A City Without Chain Grocery Stores

Sheena Harrison, CNN, July 22, 2009

Detroit is one of America’s largest cities, but there isn’t a single grocery chain store within the city limits. Spurned by national retailers, Detroit’s nearly 1 million residents instead rely on independent stores run by local entrepreneurs for their most basic needs.

But for those entrepreneurs, staying in business can be a struggle.

Running a grocery store “requires a lot of working capital up front, and small problems early on can escalate,” says Olga Stella, vice president of business development for the Detroit Economic Growth Corp., a quasi-government development agency. “It’s like any small business, but it has added complications because you’re selling a highly perishable product that has very little collateral.”

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A grocery gap

City planners are aware of their grocery void. A 2007 study conducted by Washington-based researcher Social Compact determined that Detroit could support 600,000 to 1 million additional square feet of grocery retail space.

But national chains aren’t rushing into that gap. The last one left in 2007, when The Great Atlantic & Pacific Tea Co. (GAP, Fortune 500) (better known as A&P) shut down its Detroit-based Farmer Jack chain. Aldi, a discount grocery chain that doesn’t accept credit cards and carries few brand-name items, has two outposts in Detroit, but major retailers like Safeway (SWY, Fortune 500), Kroger (KR, Fortune 500), Costco (COST, Fortune 500) and Whole Foods (WFMI, Fortune 500) have stayed away. Poor perceptions of Detroit’s market strength, the costs of doing business in the city, and the difficulty of hiring and retaining good local workers scare away the big retailers, a city task force concluded in a report issued last year.

So Detroit is instead trying to nurture its home-grown grocery stores and help them grow. For example, the city is working on tax abatements for Honey Bee Market, which expanded in 2006 from 4,000 square feet to 15,000 square feet, and is now dealing with higher property taxes as a result.

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Customer service and presentation is key to staving off bigger rivals. While national retailers steer clear of inner Detroit, they’re littered through nearby suburbs like Dearborn, Southfield and Warren. University Foods owner Norman Yaldoo sees his store’s emphasis on service as critical to its survival.

“We’ve built a reputation here in Detroit that’s really unsurpassed to other stores that have come and gone,” says Yaldoo, who opened his store in 1979 and now employs 20 workers. “That’s why we’re still here. Customers trust us.”

Like Honey Bee Market, University Foods pays close attention to local preferences. Yaldoo stocks his 30,000-square-foot with a diverse product lineup catering to various cultural groups that live near University Foods.

That’s one area where independent retailers have an advantage over major chains, says Jane Shallal, president and CEO of the Associated Food and Petroleum Dealers, a trade group that represents independent grocers throughout Michigan and Ohio. They can adjust to local conditions.

For example, food stamp distribution can result in a feast-or-famine retail atmosphere in Detroit, with shoppers buying most of their food at the beginning of each month and trickling into stores at the end. Small stores have more flexibility than chain retailers to reduce their hours during slow times.

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