Government Incentives for Food Deserts?
Local consumers appeared thrilled last month with the announcement that Whole Foods plans to open its first store in Detroit. But a few weren’t so happy that part of the impetus for their arrival was more than $4.2 million in tax and loan incentives.
According to Crain’s Detroit, the 21,000-square-foot project is expected to get $1.5 million in local and community foundation funds, $1.2 million in federal tax credits under the New Market program and $1.5 million in state incentives. The incentives are reportedly going to the developer, not Whole Foods.
The store, expected to open in 2013, is estimated to create 60-75 new jobs in the area. It’s also expected to bring more fresh fruit and produce options to an area defined by the U.S. government as a “food desert,” or one with low access to healthy food. The only other national grocer in Detroit is Aldi, with two stores. Meijer is also reportedly close to signing a deal to open a store in the city that also involves incentives. Detroit lost many of its local supermarkets when A&P shut down Farmer Jack in mid-2007. Whole Foods’ arrival is also expected to encourage competition among grocers for quality food at good prices and support the nearby farming community.
Legislators hope Whole Foods’ arrival will embolden other stores and other businesses to the inner city.
According to The Detroit News, Detroit Mayor Dave Bing said at a recent press event, “Not only are we getting an upscale grocer, but they’re a national firm, which I think is very, very important. Hopefully, this is the beginning of more to come.”
Lyneir Richardson, CEO of Brick City Development Corp., Newark, N.J.’s version of the Detroit Economic Growth Corp., said Newark regularly uses incentives to draw businesses to the city, including grocery stores.
“When we are advocating for a project, we look for the gap that would allow the developer and the retailer to take a risk on a city location,” Mr., Richardson said to Crain’s. “This gives them some incentive to locate and stay in our city.”
Mr. Richardson added that Newark — also a food desert — “would love to get Whole Foods to take an interest in our city. Whole Foods is a game changer.”
Critics to the plan include Martin Manna, co-publisher of Chaldean News, who told The Detroit News that the proposed tax breaks — even if they’re going to developers — aren’t fair to the 83 independently-owned grocers in the city on whom most Detroit residents rely.
“For 50-plus years, independents and mostly Chaldean grocers have provided fresh food in the inner city, and very, very few of them are given these kinds of tax advantages,” Mr. Manna said.
- $4.2 million in incentives key to Whole Foods deal – Crains Detroit
- Incentives gamble is about drawing more than just Whole Foods – Crain’s Detroit
- Whole Foods Market to Open Store in Midtown Detroit with Help from DEGC’s Green Grocer Project – Detroit Economic Growth Corporation
- Whole Foods to set up shop in Detroit’s Midtown – The Detroit News
- Meijer still aiming for new Detroit store; is safety still an issue? – Detroit Business News
Discussion Questions
Discussion Questions: Are government incentives part of the solution to solve food deserts, particularly for inner cities? What’s your general view on incentives that support retail developments?
If communities want national chains or specific stores to open in undesirable areas, they need to offer incentives to developers and retailers. It’s simple economics. If the voters don’t like the decisions made by their representatives, they can vote them out of office.
Deserts are caused by lack of water. Food deserts are caused by many things other than water. Government and tax incentives can certainly help populate inner cities with stores but sustaining them must come from within the fiber, dynamics and self determination within the neighborhoods.
If the incentives bring enough jobs to the area so that the tax incentives are offset with payroll taxes or help revitalize an area there is some value in providing the incentives. However is this really the only alternative, the best local alternative or the best long term alternative?
Municipalities that provide incentives for retail or other business investment — tax or otherwise — obviously realize that otherwise they are not an attractive (enough) investment. Many of these turn out to be more of an ego play than investment, Boeing HQ here in Chicago to get about 100 jobs being an example. But in this case Detroit seems to have a strategy, seeing Whole Foods as a symbolic way to “prime the pump” of reinvestment in the area. It may not work, but at least it’s a strategy.
Generally I believe in free enterprise and every business on an even playing field. However, as a realist, I understand the need to incentivize retailers to locate in difficult areas. The typical food desert store has more and bigger obstacles to overcome than the average store in a chain. Part of those differences are management oriented and a cookie cutter approach never works in the food desert areas. It is one of the reasons that the independent grocers connect better with the customers.
Having lived and worked in the food business in Detroit, I think it is unique in the number of independent retailers operating and an incentive compromise of some kind is something that the city should consider.
There really are no food deserts. The government basically says if you are poor and don’t have a grocery store across the street from your home, you live in a food desert. The only way Whole Foods was going to Detroit is if there was minimal risk. Basically build the smallest store possible with someone else’s money. Detroit has plenty of supermarkets, they just are not national names. But they set a bad precedent. Now any national chain will expect to receive millions in incentives just like Whole Foods.
Grocery chains avoid certain areas simply because they are not profitable or they feel uncomfortable about having a store. Eventually the financial incentives can no longer cover the operating losses and the feeling of being uncomfortable usually just gets worse over time.
Well-meaning programs like free breakfast and lunch at school are supermarket killers. Giving money to a national chain to open will probably kill off independents that get no subsidies. Overall the government is not the solution but rather the problem.
If Detroit is a “Food Desert” then the 83 independently owned grocers have not met the needs of the people living there.
First of all, there are places to shop for food in Detroit from various independents to the large Eastern Market complex where many Detroiters already go to buy the produce that will be in their supermarkets a week later.
Secondly the fact is that chain stores haven’t done well in Detroit effectively — although none would admit it — redlining the city proper.
Is Whole Foods the right operator to be the first to build an oasis in the desert? Who knows but as the Mayor said, it’s a start. If it takes incentives to get nutritional food to people — especially children — I say bring them on. After all, it’s a free market and anyone can apply.
One of our panelists questions whether there are food deserts, but a quick visit into urban inner cities will prove their existence. That said, Whole Foods and other chains have asked for tax breaks for potential new stores in gentrifying areas, where they could succeed without breaks. I’d guess that Democratic-leaning communities will want those stores, and Republican-leaning municipalities won’t.
Food deserts are a massive social problem with major implications for healthcare, obesity control, and the ability of children in poor neighborhoods to function adequately in school, among other things. Investment such as described is money well spent and it’s the only way to launch a modern, full-scale supermarket in an area that lacks a real food store. A ShopRite operator has put in place stores in food deserts in Philadelphia, and an integral and important part of his planning and operations to open such a store is to know how to get the funds, governmental or otherwise. Without the investment and incentives, it’s not possible. The Chaldeans can go along these paths if they become imaginative and use their clout to upgrade their stores to address the neighborhood’s food issues.
However, the sad part of all this is that the damaging debt reduction deal will likely close off future funding for valuable social programs that get supermarkets with fresh produce and other healthy foods at competitive prices into neighborhoods that do not currently have them.
Government incentives are a critical need for local communities to entice national brands to come to their neighborhoods. Municipalities have been using this for years to assist corporate businesses relocate to their community.
Since when is business fair, as the deep pocket chains will gladly take the tax breaks to move in. If they leave before a certain time, will they be penalized for leaving early? I’m sick of paying for someone else to start up a business, but nobody really cares about the single store independent anyway. If these places are successful, will they pay back the loans to the community, or stick it in their pockets? Maybe I’ll shut my store down, to create a food desert, and re-open down the street with tons of free money, saving my town once again.
As a lifelong Detroiter, I can tell you that a key issue for chain grocers operating within the city limits is safety and security, both for employees and the shoppers. I would hope the developer who is getting the incentives will use the money to provide well-lit, secure parking, which is a means to success in most areas.
A store like Whole Foods is indeed a signal to many other retailers that might be thinking of opening stores in city neighborhoods, and I look at that as a good sign. But since retail is an industry of slim margins to begin with, incentives should also go to retailers so they can operate in a safe and secure environment over the long haul.
I support Eastern Market as well as other suburban farmers’ markets. I’d love to see Whole Foods make friends and be partners with some of the Detroit area’s notable farmers who have shopper relationships that run deep. There could be a lot of goodwill and community spirit gained by doing so, and I believe that Whole Foods has the right retail DNA to actually do that.
There are always going to be people who claim that the tax incentives are unfair, and that it is hurting the competition. If one of the local grocers wanted to build a superstore in a new development in another section of urban Detroit, I’m sure they would receive tax incentives as well.
Instead of condemning Whole Foods, they deserve nothing but praise for their willingness to enter a city that is faced with challenges, a terrible economic climate, and an unproven market. Kudos to Whole Foods for agreeing to take a chance, and accept the risk.
Big box retailers have an interest in serving consumers in inner city areas for both Non-discretionary everyday needs, as well as discretionary items. The density of population, opportunity for greater sales per square foot, and opportunity to build lasting brand loyalty with a group of consumers who can offer great loyalty, is the appeal.
However, those same big box retailers who have interest in the Chicago, New York, Detroit, etc., markets is only coming that way if they have incentives from local governments — could be development help, labor support/jobs creation, tax relief for a stated period of time, added parking, security support, etc.
The wins for community include added sales tax revenues, rejuvenation of neighborhoods, jobs created locally, convenience for consumers, pride in having the recognizable brands and value, security and clean environment, etc.
If you haven’t been in Detroit in the past 10 years, you might not have a complete perspective of the challenges that Bing faces. This is the right move.
If the Chaldean community, or other ethnic group or company feels that they have justification for seeking similar incentives, they, too, should step forward, demonstrate that they are investing in infrastructure of building, quality, creation of jobs, and measures that increase the overall tax base.
This should not be a “handout” — Whole Foods, Meijer, etc., should share their objectives with government agencies, meet the standards they set, and stick to the deal to which they agree.
My general view of subsidies is that they don’t make sense; even superficially attractive ideas like TIF usually result in cities simply bidding against each other to the point that any advantage is lost. But of course this particular case isn’t Westwood vs. Beverly Hills to see who gets the larger Tiffanys…it’s essentially welfare; so if we decide that daily access to arugula truly is a human right, then the question becomes what is the cheapest way to provide that ?
As for the merits of this particular location, I have some doubts: a Bing view of the area shows it’s not just short in buildings that sell food, it’s short in buildings…period. Particularly those buildings called “houses” that contain people called “customers.” Which suggests that most of the potential base will have to drive to the store, and raising the obvious point that if they can drive to this store, then they can likely drive to many different stores all over the area. Then again, I suppose one can argue that a two mile trip to simply buy a head of lettuce is preferable to a fifteen mile trip. I wish them well.
An urban grocery executive I spoke with told me if you look at the product movement reports from the inner city grocery stores, nutrition is not on the shopper’s mind. Residents have access to fruits and vegetables. They choose not to buy them. Since they don’t buy them, the government thinks they don’t have access to them. We are probably two or three generations away from changing the eating habits of uneducated consumers. Whole Foods is a good start but perhaps too radical of a change of going from low priced junk foods to high priced nutritious foods on one step.
OK, “Chaldean” is code for Arab. Absolutely nothing wrong with that whatsoever, except for the implied deception. Communicate it like it is, Chaldeans. It’s Arabs, a beautiful, intelligent, and hard-working people who contribute significantly to American culture. I can celebrate Arab contributions to our nation, but Chaldeans? Whassup with that? If we praise a Chaldean, how does that praise transfer to our Arab neighbors and communities? It doesn’t, because we don’t know what a Chaldean is.
Regarding governmental incentives for store installations, one has only to research the dreadful history of Walmart. Taking goodies but not delivering promised local economic improvements while dumping employees on the local healthcare services, and then abandoning locations and moving farther up the road to collect even more incentives from new communities.
“Huzzah” for David Livingston for telling it like it is. “There really are no food deserts.” I am in agreeance (not a real word, but used copiously by our Xers and Yers and other “ers”). It is not the responsibility of governments or food retailers to deliver food to your doorstep in exchange for food stamps and local “culture” that requires heightened security. Not unless stockholders are willing to staff the stores in their moments of kumbaya illucidity.
The subsidies and other government interventions are what got us to the point where each man, woman and child in the US owes over $47,000 in government debt. Most operators won’t go into urban areas because it is not profitable. It is not profitable because of shrink. The community is the only thing with the power to change that.