Grocery stores: the difference between want and need and tax breaks

It's true that grocery stores (supermarkets) and department stores generally want incentive payments to open new stores. They justify this because:

(1) they serve as anchors, drawing customers to a commercial district, and the customers in turn shop in the adjoining stores--note that this isn't how Walmart works, their business model doesn't involve sharing their customers with other retailers, unless it is absolutely necessary;

(2) they spend a lot of money on weekly advertising--well, in DC at least Safeway, Giant, Shoppers Food Warehouse, and Harris-Teeter pay to distribute circulars in local and community newspapers, NOTE THAT WHOLE FOODS DOESN'T DO THIS KIND OF ADVERTISING, although they do some advertising around the holidays--which is a cost of attracting customers, which isn't shared amongst the other retailers who benefit from the store/commercial district customer traffic generated by the advertising.

DC has a blanket tax exemption program for supermarkets (it's not clear if mixed-use stores like a Walmart or a Target qualify), although effective with the current fiscal year, the program shifts from automatic to specific approval. This program was first developed in 1988, and until the post-Barry political and economic environment starting in 1999, new supermarkets pretty much weren't locating in the city. Some Fresh Fields did open (the chain was later bought by Whole Foods) because it was local, and understood the value of various city submarkets, and some Safeways.

With the resurgence in the local economy, Harris-Teeter entered the market, Giant reinvested/planned to reinvest in some of its city stores (in Columbia Heights, Cleveland Park, and Shaw) and opened new stores in Ward 5 and East of the River. Safeway reinvested in many of its stores and opened a new store downtown. (Although Safeway has been closing smaller and underperforming stores simultaneously.)

Harris Teeter and Yes Market have used the Supermarket Tax Abatement program. It's not clear that Safeway and Giant have, but they have been involved in projects that included a variety of other incentives and abatements that likely provided the companies with some financial benefits and inducements (e.g., CityVista at 5th and K Streets NW was a National Capital Revitalization Corp. project involving Safeway, while the Tivoli Square project in Columbia Heights included Giant).

Now, if anything, the city is over-stored with grocery stores in terms of the ability of the market to support all of them--a grocery store expects to sell $2 million-$3 million/month, although some companies like Whole Foods do better.

Although it is true that some areas of the city remain understored. However, it is a bit complicated to call these areas food deserts,. Typically, the "retail trade area" of a supermarket is a 3 mile circle. Giant, Safeway, and Shoppers Food Warehouse have located stores in Maryland, just outside of the DC border, in order to serve both markets. This particularly impacts Wards 5, 7, and 8--while most residents have grocery stores within "driving" distance, the stores are located in Maryland.

See:

- "Retail Trade Area Analysis: Concepts and New Approaches" from Directions Magazine

- Understanding Your Trade Area: Implications for Retail Analysis from Mississippi State University Extension

- What the Houlihan's restaurant chain says are its preferences for choosing locations, which is a nice example of how companies go about deciding where to locate and the criteria they consider. Most companies don't make this information all that available.

Trader Joe's opened a store in Foggy Bottom, but the incentive payment came from the Foggy Bottom Association--NOT THE CITY. (Long story how that came about.) Despite the store's success, they aren't really interested in opening additional DC stores, despite the clamoring by residents of various neighborhoods.

Today's Post discloses that Whole Foods Supermarket and the William Smith Companies want an $8 million tax abatement to locate a Whole Foods Supermarket in the Capitol Riverfront area. See "Developer: Whole Foods deal near Nationals Park would require $8 million in tax breaks."

While it's true that the specific neighborhood doesn't have a full line supermarket, the NEW Safeway located in Southwest DC is exactly one mile away. The Harris-Teeter at Potomac Avenue Metro is 1.9 miles away, and the Safeway on Capitol Hill is a bit farther.

It is true that this particular "district", the Capitol Riverfront, doesn't have its own supermarket. However, there are other ways to provide access to groceries at a lower cost than $8 million in incentive programs, and in a far more exciting fashion (although Whole Foods is one of the best companies at merchandising, it's still possible for them to be outperformed).

One model would be a modern "public market" -- think Belvedere Square in Baltimore or Eataly or the Chelsea Market in New York City, with the addition of a smaller grocery to complement market stalls.

Image from Chelsea Market from the Walk in New York blog.

All of these markets are a combination of prepared foods, artisanal product food vendors, and are higher end, just like Whole Foods. The difference is that a place like Belvedere Square supports 10 different companies, not just one, and ends up being more interesting.

Such a model would support individual entrepreneurship and business development far better than sending off most of the store's profits to Austin, Texas.