Chicago could fill its “food desert” with a three-store network of city-owned grocery stores for an upfront cost of $26.7 million, a consultant has concluded.
The new 200-page report from HR&A concludes Mayor Brandon Johnson’s plan to open a city-owned grocery store is “necessary, feasible and implementable.”
Necessary because volatility in the grocery market has led to a wave of consolidations and store closings concentrated in South and West Side neighborhoods.
Feasible because the city need not become a store operator, but instead could act to limit the risk for a private operator.
Implementable because the city’s “significant land ownership, funding tools,” storage and “community engagement capacity” makes it “well-positioned” to provide “support and resources to an established operator.”
The report could serve as a road map for Chicago to become the first large U.S. city to enter a competitive, volatile grocery market known for razor-thin profit margins. So far, only two municipalities have taken the plunge, according to the report: St. Paul, Kansas, and Baldwin, Florida.
“In the absence of private sector action or commitment to provide sustainable grocery options, it is necessary for the city to play a role in creating and sustaining grocery services in neighborhoods that lack grocery access,” the report states.
“There is potential for the city to lead a feasible grocery model that earns operating profit in neighborhoods with inequitable access to food. … While the city’s optimal role may not be in serving as a store operator, it can play an effective role as a partner that can provide resources and programming to support operations” by securing capital financing, providing operating support, and facilitating training and workforce development, the report states.
In choosing a private operator, the report recommends one from the community, and “in touch with community needs.” The cost of the venture would depend on how boldly or timidly the city chooses to dip its toe into the risky waters.
A 10,000-square-foot store built by the city for a private operator would have cost $8.1 million up-front, with $2.7 million of that coming from the city. Net operating income would be $45,000 with an assumed profit margin of 0.9%. It would require a $110,000 annual subsidy.
The same-sized store opened in existing city space sub-leased to a private grocer would cost $6.2 million up-front, but with no extra money coming from Chicago taxpayers. Net operating income was projected at $30,000 with an assumed profit margin of 0.6%. That venture would require a $130,000 annual subsidy to remain “operationally sustainable,” the report states.
The report also explores the possibility of the city opening a “network of three stores” that would allow higher-profit stores in that network to subsidize struggling stores. Inventory also could be purchased at a “larger scale” to reduce “per-unit costs.” And with a network, “centralized warehousing and distribution from one site” could cut costs further. A three-store network also could coordinate marketing and “share staff” to fill “temporary or seasonal staffing gaps.”
In either case, the city could assist a private operator with costs by providing some the inventory — though the report notes one downside to the city doing some of the purchasing is “shrinkage,” an industry term for inventory lost through accidents or theft.
S. Mayumi “Umi” Grigsby, Johnson’s policy chief, said the next step will be to work with community groups, philanthropies and experts in the food retail space to “formulate an internal strategy” on how to proceed.
“Sometimes, the options in historically dis-invested communities are limited and misaligned with what the community actually wants. That is why we’re focused on this community-driven and collaborative process to make sure that the selection of where the grocery store is, the partners and what the offerings [will be] are aligned with the community,” Grigsby told the Sun-Times.
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Pressed on whether there would be subsidies to keep prices down, Grigsby said: “The only goal is not about profitability. The goal is to provide a sustainable solution to food inequity.”
A city-owned grocery in Chicago could be a game-changer for South and West Side residents bearing the brunt of grocery store closings that have made it difficult to find fresh produce and other healthy food options. The nine-year difference in life expectancy between Black and white Chicagoans — the “death gap” — is blamed at least in part on “food insecurity.”
With a relentless push from then-Mayor Rahm Emanuel, Whole Foods opened a store in Englewood in 2016 amid concerns about whether residents of the impoverished South Side ward could afford to shop there. The project depended on an $11 million city subsidy for site preparation and required an expiring tax increment financing district to be extended while money was moved from a neighboring TIF.
The Englewood Whole Foods closed in 2022. It was, Mayor Lori Lightfoot said then, a “gut blow” to local residents. It reopened as a Save A Lot the next year.
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