Monday, November 29, 2010

Wal-Mart's Fresh Challenge

NYC-and NY State as well-are committed to insuring that New Yorkers have greater access to fresh food. It is a linchpin of this policy that providing better access will help address the state's obesity epidemic-a problem that the First Lady has made her priority as well. One of the central features of these initiatives is trying to attract more supermarkets to areas that have been designated as, "underserved."

One underlying rationale for the two programs has devolved from the stark fact that NYC has lost hundreds of neighborhood supermarkets over the past decade. David Gonzales highlighted this in the NY Times over two years ago: "A continuing decline in the number of neighborhood supermarkets has made it harder for millions of New Yorkers to find fresh and affordable food within walking distance of their homes, according to a recent city study. The dearth of nearby supermarkets is most severe in minority and poor neighborhoods already beset by obesity, diabetes and heart disease."

A year later, the Times followed up with a rosy view of the Bloombergistas supermarket initiative: "The Bloomberg administration, in its ever-expanding campaign to make New Yorkers eat better, has already clamped down on trans fats, deployed fruit vendors to produce-poor neighborhoods and prodded corner bodegas to sell leafy green vegetables and low-fat milk. Now, in a city known more for hot dogs and egg creams than the apple of its nickname, officials want to establish an even bigger beachhead for healthy food — new supermarkets in areas where fresh produce is scarce and where poverty, obesity and diabetes run high."

City Planning Commissioner Amanda Burden captured the essence of this policy challenge: "This is about being able to walk to get your groceries in those areas that are really, really underserved and basically have no place to buy fresh produce,” said Amanda M. Burden, the city planning commissioner. Residents in such areas, she said, have been spending “their grocery dollars at Duane Reade and CVS on chips and soda.”

So, what's the goal of the Fresh Program? 15 supermarkets in ten years! But Gonzales pointed out that the city had already lost hundreds of local markets-most in those areas that have been identified as underserved. Some of these losses-most?-can be seen as a result of city policy itself.  Here's what we said at the time: "The fact that we have lost so many markets is the elephant in the room in all this policy discussion. And it's no wonder Bloomberg doesn't want to address this embarrassing issue. It just might have something to do with taxes and regulations-and the over all high cost of doing business in Mike Bloomberg's New York. So, what does all that say about the benefits of the current initiative?"

Even more problematic, however, is the fact that the administration is also encouraging box store development all over the city-and the mayor is rightfully seen as the biggest promoter of Wal-Mart, a supermarket category killer if there ever was one. This is what's known in academic parlance as cognitive dissonance. As one web site points out: "Supermarkets aren't havens from recessions anymore. Wal-Mart's gunning for them, and will continue to do so. Grocers are already losing market share, and unfortunately for them, this trend shows no signs of abating."

And, as an academic study out of the Kellog Center has pointed out, "Hansen, Blattberg, and Singh’s research suggests ways local retailers can meet the challenge of an incoming Wal-Mart supercenter. They cited a 2003 Wall Street Journal article that showed 25 out of 29 supermarket bankruptcies in the past decade had been caused by the arrival of a Wal-Mart. Wal-Mart is now the number one player in the grocery industry. It has been able to gain and maintain this position because it keeps its costs below the industry level..."

Costs that are mostly attributed to wages and benefits-and the entry of Wal-Mart into an area means that grocery competitors are forced to try to lower their employee compensation as well. A real race to the bottom. This is something that should be central to the collateral damage side of understanding what Wal-Mart means for the city's economy.

In addition, as the authors of the Kellog study alert us, in a separate research analysis, business isn't added, it is shifted from existing stores: "Our results show that the incumbent store lost 17% volume amounting to a quarter million dollars in monthly revenue following Wal-Mart's entry. Decomposing the lost sales into components attributed to store visits and in-store expenditures, we find that the majority of these losses were due to fewer store visits with a much smaller impact on basket sizes."

But notice, "the incumbent store." Typical analysis of Wal-Mart's impact centers on communities where there is a single major supermarket-and the NYC environment is way different. We have found that large suburban-style supermarkets have led to four, and even five, closures for smaller local food stores-and we can't imagine that a Wal-Mart supercenter would have less of an impact.

These underlying issues need to be examined by the upcoming City Council hearing scheduled for December 14th. But it isn't only supermarkets that will be hurt if Big Wally sits its fat ass down all over town. As one wag observes: "The other key here is convenience. Who wants to drive around, park, go in, and stand in lines at multiple stores? Most consumers want one-stop shopping."

That giant sucking sound you hear is the exodus of shoppers off of the 200 neighborhood commercial strips-not a great economic bargain for NY; and an environmental danger to the carbon conscious mayor's grandiose global warming antidotes. This is serious business folks. And there is a need for serious analysis-along with some legislative remedies that will address the proliferation of box stores.

Wal-Mart poses a large challenge to policy makers. Changes in the way the city does land use are essential to meet the Walmonster's out sized threat. The first step in this direction involves the deconstruction of the Wal-Mart myths that bolster the false conception that the retail giant is an overall plus for New York. As Wal-Mart critic Al Norman says-and he is commenting on the Loyola University Chicago Wal-Mart study of  the retailer's entry there: "They don't teach "Wal-Math" in American high schools, but here's how it works: 1 job created - 1 job destroyed = 1 job. Wal-Mart has never admitted the difference between gross jobs and net jobs."

We'll give the study's authors the last word-and Chicago should be seen as a cautionary tale: "What we're seeing here is that placing a Wal-Mart in an urban setting is basically a 'wash' in terms of sales revenue for the city and jobs for local residents," explains the study's co-author David Merriman, head of UIC's economics department. "This means that communities around the city should not see Wal-Mart, and other big-box retailers, as a panacea to local economic struggles."