Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Friday, December 14, 2012

In lower income neighborhoods, are businesses supposed to be "community organizations" first?

Time to ShopAP photo of a Gap store in Chicago.

Years ago, I had a conversation with Mari of In Shaw, where we discussed ANC and community involvement with regard to new businesses opening up in the community, and how the community groups were much more focused on what they could get from the businesses.  Mari made a comment to the effect that they are businesses not social welfare organizations (I can't remember the specifics, we're talking about a 7 year old or older conversation).

This comes up all the time when you read in the local media about business presentations at various community meetings.

Note that this isn't a phenomenon exclusive to "poor" neighborhoods.  Years ago I was at a meeting of CulturalTourismDC and at the meeting, a representative from a theater that had recently opened in Penn Quarter, announced how they were looking for donations from local businesses, inducements for patrons, etc.  I countered, why not think about how this can be "mutually beneficial" instead of all one way?

The failure of Ray's the Steaks in DC's Ward 7

Ray's the Steaks is a well known (President Obama has eaten there a couple times, etc.) restaurant group mostly active in Arlington, but with a branch in Silver Spring, and recently, one in Ward 7 in DC.  The Ward 7 location is in a lower income area, and the company priced the menu accordingly and said they opened there out of a sense of "giving back" to a community that is underserved by restaurants and retail.

The store in Ward 7 failed.  Some of the commenters to the DCist piece "Ray's the Steaks at East River Is Out of Business" said the failure had to do with the business not engaging with the community:
Person 1: Landrum is a nutcase who refuses to advertise or engage with the community--failure was eminent in a location that required effort (albeit minimal) to make the venture successful.

Person 2: What were these community groups and what partnerships were they asking for? What was on the table to be sponsored?
Person 1: Point is, you want to get your name in front of people who will patronize you. Ray's failed miserably at that.
Person 3: Having worked in a small business and being relatively close to the owner, in that position you get slammed with requests for free stuff. Its constant. People coming in, phone ringing. Daily. Kids groups, school groups, charity auctions, etc. etc. it never ends. Inevitably someone will be pissed off because you just can't say yes to everybody, and I think a lot of the public thinks that business owners are loaded and just have extra money and goods to throw around.
There are many other good comments in the discussion about business, social welfare, and what's reasonable to expect.

I can't speak to the particular business as I never went there. (I did go to Ray's the Classics in Silver Spring once on my birthday, and frankly I was disappointed--only the steak tartare appetizer and the creamed spinach met my expectations--and don't feel any reason to go back, maybe the Arlington restaurants are the best ones to go to.)

Yes! Organic Market store fails in Ward 7

Similarly, in today's Post, in "Yes Organic Market needs more than a name change," Clinton Yates makes the same kind of argument, that the reason that the Yes Organic Market on Pennsylvania Avenue SE in Ward 7 has failed is because they needed to engage with the community.

Yes! is what we would call a retail "chainlet" active locally.  They sell high-priced organic food and health products, making them a niche operator anyway, and in a niche that tends to not be successful in lower income neighborhoods.

Until recently, all Yes! stores were in DC--they started with one store in Cleveland Park--although they recently opened their first suburban location in the "Arts District Hyattsville" project in Prince George's County Maryland, about 3 miles from the DC-Maryland border.

In addition to the Ward 7 store, they have 7 other stores, and they have been pioneers in the sense that they were willing to open stores in emerging commercial districts such as Brookland and in the Petworth neighborhood on Georgia Avenue NW in Ward 4, when those commercial districts were much less successful (the commercial districts are "emerging" but the residential areas served by the stores are a mix of higher and lower income residents, but with enough income to make the location successful, albeit not wildly so).

From the article:
But dropping an organic food store in a neighborhood is not the way to do it, and neither is simply changing its name.
It requires a lot more than a business plan. It requires a neighborhood plan, one that involves engaging the community. Indeed, Cha admits that his original approach had its shortcomings.
“There are areas where we could have and should have done a better job,” he said. “This gives us a chance to actually look at ourselves. We found a lot of areas where we are very weak. We tried to bring organic and natural food to east of the Anacostia and tried to make it more affordable, but I don’t think we did a good job of conveying that message to the people there.”
Sometimes a company's business model isn't the right fit for a particular neighborhood or commercial district

I hadn't written about the Yes! failure ("East-of-the-river retail setback" from the Post) because I didn't want to pile on, I know Gary Cha, one of the proprietors, etc. But it's important to weigh in, because some of the discussion is misguided.

The problem is that sometimes the business model doesn't work for a neighborhood, for various reasons.  Usually, people blame the commercial district--"you just can't make a business work on X Street" is the sentiment--and not the business and whether or not it operated adequately.

As I've said in past blog entries "Analyzing retail store failure" and "Store siting decisions" it's very important to understand what has happened, because every business failure makes it that much harder to improve to improve the commercial district.  That individual business failures make commercial district improvement much more difficult is the justification for the provision of technical assistance and other supports to businesses opening in such districts.

(Note that restaurants adding late night music as a way to stoke sales when they aren't selling enough food is another potential indicator of a poor fit between a business and a neighborhood/commercial district.)

The fact of the matter is that for groceries, Yes! (the only local operator) is probably the highest cost store of any of the supermarket chains operating with more than one location in the city (Safeway, Giant, Harris-Teeter, Whole Foods Market)--except for their specials which can be excellently priced, for specialty items like bulk foods (we go there to buy bulk spices especially), and for beer and wine--and that on that basis, the store is a poor fit for what DC Office of Planning would call an "emerging" neighborhood (there are four categories: distressed; emerging; transitioning; and healthy).

Ray's was a poor fit for Ward 7 as well; both companies have business models that are designed to appeal to high income consumers, not low income consumers, and so they don't seem likely candidates for stores in emerging markets (although I argue that emerging markets can be successful places to operate)--in terms of market dynamics, demographics, the standard business model of the organization, the ability of the organization to be flexible in significantly different business circumstances, etc.

Should a business change its business model for different circumstances?

Well obviously the answer is yes, if you've made the determination that the value of the new market is worth changing for.  But if you haven't asked that question to begin with, it might not make sense to change.

For example, years ago I read an article about a small company that operated fast food franchises.  The proprietor realized he spent more time trying to fix the underperforming store than spending time on his profitable stores, and boosting their success.  He realized he should just dump the underperforming store, and focus on generating more profits from the stores that were already profitable.

Maybe a "neighborhood plan" was required for Yes! to be successful in an emerging market, but maybe that requires so many ways of operating differently that the business proprietors at Yes! would still be a bad fit for that location.  (Comparable to how FreshFARM Markets farmers markets selling high-priced organic foods aren't a good fit for low income neighborhoods either.)

Low priced supermarket divisions of mainline companies

Some supermarket companies, Giant-Eagle (Valu King division) and Delhaize/Food Lion in particular, have created a tiered structure of store divisions, including limited assortment low price stores designed to compete with Save-A-Lot (now owned by Supervalu) and Aldi, companies that are focused on providing a narrow assortment of lower priced grocery products, heavy with store brands and less representation of national brands, usually located in lower income markets.

Maybe Yes! can pull this off with their plans to reopen the Ward 7 location as "Healthy Gourmet Market," ("Yes! Organic Market in Southeast to remain open under new name," Post).  But it's probably too far outside of their skill set.  (Food Lion, a much more successful and bigger company, has had problems being successful with Bottom Dollar.  And recently Supervalu's problems have contributed to sales declines at Sav-A-Lot.)  Maybe they should think about the example of the Chick-Fil-A operator recounted above, and walk away.

In any case, the city economic development department did a bad job of prepping Yes! Organic Market for their new location. That's regardless of whether or not businesses are supposed to be social welfare organizations.

(Another example of higher cost businesses trying to create successful lower cost divisions and failing is how many airlines, such as Delta, Continental, and others, tried to create divisions that could compete with low fare operators, especially Southwest Airlines.)

Klein's ShopRite opening stores in underserved Baltimore neighborhoods

A different way to enter more difficult retail districts comes to us from Baltimore, where a supermarket company active in Harford County, a rural-suburban county northeast of Baltimore, is entering underserved neighborhoods with the assistance of its business partner, the Wakefern Food Cooperative (a business co-op) and the consulting arm, UpLift Solutions, of a Wakefern member active in Philadelphia's urban neighborhoods.  See "A suburban grocer moves into Baltimore: With nonprofit backing, Klein's takes on the urban market" from the Baltimore Sun.

Food co-operatives, business cooperatives, and community-owned retail in urban emerging markets

Maybe it would be easier for nonprofit food co-operatives--typically they are member-owned--to take on the broader range of "social objectives" that underserved communities are looking for businesses to provide, although food coops tend to be high priced also.

The recently expanded Mariposa Food Cooperative in Philadelphia is an example of a food cooperative doing so in a lower income neighborhood.  I have to say I am not familiar with many examples of food coops operating in emerging neighborhoods, but it could work, if the price to value equation could be better managed.

Note that I have discussed in the past the business organizational form of co-operatives as a way to provide retail to underserved communities.

Increasingly people are turning to this model in shrinking rural communities.  See the past blog entry "Speaking of retail cooperatives," and the section on Community-Owned Retail from the University of Nebraska Cooperative Development Center.

In New York City, the HIV/AIDS service-advocacy nonprofit organization Housing Works raises money and adds to retail options through a bookstore cafe and resale shops.  Glut Food Coop in Mount Rainier and the Red Emmas Bookstore in Baltimore are business cooperatives owned by the employees.

I have written in the past about how the Silver Spring Books  used book store functions as an informal business cooperative.  (Years ago I talked to one of the proprietors.  She said there were three people who each managed their own stock and ran the store but the sales were tallied according to who owned the particular book, and revenues were not shared amongst the "partners.")

Public markets are also a kind of cooperative business arrangement too that supports the provision of a wider range of products than can normally be provided by independent businesses.

Fresh and Green's supermarket in Downtown Baltimore.  Yelp photo by Nina U.

Fresh and Green's in Northwest DC

A couple years ago, Super Fresh, then a division of A&P, closed most of its stores in Maryland, DC, and Virginia. (By that time it had almost no stores in DC and Virginia.)

Fresh & Green's bought some of the locations--they are mostly in Maryland, and failed in at least one spot (in Baltimore they ended up selling a store to Giant, which then closed their store in the Rotunda and reopened in the former Super Fresh location instead) and succeeded in others.

One of their stores is in Northwest DC. I haven't been there but I did go to the store in Cambridge, Maryland and I was impressed, with prices competitive with the supermarket chains present in DC, which obviously is a much bigger market.

The store sells some organic products, but mostly it is a traditional full line grocery store.

Attracting a store like that to Southeast DC would be a boon, although they and most companies are likely leery, given that Walmart will be opening two locations in Ward 7, and since more than 60% of the sales in a Walmart supercenter are groceries, it could be a losing proposition.  (Fresh & Green's is part of a corporation with other divisions in Canada and New York and Connecticut.)

Social benefit corporations as an option for emerging neighborhoods?

But note that this new idea of a "social benefit" corporation is one way for businesses to take on social obligations, recognizing that this comes at the expense of business profit.  (Frankly, I think getting a business to be successful is too hard, requires too many sacrifices, to do it without profiting.)

See "Benefit Corporation Movement" from the Sloan Review.  Also, Maryland has recently legalized this form of incorporation ("Maryland Passes 'Benefit Corp.' Law for Social Entrepreneurs" from Business Week). Legislation to legalize this corporate form in DC is pending.

In Takoma Park, Mr. Tebabu Assefa aims to open a coffee shop, Blessed Coffee, under this form of incorporation.  To raise money to open, he's using crowdfunding and selling coffee and beans at the Sunday Farmer's Market.  Blessed Coffee whole beans are also sold at the Takoma Park-Silver Spring Food Coop.  See "Blessed Coffee in Takoma Park offers perks to community: Benefit corporation will donate profits to local, international causes" from the Gazette.

Housing Works Bookstore & Cafe, SoHo, New York City.  Image from the Curious Cranes blog.

Nonprofit thrift stores and the Housing Works bookstore cafe are examples of "social benefit" like activities but through a nonprofit corporate structure.  

Books for America too.  They have one store, near Dupont Circle, and use the profits to support literacy and other programs.  But this model could be used to provide bookstore options in underserved areas as well.

More thoughts on businesses in distressed neighborhoods as an element of community and social networks

I never took anthropology in college, which clearly was a mistake, because it would have clued me in better to the concepts of social ties, community networks, etc. In any case, some of this is discussed in chapter four of Urban Fortunes: Toward a Political Economy of Place in terms of the use value of place:

Types of Use Values
Daily Round: The place of residence is a focal point for the wider routine in which one's concrete daily needs are satisfied.
Informal Support Networks: Place of residence is the potential source of an informal network of people who provide life-sustaining products and services... Sometimes gains are achieved throguh an informal marketplace among proximate beneficiaries... Especially for the poor, this income 'in kind' represents a crucial resource and it is made possible only by a vaiable community. Since the community of poor people is less spatially 'liberated' than that of the well-to-do, poor people's use values are particularly damaged when their neighborhood is disrupted.
Security and Trust: A neighborhood also provides a sense of physical and psychic security that comes with a familiar and dependable environment. ... Gerald Suttles (1968), in his effort to construct a general theory of urban life, or at least 'the' social structure of the slum, portrays neighborhoods as bastions 'defended' against the perceived dangers of interlopers drifting in from adjacent areas. Signs of commonality (skin color, diction, gait in walking) serve as prima facie, if imperfect, basis for categorizing others as either members or nonmembers of the neighobrhood circle of mutual trust. This process of 'categoric knowing' is reinforced by various mechanisms in daily life that maintain the distinction between insiders and interlopers.
Identity: A neighborhood provides its residents with an important source of identity, both for themselves and for others. Neighborhoods offer a resident not only spatial demarcations but social demarcations as well.
Agglomeration Benefits: A shared interest in overlapping use values (identity, security, and so on) in a single area is a useful way to define neighborhood.
Ethnicity: Not infrequently, these benefits are encapsulated in a shared enthnicity... When this occurs, ethnicity serves as a summary characterization of all the overlapping benefits of neighborhood life.
The reality is that in lower income communities, community ties, social networks, and other relationships are much more important and vital to every day living, and so when you look at businesses entering the community from the standpoint, you can understand why people would look at businesses not so much as entities trying to survive and make a profit, but instead as merely another actor-participant, different sure, within the web of existing community ties, and their expectations that all members of the community contribute within the web of social networks.  Contributions to the community are the price that a business entrant has to pay in order to be allowed to participate and be considered a co-equal actor within the community network.

And this is very much relevant to the discussions over the years about "Asian-owned stores" in black communities (I remember this being a theme in the "Hill Street Blues" tv show in the 1980s), which came to the fore more recently in terms of DC's own Marion Barry ("D.C.'s Marion Barry widely rebuked for comments about Asian business owners" from the Post , but also see this old blog entry about similar comments by Andrew Young, when he was working for Wal-mart, "Andy Young, Mel Gibson, maybe it's something about Los Angeles").

However, it's hard enough for businesses to succeed (as comments in the Ray's thread made clear). Rather than deal with those kinds of often unachieveable expectations, proprietors tend to avoid opening stores in those markets.

An option for structuring community donation programs for small businesses

I do remember reading somewhere about a restaurant that treated requests for community donations in a more systematic way, akin to participatory budgeting practices. 

First, they decided what their funding priorities were going to be. (This is like how in community benefits processes where I say that communities should define consensus priorities first, and then focus proffers towards the achievement of those priorities.) Second, they decided how much they could afford to give. Third, I think that the management team or even the entire staff voted on which requests they would fulfill.  They didn't do this ad-hoc, but decided in a regularly scheduled monthly or quarterly meeting.

That kind of process might be a way forward for businesses faced with more requests than they can fund, and remain successful.

Conclusion: More and better technical assistance is necessary to foster business success in emerging markets

In any case, we need more robust technical assistance and business assistance programs aimed at increasing the success of new businesses opening in emerging commercial districts.  People in commercial districts have similar needs to other consumer segments, just less money.  Providing options is important.  At the same time, businesses are in business to make money, not give it away. 

Business failure helps no one.

It's best to work as hard as hell for success, but in advance of failure, before you even open, rather than when it is too late.

UpLift Solutions, a supermarket technical assistance organization, focused on urban markets,the kind of business assistance provided to food co-operatives by their national organization, the National Cooperative Grocers Association and the Food Co-op Initiative, how funding is made available to business cooperatives from the National Cooperative Bank and technical assistance to business cooperatives/buying groups is provided by the National Cooperative Business Association, and the Neighborhood Restaurant Initiative from the City of Boston, are examples that more cities need to learn from when considering recruiting businesses to underserved locations.

As an aside, one example of where we can do better is through cross-marketing.  This article from Fresh Cup Magazine, a trade publication for the coffee shop field, "SHARING THE WEALTH: USING CROSS MARKETING TO BUILD COMMUNITY PROFITS," is a good one that helped me recognize the importance of cross-marketing as a key element of commercial district promotion.

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At 8:05 AM, Anonymous charlie said...

Richard, as always a very detailed post. I often wish my repsonses could be as through.

That being said, I think you are overstating the case a bit. As in the case of SVU, the last ceo (the sav-a-lot guy) eventually admitted that 75% of save a lot customers are on food stamps, and with the food inflation we've seen recently they just can't buy much.

This is an excellent resource:

(his famous study was convincing shampoo companies in india to sell 1 ounce bottles as a luxury item for village poor to wash their hair once a month)

A lot of the scale doesn't apply to poor people in the US, but on the other hand a "poor" person in the US has 1000x the material wealth of someoine in village india. So you can trade scale for dollars.

There was a great comment about how pepsi in the 1950s went on a size war to increase the size of soda bottles from the small 7 oz bottles to 12 oz, an how they had to convince white america it was OK to do so. Same with taco bell right now. So not denying to same trends come from underclass but in DC it isn't a driving factor.

I think you will enjoy Prahlad's work but it is dry slog.

At 10:10 AM, Blogger Mari said...

Close enough. It is something I would say, and still contend that businesses are not social welfare enterprises. They do add to the social welfare of a neighborhood. Since their sucess is not given business ventures should be given a chance to see if they get sucess from the neighborhood before asking to 'get back' from the neighborhood. Besides when a business first arrives ya' gotta wait and see if they get robbed or vandalized or both in their first year and if they'll stick around after that.

At 10:12 AM, Blogger Mari said...

correction- .. success is not 'a' given... and asking to 'give back'..

At 12:08 PM, Blogger Richard Layman said...

1. I know about Prahalad's work actually. Heard him speak about 17 years ago, although that was still when he was the leader in "core competencies" discussion, not "selling to the bottom."

b. I think given higher costs in the US, it's harder, although I am going to discuss an element of this (it's about the systems that support the businesses, which I have written about before) in the follow up post on how to sell groceries in underserved urban markets though.

2. I know this piece was too long and had two very different thrusts, the kinship/ties/network argument, which is pretty damn amazing if I say so myself, and the good fit/bad fit argument.

3. Mari, note that I wasn't being negative about your argument, I agree, as you can see. But I wanted to acknowledge that a kernal of the idea in the post is in part derived from our conversation of many years ago.

b. Good point about the business' first year. Businesses and new residents in changing neighborhoods are often "tested" in their first few years by burglary etc.

In your area, I think of all the problems experienced by the businesses at 1st and RI Ave. NW in the early to mid part of last decade...

and in neighborhood like H Street there are many examples (some are mine). Although I attribute part of the behavior to descriptions of community behavior in Elijah Anderson's work _Streetwise_ and _Code of the Street_.

At 9:07 AM, Anonymous adelphi_sky said...

Richard, I'm a new follower of your blog. I'm a resident of Adelphi, MD and contribute to the Rethink College Park blog. I follow a lot of the redevelopment going on in Hyattsville and College Park. Concerning Yes!, I agree that their prices, even for those of us with high incomes, is a tad ridiculous. For example, last Sunday I stopped at the Yes! store in Petworth to get Uncle Matt's Organic Orange Juice. It was $7.69! My wife and I shop at My Organic Market in College Park where that same product costs $5.99. I'm not sure what the prices where at the Ward 7 store, but if they were anything like Petworth's prices, the store had no chance. I'm not sure how well the store in Arts District Hyattsville is doing, but I can imagine it can't be doing much better than MOMs as far as prices. What do you think about the Whole Foods project in Riverdale? Is that another high-end business doomed for failure in a neighborhood of middle-income residents? Personally, I'm waiting for a full service store in my neighborhood. I love Whole Foods' butcher shop and prepared food sections.

At 10:19 AM, Blogger Richard Layman said...

Whole Foods will do fine, in all likelihood. I haven't been to the Wegmans in Lanham, I'm sure it does fine.

2. I've never been to MOM's. Thanks for reminding me. There was an article on them in Progressive Grocer a couple years ago, I am pretty sure.

b. the other thing that would hurt Yes in that location is Glut + the Brookland Yes store.

The thing is all the shopping center people want grocery stores and there are only so many companies out there.

e.g., Magruders just isn't willing to open new stores. They are most comfortable opening in locations abandoned by the larger chains.

And Sniders only has one location.

But they have amazing prices on produce for traditional groceries.

Magruders would probably do pretty well in more places. But the family is probably happy enough with the amount of money they make and not willing to rock the boat.


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