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Thursday, November 15, 2007

Overlooked?

Why don't grocery stores locate in poor neighborhoods?:

It shouldn't take a road trip to shop, by Nathan Berg, Dallas News: ...[M]any of us take it for granted that there are grocery stores in our neighborhoods selling a wide variety of nutritious foods at relatively low cost. But not all residents of ... cities are so lucky, especially if they live in low-income areas.

Lack of access to a grocery store often means lack of access to fresh vegetables, fruits and meats. Imagine buying your food primarily from convenience stores and fast food chains. More than convenience is at stake. Costs are generally higher. And the foods typically contain high concentrations of unhealthy fats, carbohydrates and additives, which contribute to obesity, diabetes and heart disease.

My colleagues at the Center for Urban Economics ...[at] the University of Texas at Dallas made a map of Dallas County showing which neighborhoods have no grocery stores within one mile. These neighborhoods are concentrated in southern Dallas. And there are stark differences between them and neighborhoods that have three or more grocery stores within one mile...

The typical no-grocery-store neighborhood has half the white residents, twice the black residents, roughly the same number of Hispanic residents, $20,000 less in median annual income and twice the number of HHS clients.

Is this what economic theory predicts? No. It may not surprise you that grocers open few stores in low-income neighborhoods, but economic theory actually predicts the opposite.

Economic theory predicts that the typical low-income resident spends a lot less on luxuries like vacations, but not very much less on necessities like food. Everyone has to eat. And because there is no good substitute for food, low-income residents spend a higher fraction of their incomes on food than high-income residents do.

Economic theory suggests other reasons why grocery stores should thrive in low-income neighborhoods. Rents are lower, which means stores can save on costs by locating there, and there are few competitors nearby to steal away sales.

It seems that store owners are not behaving as economic theory would predict. That led me to investigate ... how business owners choose where to locate their businesses.

Economists expect business owners to choose locations by considering a long list of possible locations and picking the one with maximum net benefits. But this leads to the conclusion, which economists are beginning to challenge, that abandoned neighborhoods are abandoned for good reason – because there are no profitable opportunities there.

However, in interviews with a number of top executives, I found that most of them consider only a few locations for new stores and that these locations are nearly always discovered more or less by accident – while the executive is running errands or driving through town on other business. This ... can lead to an unhealthy side effect: Neighborhoods that are ignored today may be ignored for a long time, despite their advantages.

The positive side of these findings is that ... cities facing shortages of grocery stores in low-income neighborhoods possess a number of policy tools for attracting businesses. ...

Rather than expecting small tax incentives to attract new stores, the mayor and City Council members should directly try to persuade two or three grocery chains to open new stores... To do that, they can cite the growing number of success stories that demonstrate the surprising profits retailers can reap by locating in overlooked neighborhoods. Once other businesses see the potential for stores to thrive in low-income neighborhoods, they will want to follow. ...

Does the suggestion that there are fewer grocery stores in low income areas because executives don't happen to be in those areas very often ring true? I would have guessed other forces are at work besides simply being overlooked - a market failure we don't expect to see - but I suppose it's possible.

    Posted by on Thursday, November 15, 2007 at 02:52 AM in Economics, Market Failure | Permalink  TrackBack (0)  Comments (132)

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