Re: [Mpls] RE: Higher grocery costs in city

[Steve Kotvis]

Title: Re: [Mpls] RE: Higher grocery costs in city

Per capita expenditures per household don’t change all that much based on income.  When I used to do sales projections for grocery retailers across the nation, I recall they ranged from about $23 to $28 per capita.  (This was a number a years ago, so these figures have obviously become dated.)

Household  expenditures on food bought at grocery stores is largely driven by number of persons per household and number of persons in a grocery store’s primary trade area.  (Primary trade area is the contiguous geographic area from which about three-fourths of a store’s weekly sales is drawn.)  So the more people in a trade area, the more being spent.  More people in a trade area may be a function of larger households (number of persons per household), and by population density.  Additionally, those with higher incomes tend to spend a larger share of their food dollars at restaurants.    

Cost of operation, however, are critical to a retailer’s success. Grocery sales margins are very thin and leave little room for high costs.  

I agree, however, that there is opportunity. As retailers with the objectives to grow number of stores see fewer opportunities in outlying areas, and more popularity in the central parts of metropolitan area, they too look more seriously at older established neighborhoods.  

Steve Kotvis
Kenwood

In response to the discussion about the urban/suburban price difference...I believe it is true that CUB and other retailers may charge higher prices in the city because they believe the cost of doing business is higher.  However, in conversation with some retailers, they affirm that on a square footage comparison, a CUB in North Minneapolis can certainly be as profitable as a CUB in Edina.  In spite of the real (or sometimes perceived) higher costs due to "shrink", the buying power of lower-income neighborhoods is as strong, or stronger than some affluent neighborhoods.  

There's a lot of good research to back this up.  Further, some developers and retailer are becoming increasingly persuaded by these facts and are re-thinking the importance of being in lower-income urban neighborhoods.  There is opportunity!

~ Luke Weisberg
Golden Valley