, but also to better 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, visit our Getting Started section for business owners and entrepreneurs.

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. If you are considering a co-op model, get in touch with your state or region’s cooperative development center. They can help with feasibility studies or finding funding. Additionally, the Food Co-op Initiative, which was formed to spur the development of food co-ops, has helpful resources on its website.

 

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.
  • Perception of profitability. Supermarkets—with annual profit margins averaging 1 percent—are focused on a very tight bottom line and often cite lack of profitability as a barrier to investment in underserved communities.
  • 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.

 

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. Several factors can contribute to increased costs such as pulling together numerous land parcels, remediating former industrial sites, and dealing with zoning and regulatory processes.
  • Higher development costs. Construction costs are often higher in urban areas, causing developers to plan for up to 30 percent higher costs than in nearby suburbs. 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 because of 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 and to 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. Review the Financing 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 Incentives under the Financing 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.
  • 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. 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.

 

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 of store planning, from idea to implementation. Residents and stakeholders can provide crucial insight into issues such as location, hiring, and product mix.
  • 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 unemployed 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.

Tools for Obtaining Market Information

  • Grocer Associations: Some communities and groups, including grocery wholesalers and grocer associations, provide market studies to explore the viability of a potential store.
  • 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.

Other Grocery Store Resources

Key Resources for Funding Co-ops

  • 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 its work in this profile.