According to a consultant, Chicago could fill its “food desert” with a network of three urban grocery stores at an upfront cost of $26.7 million.
HR&A’s new 200-page report concludes that Mayor Brandon Johnson’s plan to open a municipal grocery store is “necessary, feasible and implementable.”
This is necessary because the volatility of the grocery market has led to a wave of consolidations and store closures concentrated in neighborhoods in the South and West of the United States.
This is feasible because the city does not have to become a branch operator itself, but can act to limit the risk for a private operator.
Feasible because the city is “well positioned” to provide “support and resources to an established operator” due to its “significant land holdings, financing capabilities, storage capacity and community engagement capabilities.”
The report could serve as a guide for Chicago to become the first major U.S. city to enter a competitive, volatile grocery market known for razor-thin profit margins. So far, only two municipalities have taken the plunge, according to the report: St. Paul, Kansas, and Baldwin, Florida.
“With the private sector failing to take action or commit to providing sustainable food options, the city must play a role in creating and maintaining food services in neighborhoods where food access is lacking,” the report said.
“The city has the potential to implement a viable grocery model that generates operating profits in neighborhoods with unequal access to food. … While the city’s optimal role may not be to operate a store, it can play an effective role as a partner, providing resources and programs to support operations” by securing capital funding, providing operational support and facilitating training and workforce development, the report said.
When choosing a private operator, the report recommends one that is local and “consistent with the needs of the community.” The cost of the project would depend on how boldly or timidly the city ventures into this risky area.
A 10,000-square-foot store that the city builds for a private operator would have cost $8.1 million up front, with $2.7 million of that being paid by the city. Net operating profit would be $45,000, assuming a 0.9 percent profit margin. Annual subsidies of $110,000 would be required.
A similarly sized store opened in existing space in the city and subleased to a private grocer would cost $6.2 million up front, but with no additional money from Chicago taxpayers. Net operating profit was estimated at $30,000, with an assumed profit margin of 0.6 percent. This venture would require an annual subsidy of $130,000 to remain “operationally sustainable,” the report said.
The report also explores the possibility of the city opening a “three-store network,” which would allow the more profitable stores in that network to subsidize struggling stores. Inventory could also be purchased in “larger volume” to reduce “unit costs.” And with a network, “centralized warehousing and distribution from one location” could further reduce costs. A three-store network could also coordinate marketing and “share staff” to fill “temporary or seasonal staffing gaps.”
In both cases, the city could help a private operator with costs by providing some of the inventory. However, the report points out that there is a downside to having the city take over some of the inventory: what is known as “shrinkage,” an industry term for inventory lost through accidents or theft.
S. Mayumi “Umi” Grigsby, Johnson’s policy chief, said the next step would be to work with community groups, charities and food retail experts to formulate “an internal strategy” on how to proceed.
“Sometimes in historically disinvested communities, the options are limited and not aligned with what the community actually wants. That’s why we focus on this community-driven and collaborative process to make sure that the selection of the grocery store location, the partners and the offering (what it will look like) is aligned with the community,” Grigsby told the Sun-Times.
When asked if there would be subsidies to keep prices low, Grigsby said: “The only goal is not profitability. The goal is to find a sustainable solution to food inequality.”
A Chicago municipal grocery store could be a game-changer for South and West Side residents who have been suffering from store closures that have made it harder for them to find fresh produce and other healthy foods. The nine-year difference in life expectancy between black and white Chicagoans – the “death gap” – is blamed at least in part on “food insecurity.”
Under relentless pressure from then-Mayor Rahm Emanuel, Whole Foods opened a store in Englewood in 2016, despite concerns about whether residents of the impoverished South Side neighborhood could afford to shop there. The project relied on an $11 million city grant to prepare the site and required the extension of an expiring Tax Increment Financing District while moving money from a neighboring TIF.
The Whole Foods market in Englewood closed in 2022. This was, as Mayor Lori Lightfoot said at the time, a “kick in the gut” for residents. The following year, the supermarket reopened as Save A Lot.
