In my experience, grocery stores in poor neighborhoods have higher prices and lower quality. Why is this?
Because in many cases they don’t have cars to drive around to get better deals.
I saw a few attempts to get a campaign going recently to demonstrate that this is true rather than just anecdotal. Photos of exactly the same products at the same chain a few miles apart for radically different prices.
Basically stores are in business to sell products for the best price they can get. When there is no competition (ie, your clientele shops at the closest store because transport options add too much to the total cost) you can charge higher prices because until you price yourself high enough that it’s cheaper to take a cab they’re stuck with you.
Moonlitherial nailed it.
There is also the slight justification of higher cost of business due to robberies, thefts, higher delivery costs etc. but in the end it’s “because they can, and because the shoppers have few options.”
Criminy, I read that in a middle school book on consumer economics ca. 1972. Sad that our hyperconnected world hasn’t changed the exploitation of the the poor any.
Another thing to consider is that food is often highly subsidized in such neighborhoods with food stamps, WIC, and other programs.
Meaning what?
The shoppers have fewer options argument does not ring true to me. If grocery stores in poor areas were more profitable than those in high income areas that would be reflected in the profitability for various stores. This is not the case.
To the extent that higher prices is true it is because of several factors. Higher rates of theft mean that costs must be amortized over fewer sales. It also means more security costs and less space for merchandise which increases cost per unit. It also means higher insurance rates and especially on glass front windows which most groceries have.
Inner cities have fewer people who drive to the grocery stores and less parking. This means that each shopper can buy less with each trip, necessitating more trips and thus each store can accomodate fewer shoppers. This means less turnover of items and increases per unit cost.
Fewer cars also means that each store has a smaller potential customer base and thus cannot access the same economies of scale.
IF a huge percentage of your customer base is on programs like WIC, they can only get what WIC pays for a carton of milk regardless of the actual cost of doing business for the store.
We have quite a few little grocery stores in poor neighborhoods or in tiny rural towns, from the looks of things, the owners just drive into Fresno and buy stuff from another grocery store to provide a basic store in tiny towns like Biola and Rolinda and mark things up a bit. Sometimes there are generic brands from multiple other chains on the shelves.
Why not? Ii rings perfectly true to me. I don’t see how it could really fail to be true. The other factors you mention in the rest of your post, affecting store owner’s costs, may be real (some of them, anyway) but that in no way contradicts the claim that prices are higher because buyers have few alternatives. If not for this, store owners would not be able to raise prices, regardless of their costs.
Cite? (It may be true, for the reasons you give, but those reasons, even if true, are not a sufficient explanation for the fact that there are higher prices in poor areas, rather than lower profits.)
Maybe they charge more because they feel that they are putting their lives on the line just being there. I’ve talked to shop owners that have had their relatives shot while serving customers and they tend to look at all people differently after that. They have to set up the store so that they can keep an eye on shoplifters, install cameras with internet feeds, put up bullet proof plastic guards, bars on the windows/doors and hire extra security. They even get robbed just unloading the merchandise from their vehicles into the stores. Most of the time they don’t even live in neighborhood and have to drive in from the suburbs which is an additional expense.All this stuff cost money that needs to be passed onto the customer.
Well, if they were more profitable, you would expect to see more competition move in. That doesn’t seem to be the case.
My guess is that they move less inventory than a grocery store in a nicer neighborhood, making them less profitable, which means fewer stores open in poor areas. Since there aren’t very many stores, someone is able to take advantage of the scarcity with higher prices. It’s a vicious circle.
Obviously this is just an anecdote but here goes…
There is a little grocery not too far from my house that serves the Austin neighborhood in Chicago which is predominantly poor. They have really good prices on meat and a very good butcher shop but the shelves are full of items that are priced way above other stores less than 5 miles away but not in Austin.
Anyway I asked the manager one time if he could stock a particular product. His answer was that his customers predominantly bought the cheapest product on the shelf so it made no sense for him to stock 5 different cans of chicken soup.
I suspect that because he could not stock high priced items like “Jan’s All Natural Organic Chicken Soup Made With Pure Sunshine” that he was motivated to maximize the profit on the small amount of items he did stock.
I also suspect that as opposed to the nearby Jewel store where customers regularly drop over $100 in a single trip, if your customers never spend over $20 you need to wring every penny you can out of them.
Of course I can’t prove any of this.
Poorer people tend to buy in smaller quantities as well, which means that your profit per transaction is lower unless you make up for it by increasing prices.
It takes the cashier the same amount of time to ring up an apple and a pack of cigarettes as a bushel of apples and a carton of cigarettes, so your expected labor costs per dollar of revenue are higher in the poor store, and you need to increase prices to cover that.
The issue here is not that store owners in poor areas are profiteering assholes (some may be, but most probably are not); the issue is that there are structural features of unregulated capitalism that systematically operate to keep the poor poor, and drive them further into poverty (even as it, at the same time, systematically makes the rich richer).
I’ve seen a lot of smaller, non-chain grocery stores in poor areas. These stores don’t buy in the same bulk as a huge chain like Safeway so they can’t offer their food as cheaply. I can’t say that I’ve noticed that the same chain has cheaper prices in wealthy neighborhoods, but the old Safeway in our neighborhood had really poor stock compared to the stores in more expensive parts of the city, but that Safeway is reopening as a big fancy one next year.
The reasons prices are higher are a combination of things. Shrinkage, store purchasing power, and low markup on staple items.
Stores can not lower prices lower than their costs or they would go out of business. Any alternative store would face the same costs and have to charge the same prices.
Hereis an article that quotes one store owner that has stores in the suburbs and stores in the inner city. He says the margins were 1% in the suburbs and -4% in the inner city and it took him years to get the inner city stores profitable.
Well we have a regulated capitalist system so that kinda shoots down your theory.
I’ve read about entrepreneurs who tried to open full-service grocery stores in urban “food deserts” and found themselves having to close the stores almost immediately because of all the shoplifting and vandalism, and in addition, they couldn’t get people to work there even though these stores were often in neighborhoods with unemployment rates approaching 100%.
Many years ago, when I lived in a different city, I heard about a grocery store in a low-income neighborhood that charged more than other stores from the same chain in the same city. Management was contacted about this, and said, “You tell those people to stop shoplifting, and we’ll lower our prices.” :eek:
“well regulated capitalist system?” surely you jest. A hardware store owner once told me his wholesale purchase price was higher than the retail sale price in the big store.
Competition, plus supply and demand.
Yes, poor neighborhood grocery stores charge more, but then again, so does ANY grocery store that is the only one around for miles.
Go to some resort area, or on an island, or some small town in the middle of nowhere, or anywhere that only has one place for miles to buy milk and bread and other basics, and I will show you a final tab that will make even Mitt Romney blush when having to pay it.
For that matter, go to any airport, get past the security check in, and then compare prices of the Burger King, Starbucks or any well-known fast food places to those same chains in your local neighborhood. They aren’t fools and know that have you by the balls with no other options.