Grocery Store Initiative Report Executive Summary The Portland Grocery Store Initiative was announced by Mayor Sam Adams at his 2011 “State of the City” speech and officially launched March 25, 2011. During the speech, Mayor Adams recognized the importance of addressing the needs of communities in Portland where access to affordable, healthful food and other products are limited. A multi agency team comprised of staff from the Portland Development Commission (PDC), the Bureau of Planning and Sustainability (BPS) and the Mayor’s Office was formed shortly thereafter to implement the Grocery Store Initiative (Initiative). The Initiative has three primary goals: 1) alleviation of grocery underserved areas; 2) support of the Neighborhood Economic Development Strategy (NED); and 3) promote the Healthy Connected City Strategy as outlined in The Portland Plan. This report presents the results and findings of the Grocery Store Initiative at the completion of Phase I and provides recommendations that will build on lessons learned to continue the work towards these key goals into a second phase of the initiative. Results of this first phase include: •
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PDC has provided site control via a letter of intent for a long-term lease at 72nd and Foster with Hacienda CDC for the upcoming Latino Mercado. The future establishment of the Mercado will bring a culturally-rich, small-business intensive Latino market that because of its strategic location will help eliminate three separate underserved areas in East Portland. A promising potential project with a full-service grocery store in Lents with Mr. John Attar The possibility of several smaller, innovative, community-based solutions including My Street Grocery mobile grocery concept; the Greenville Initiative’s convenience store pilot program; the Montavilla Food Co-op, and a longer-term project from Stock Box.
There is no quick fix to the problem of food deserts. Through this process staff learned about the challenges that need to be overcome to encourage grocers to expand into underserved areas, which will inform the initiative going forward. These findings include: •
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Established grocers – both large format and specialty – look for population density and specific demographic profiles in order to gage potential success within their business model. While demographic and financial models differ by store and store owner, in most cases for established grocers financial and non-financial incentives did not sufficiently sway grocers for them to open a store with forecasted profitability below “normal” levels. For both large format and specialty grocers, problems of crime and theft in an area were viewed as problematic given small profit margins and can be significant impediments to expansion or maintaining a store open. The construction and operational subsidies required to bridge a financial gap and open a store in an underserved area could be substantial, as evidenced by what has been required in other cities.
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Assistance to grocers in navigating the permitting and land use process can be as crucial as financial assistance. Many grocers expressed concern about the length and complexity of the process, and the ability to save time is a major incentive.
Recommendations The major policy recommendation of this report is to transition the Grocery Store Initiative from a stand-alone RFI process and separate projects to an integral element of the city and PDC’s Neighborhood Economic Development Strategy. Specifically, the elimination of food deserts should be integrated into the planning for the Neighborhood Prosperity Initiative (NPI) districts and key commercial corridors of PDC investment activity. Other key recommendations include: 1. Going forward the City and PDC should continue to make both financial and non-financial incentives available as needed to encourage full-service grocers to locate in underserved areas: o Commensurate with the ultimate public benefit, the public assistance could include business or commercial property redevelopment loans, grants or loans for storefront improvements or adding green features to the grocery store. o Provide assistance to grocers in navigating the permitting and land use process. Time saved can lower the construction costs for the grocer and/or developer. 2. Resources should also be devoted to assisting creative food providers such as mobile and micro grocers, as well as working with existing convenience stores and food co-operatives to help alleviate the problem of access to healthful food in Portland.
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Alleviation of Underserved Areas The location of grocery stores can affect eating habits. There is a widespread belief that communities suffer without direct access to an affordable full-service grocery store. One study showed that people living within 0.6 miles of a grocery store were half as likely to be overweight than those who live in neighborhoods without a full-service grocery store1. Over 70 percent of Multnomah County residents fail to eat the recommended five or more fruits or vegetables a day2 and 60 percent of County residents are overweight or obese3. Health benefits of a nearby full-service grocery are becoming increasingly well-documented and there is ample evidence that convenient access to a supermarket increases fruit and vegetable consumption, particularly in low-income communities and communities of color. Food policy experts use multiple ways to define underserved areas, but most methodologies consider, at a minimum, distance from the store and median income of the area. Following this lead, BPS staff used these two criteria, along with a density filter, to define underserved areas in Portland. First, BPS used GIS software to determine all census tracks in Portland where the center of the census track is at least ½ mile from the nearest full-service grocery store. One half mile was used since that is believed to be the maximum distance most people can or will walk to reach goods and services. Second, staff applied an income filter that eliminated all census tracks that were above the Median Household Income for Portland of $54,352. This filter was used since lower income people tend to be more transit dependent or need to walk or bike to shop. And finally, staff added a density filter of a minimum of 2,500 people per square mile to eliminate industrial or agricultural areas that could not support a full-service grocery store. The resulting map of underserved areas is included as Attachment 1. The result of the analysis indicates that underserved areas tend to be clustered in the north, northeast, southeast and outer east census tracks of Portland. The map subdivided underserved areas into three color coded groupings, according to distance from the nearest full-service grocery store. Census tracks that were from ½ mile to ¾ miles are labeled yellow, ¾ miles to 1 mile are gold and underserved census tracks where the center is more than 1 mile from the nearest full-service grocery store are colored brown. Support for the Neighborhood Economic Development Strategy Another primary goal of the Initiative is to support the adopted Neighborhood Economic Development Strategy (NED). The Initiative supports the NED by encourage the following goals: 1) enhancing commercial vibrancy; 2) promoting equity; and 3) preventing displacement. Enhanced commercial vibrancy can be achieved by encouraging grocers to locate on commercial corridors and in Metro-designated Town Centers. This will strengthen these areas as hubs of activity by attracting more commercial activity in addition to the grocer. Grocery stores are both activity hubs and act as anchors to attract additional retail businesses. In addition, the Initiative supports the importance of social and economic equity by encouraging grocers to hire minorities and other members of the community and meet or exceed PDC’s requirements for Minority, Women or Emerging Small Business (MWESB) contracting.
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Finally, the Initiative encourages grocery stores to serve the existing community and not have their presence result in the displacement of existing businesses and residents. Healthy Connected City Strategy The third goal of the Imitative is to support the adopted Healthy Connected City Strategy as outlined in the Portland Plan; specifically to 1) increase access; 2) support neighborhood hubs; and 3) increase affordability. Increasing access refers to bringing together the things we need every day such as healthy food, schools, shops and transit, a short walk or bike ride from home. Promoting neighborhood hubs means providing centers of community life, walkable places with concentrations of neighborhood businesses, community services, housing and public gathering places that provide residents with options to live a healthy, active lifestyle. Finally, providing access and neighborhood hubs only help if goods and services are affordable to the majority of the community. The Initiative Process Issuance of a Request for Interest (RFI) To implement the Grocery Store Initiative, PDC released a Request for Interest (RFI) on March 25, 2012. Potential respondents were given until May 1, 2012 to submit letters of interest that provided basic information about the organization, areas of Portland where they would consider locating or expanding, and probable size and characteristics of a potential grocery store. The RFI document is included as Attachment 2. A total of 12 established and emerging grocers or developers responded to the RFI: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
Kenny’s IGA John Attar, Barbur World Foods owner/operator Fox + Moose Developers , Alberta Food Co-op extension The Greenville Grocery Initiative Vanport South Partners Montavilla Food Co-op Native American Market (NAM) Wal-Mart Stores Whole Foods New Seasons Grocery Outlet Stock Box
Staff conducted a series of in-person and phone interviews with the respondents to determine if they were viable and could support the aforementioned goals of the Initiative. This resulted in some respondents not moving forward at this time. The current status of all respondents is discussed on page four below.
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Citizens Advisory Committee A Citizens Advisory Committee (CAC) was formed to assist staff with refining RFI goals and objectives, implementation strategy, and with providing input on RFI responses. Staff involved a diverse group of stakeholders representing various Portland communities: • •
Heather Hoell Sonia Manhas
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Corliss McKeever Nathan Teske Anita Yap
Executive Director of Venture Portland Program Manager, Community Wellness and Prevention, Multnomah County Health Department President and CEO, African American Health Coalition Community Economic Development Director, Hacienda CDC Chairperson, Portland / Multnomah Food Policy Council
The CAC has held five meetings since September 9, 2011. One of the CAC’s first tasks was to establish the following evaluation criteria that respondents would be measured against: Proposal-Specific Criteria • • • • •
Community benefits - How responsive is the proposal to the needs of the community? How will the community be engaged in the process? Is the community supportive? Probability of success - Will the grocer succeed financially? Timing - What is the time frame for delivery? Potential Assistance - How much assistance will the grocer need? Innovation - Does a food provider have a new approach to the problem of food access?
Evaluation Process The respondents can be divided into two broad categories: established and emerging grocers. A different process was proposed for each type of respondent. Established Grocers: This category would include all grocers that have one or more current locations and are interested in one or more sites in underserved areas. 1. Conduct discussions to refine grocer’s site interest, their requirements and to ask questions to ascertain how well they fit our policy goals and criteria. 2. Conduct a RFP process for all established grocers that satisfy policy goals and meet criteria and are interested in a specific site or would compete in a given trade area. 3. Enter into direct negotiations for all established grocers that satisfy policy goals and meet criteria and are not competing with other grocers for a specific site or trade area.
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Emerging Grocers: Connect all emerging grocers that satisfy policy goals and meet RFI criteria to small business development assistance and/or potential financial assistance as appropriate. Status of Respondents Established Grocers Established grocers are defined as any grocery with at least one store in operation. The current status of the established grocers is as follows: •
Kenny’s IGA Status - no longer under consideration This grocer currently has two stores in Lincoln City, Oregon. It is no longer being considered. The owners indicated that they do not have capital to expand and are only interested in potentially operating a store for another grocer.
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Fox + Moose Developers (Alberta Food Coop) Status - no longer under consideration Fox + Moose Developers is a team comprised of local developers Randy Rapaport and Steve Van Eck. Its intention was to acquire a specific parcel of land on NE Martin Luther King Junior Boulevard for a housing project that was to include a small Alberta Food Cooperative satellite store. The Portland Housing Bureau (PHB), which owns the parcel, would not commit the property to the respondent.
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Vanport South Partners Status - no longer under consideration The Vanport South Partners, LLC is a consortium of Capstone Partners LLC, ERl Development and JM Woolley & Associates. The Vanport South Partners proposed to bring Trader Joe’s to the PDC owned property on the corner of NE Martin Luther King Junior Boulevard and NE Alberta Street. Unfortunately, the application contained no letter of interest from Trader Joe’s itself and staff could not confirm Trader’s Joes interest in the site. Because the Initiative required the interest of a grocer, Vanport South Partners are no longer under consideration.
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Wal-Mart Status - no longer under consideration Wal-Mart Stores representatives shared with staff its plans to expand in the Portland metropolitan region, including a new 90,000 square foot store at Hayden Meadows / Delta Park. Wal-Mart is also expanding its store in the Eastport Shopping Center by adding 21,500 square feet that will add a full-service grocery department. Wal-Mart is
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currently no longer under consideration since it chose not to divulge any interest in specific sites. •
Whole Foods Status - no longer under consideration Whole Foods is a national grocery chain specializing in natural and organic foods. It currently operates three stores within the Portland City limits and is considering adding more. Although it initially applied, it has no plans to expand into any of the identified underserved areas at this time.
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New Seasons Market Status -no longer under consideration New Seasons Market is a locally owned natural foods grocery chain that was founded in 2000. It is a full-service supermarket that features local and organic produce, natural meats as well as chef-prepared deli foods. It currently has twelve stores in the metropolitan region. Its thirteenth store is scheduled to open in 2012 and will be located south of NE Fremont Street between NE Vancouver & NE Williams Avenues. New Seasons Market expressed genuine interest in multiple underserved areas but has decided to focus on opening its NE Fremont store. It has no immediate plans to locate in any of the identified underserved areas.
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Grocery Outlet Status - continuing discussions on potential store Grocery Outlet responded to the Initiative on May 13, 2011 through its Portland real estate broker Mark New of New & Neville Real Estate. It is a 152 store chain of valueoriented; full-service grocery stores, ranging in size from 12,000 to 20,000 square feet, based in Berkley, California and located in six western States. It currently has twelve stores in the Portland metropolitan area with three stores in the City of Portland. Grocery Outlet uses a modified franchise model where each store is independently own and operated with the parent corporation leasing the store building from the property owner. Although its response was not specific in geographical areas of interest for a new store, multiple meetings and conversations with Mr. Neville as well as Bill Coyle, Grocery Outlet’s Vice President of Real Estate determined its primary interest to be NE Portland. Staff is currently evaluating the feasibility of a commercial development in this area anchored by Grocery Outlet.
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John Attar (Barbur World Foods) Status - continuing discussions on potential store
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John Attar owns and operates Barbur World Foods, a 12,000 square foot, full-service grocery store on SW Barbur Boulevard in Portland. Mr. Attar acquired an underperforming store and has transformed it into a thriving neighborhood, full-service grocery store. His business model is based on a high level of customer service and to feature specialty products not carried by competing, larger format grocery stores. Mr. Attar expressed specific interest in Lents and staff is continuing discussions with Mr. Attar about the possibility of opening a second store in the area. Emerging Grocers Emerging grocers are defined as any grocer or food-orientated organization that is not fully established in the market place. This would include co-operatives that are still in the organizational phase, or start-up grocers that have not opened for business or that are still in the pilot stage of business development. The status of the emerging grocers that responded to the RFI is as follows: •
The Greenville Initiative Status - continuing discussions on potential assistance The Greenville team, lead by Jae Larson, CEO and founding partner, is a developer-based response that originally sought to develop a highly sustainable, grocery-anchored, mixed-use development. Greenville expressed interest in multiple areas of Portland including the close-in west and east sides, as well as the Lents neighborhood. Due to the challenging economy and lending environment, Jae Larson decided in late 2011 to significantly alter the original Greenville concept. Their new plan calls for Greenville to partner with existing neighborhood convenience stores, assisting them in stocking a more healthful product mix, as well as become more sustainable by increasing energy efficiency. Greenville would not own the stores; they would sell franchises that would allow the owners to remain autonomous while providing them with assistance in marketing, purchasing, store and product mix design. Greenville hopes to launch a pilot store this year and is currently in talks with a convenience store in NE Portland. Staff has met with Jae Larson and other team members and has offered to consider financial assistance to the pilot program. Greenville is currently compiling a detailed financial needs assessment from which to base any requested financial assistance from PDC.
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Montavilla Food Co-op Status - in early stage of development Montavilla Food Co-op is currently in the organization phase of their ultimate goal of opening a store in the Montavilla neighborhood. They have approximately 50 to 60 paid members and must reach a level closer to 1,000 members before they are ready to open a store, according to the Food Co-op 500 program that is providing technical and
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financial assistance to Montavilla Food-co-op. The Food Co-op 500 program is a collaboration of Cooperative Development Services, National Cooperative Grocers Association, National Co-op Bank, and NCB Development Corporation. Staff has met with representatives of the Montavilla Food Co-op and has determined, given its geographic location outside of any URA and its early stage of development, that financial assistance for the Co-op by PDC is premature at this time. Staff will reengage with the Co-op when it is closer to purchasing or leasing real estate. •
Native American Market Status - in early stage of development The Native American Market (NAM) submission to the Grocery initiative was presented to PDC by Sean Cruz, the Executive Director of 1,000 Nations. NAM is working to establish a Native American market and cultural center that would serve multiple purposes. First and foremost, the NAM would provide the only Native Americanfocused food market in the Portland metropolitan region. Second, it would also provide a market for Native American fisherman, farmers and other food providers to sell their products. Finally, the NAM is envisioned to be a cultural center where Native Americans can celebrate and others can learn and appreciate Native American culture. Mr. Cruz is currently investigating sites in North and East Portland that have the potential to house the NAM. Staff has been in close contact with Mr. Cruz and his advisors to the Native American Market project and has requested that Mr. Cruz reengage with PDC once he has completed a more detailed business plan.
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Stock Box Status - in early stage of development Stock Box is an innovative, start-up grocer in Seattle, Washington that employs used shipping containers in place of a traditional brick and mortar store. While the format limits the amount and variety of goods that can be stocked, the advantages include lower overhead and construction/tenant improvement costs, as well as the flexibility to locate in tight urban environments where land may be scarce and/or expensive. The concept is being developed by graduates from the University of Washington’s Business School. They have conducted a short-term pilot in the fall of 2011 and are now evaluating the long term viability of the business model. If successful in Seattle, they have indicated that it could take three to four years before they would be ready to take Stock Box into the Portland market.
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Findings and Lessons Learned The grocery business is segmented and highly competitive, with small profit margins, often at or below 2% of sales. Operators rely on high sales volume and tight cost control in order to be profitable. The population density and income level ultimate determination of the size of the grocery market and number of stores in a given trade area. According to BPS, the average annual household expenditure on food in Portland is $7,582 or 13.94% of the median family income of $54,352. In the absence of population or income growth, a new store would take sales away from existing stores in its market segment. Greater grocery sales can also be supported by a shift away from dining out and, instead preparing more meals at home. The trend has, however, been in the reverse direction, with Americans opting for prepared foods rather than home cooked meals. In response, many full-service grocery stores are now offering a wide selection of prepared meals to maintain market share. Full-service urban grocery formats can be broadly subdivided into traditional large format and specialty grocers. Following are the basic criteria most grocery stores use when considering store locations, the status of the Portland grocery market, and finally, what the public sector may be able to do to retain or attract new grocers. Large Format Grocers Traditional, large format grocers typically require a minimum building size of at least 35,000 square feet with parking ratios of at least three per 1,000 square feet of store space and a minimum site size of 1.6 acres. Stores such as Fred Meyer, Safeway, and Albertsons would fall in this category. However, some large format grocers, like Wal-Mart, can exceed 50,000 square feet in size and require a five acre site. The national average size for a grocery store is 46,000 square feet. It takes approximately 8,000 people to support a traditional large format grocer and stores in this category can have a primary trade area of two to five miles surrounding the store site. Store location decisions will be based primarily on area demographics such as population density, income, location of competition, crime rates, and transportation, access and visibility issues. The market for large format grocers in Portland appears to be at or nearing saturation or is limited by a lack of available large parcels. With the exception of Wal-Mart, no large format grocer replied to the Initiative. Representatives of major large format grocery stores told PDC staff that no expansion plans are on the horizon primarily due to a saturated market. More importantly, larger format grocers include the identified underserved areas as part of an existing store trade area even though in many instances, existing stores are more than a mile away from neighborhoods. The result is many residents of underserved areas have either to drive farther or endure a more complicated transit trip. Hence, many residents revert to shopping at convenience stores with higher prices and a poorer selection of healthful foods.
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Other reasons mentioned by grocers for not expanding was a lack of large site availability or potential trade areas constrained by poor access due to rail lines, freeways or rivers. A site study conducted by Leland Consulting Group for PDC staff confirmed a shortage of large parcels with proper commercial zoning or access issues at other potential locations. Large format grocers are, however, remodeling or rebuilding stores to protect or expand their market share. An example is Safeway’s reconstruction of its store on SE Hawthorne Blvd. Staff conversations with large-format grocers also indicated that shrinkage or theft can be a problem in some areas. Given grocers’ tight profit margins, this could be an additional impediment to expanding into some underserved areas. Specialty Grocers Full-service specialty grocers such as New Seasons Market, Trader Joes, Whole Foods, Market of Choice, Grocery Outlet, Fubonn and others typically require a building of at least 11,500 square feet and parking ratios of four per 1,000 square feet of store space. Specialty stores differentiate themselves by serving a market niche such as a specific ethnic group, natural food buyers or price-conscious shoppers. They form a market identity that centers on location, personal service, unique foods (ethnic, healthy, handmade, locally grown, etc.) or other characteristics that extend its market beyond that of a small neighborhood grocery store. Since they tend to be smaller in size, the market base required to support specialty grocers is also smaller, 6,000 people or less, depending on store size. They see their market differently and therefore believe they can compete in areas already served by the larger format grocers. Specialty grocers take into consideration the same factors that the larger format grocers do when making a site selection decision. However, given their focus on a special market niche, they tend to be more sensitive to local demographics that relate to their specific target market. For instance, natural-food oriented grocers tend to weigh heavily on educational levels and trends in the identified trade area for their site selection. Not surprisingly, given the food interest within the region, the market for specialty grocers in Portland is strong. With the exception of Wal-Mart, all of the established grocers who responded to the Initiative are specialty grocers. Even Wal-Mart is now launching smaller format stores branded as “Market Side” or “Neighborhood Markets” than run between 15,000 and 40,000 square feet in size for urban areas where the typical, larger Wal-Mart format cannot physically fit. Although the market for specialty grocers in Portland may be strong, only a few are able, at this time, to consider expansion into the identified underserved areas. As mentioned in Status of Respondents section above, only Grocery Outlet and John Attar are still considering a store in one of the underserved areas. The other established specialty food respondents were either deemed not viable or have determined after further market analysis that expansion is not feasible at this time. It appears that the primary reason is that other areas of the city present a Grocery Initiative Report
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higher probability of success due to stronger income and educational attainment levels, as well as higher population density. An example is New Seasons announcement in February of 2012 of a planned new store in close-in northeast Portland. Specialty grocers also mentioned their interest in expanding into the close-in southeast, downtown, or northwest Portland, none of which qualify as an underserved area. Alternative Formats for Expanded Food Access The initial focus of the Grocery Initiative was the attraction of traditional, full-service, brick and mortar grocery stores, be they large format or smaller specialty stores, to underserved areas. The majority of respondents to the initiative fall in this category, but in addition, staff received responses and has considered some creative ways to alleviate the problem of poor access to healthful food, such as: mobile grocers, micro grocers, cooperatives, food buying clubs and conversion of convenience stores. The following is a discussion on the potential and challenges with these approaches. Mobile Grocers The mobile grocer concept is being tried in several US cities including Detroit (Peaches and Greens) and Chicago (Fresh Moves). The concept is not home delivery but rather involves selling a limited variety of products directly from a van, cart or other vehicle. An advantage of the mobile grocer is the lower overhead costs of not having the rent and utilities of a fixed store. Moreover, it can travel to several underserved areas in one day. The challenges include significantly lower sales volume due to limited hours of operation and the limited product that can be carried. This is likely to mean higher cost for goods since it lacks the benefit of large scale purchasing. Other challenges involve refrigeration, sanitation and freshness and the rising cost of fuel. Although promising, it remains to be determined if this concept can be successful in underserved areas or in the grocery market in general. My Street Grocery is a local Portland example of the mobile grocery concept. It is a start-up company founded by MBA students from Portland State University. My Street Grocery is currently piloting its concept in an underserved area in Northeast Portland. Although it did not respond to the Initiative, staff has since reached out to My Street Grocery and is currently in discussions about potential financial assistance for working capital and business equipment. Micro Grocers Micro grocers, operating in spaces under 1,000 square feet, have many of the same challenges as mobile grocers, such as potentially higher cost of goods due to lower volume and lack of buying power. They will also need to contend with refrigeration issues, frequent deliveries and must have stable access to good locations that can be provided by surplus parking space in shopping centers or other public or private parking lots. However, lower overhead cost is an advantage, along with the flexibility to relocate to better markets if needed. As with mobile Grocery Initiative Report
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grocers, it remains to be seen if this concept can eventually serve a role in providing expanded food access in underserved areas. Staff received one response from the start-up micro grocer Stock Box (see discussion above in Status of Respondents section). As mentioned above, Stock Box is a start-up that will not be ready to enter the Portland market for three years or more. Cooperatives, Food Buying Clubs and Farmers’ Markets The Portland market has many successful cooperatives (co-ops) such as Food Front in Northwest Portland and the Alberta Co-op in the Northeast among others. As mentioned above, PDC received a response from the Montavilla Food Co-op, who is in the formative stages. The Native American Market can also be placed in this category. Co-ops can be very successful if they target and capture the right market demographic and have competent, stable management. Raising the initial start-up capital and maintaining on-going working capital are usual challenges for co-ops. The cost of goods could also be an issue due to lack of volume buying power compared to traditional large grocers. Food buying clubs are also popular in Portland and can be a preliminary step in the co-op formation process. A successful food buying club can provide healthful, reasonably priced food to its members for certain food items, such as fresh produce or meat, in exchange for less convenience and volunteer labor. Members will still be reliant on a grocer for the other products normally purchased from a full-service grocer. Strong and competent organizational skills are also important to their success. Buying clubs can be a promising method to extend food access if the prerequisites of strong community, leadership and organizational skill exist. With the strong interest in locally grown, fresh food, farmers markets are also popular in Portland. They also require active, consistent management and must have a critical mass of vendors and customers in order to be successful. Farmers markets tend not to be low cost and are less likely to expand into currently underserved areas. There are some examples in underserved areas, such as the Lents and King Farmers Markets. However, these markets are struggling to maintain vendors and customers due to competition from other farmers markets in the area and are currently subsidized by their sponsor, Zenger Farm (Lents) and Portland Farmers Market (King). Convenience Stores Another potentially promising alternative for food delivery in underserved areas is the complete or partial conversion of convenience stores into traditional neighborhood corner grocers. The Greenville Initiative modified its original response to the Grocery Initiative adopting this
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concept. As mentioned in the Status of Respondents section, Greenville is currently attempting to pilot this concept with one or two convenience stores in Northeast Portland. The primary advantage of this method is that there is no shortage of convenience stores in underserved areas and no new stores would need to be financed and constructed. The challenge lies with convincing convenience store operators to alter a successful business model that currently focuses on limited grocery goods and primarily on pre-packaged snacks, quick prepared foods, cigarettes, magazines and alcoholic beverages. These items consume 80% to 90% of shelf space and have a high profit margin. To shift to more traditional grocery products including fresh produce would reduce shelf space for these “convenience” products, replacing them with generally lower profit margin goods with a shorter shelf life and greater spoilage rates. A new business model will need to address this profitability issue. The Greenville Initiative may have the answer to this issue by the incorporation of energy efficiency components that will reduce the cost of business to the convenience store operator. Another promising development is Multnomah County’s program to provide grants to convenience store operators to assist with the purchase of refrigeration units for fresh fruits and vegetables. Actions in other areas In 2004, the state of Pennsylvania allocated $20 million to a Fresh Food Financing Initiative. This revolving loan fund provided loans that can be used for predevelopment expenses, land acquisition, equipment financing, or construction costs for new store development and rehabilitation in underserved areas. The initiative also made grants to supermarket retailers planning to operate in communities where credit needs could not be underwritten by conventional financial institutions. The investments were managed by The Reinvestment Fund, a private, non-profit community development financial institution. The Reinvestment Fund managed to leverage an additional $60 million in private financing and New Market Tax Credits. The Fresh Food Financing Initiative provided funding for 88 fresh-food retail projects in Pennsylvania, creating or preserving 5,000 jobs and improving access to healthful food for more than half a million people. The Food Trust is laying the groundwork for similar initiatives in 10 other states. New York's Food Retail Expansion to Support Health (FRESH) program provides zoning and financial incentives to property owners, developers and grocery store operators in areas underserved by grocery stores. FRESH works in tandem with the state's Healthy Food/Healthy Communities Initiative, which includes a $10 million state revolving loan fund program to help finance new food markets in underserved communities throughout the State. The City and State initiatives are in part a result of the work of the New York Supermarket Commission, a coalition of representatives from the City, the State, and public health, labor and financial groups, established in 2008 to help ensure New Yorkers have access to fresh, affordable foods.
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The package of incentives – to be administered by the City’s Economic Development Corporation and Industrial Development Agency – includes real estate tax abatements, mortgage recording tax waivers and sales tax exemptions on purchases of materials used to acquire property or to construct, renovate or equip grocery stores. The benefits will not only help in constructing new stores but also assist existing stores’ expansion efforts and improvement plans, such as upgrading refrigeration equipment, in order to offer a wider range of fresh food choices. In addition to the $10 million state revolving loan fund, the Healthy Food/Healthy Communities Initiative includes a number of programs to support the development of grocery stores. They include Housing Finance Authority funding preference for grocery stores in New York’s AllAffordable Housing Program, Mortgage Insurance Fund low-cost project insurance, a permanent farmer’s market grant program, and financial incentives for food markets to be green and energy efficient. The State’s food market revolving loan fund is administered through a Community Development Financing Institution chosen through a competitive bidding process. Moving Forward The following are recommended actions for PDC, the City of Portland and BPS in light of the current status of the respondents and the lesson learned in Portland and other cities for expanding access to healthful food into underserved areas. 1. Stay engaged with the established grocer respondents that are still considering expanding into underserved areas. In the short term, they offer the best chance to establish a new, full-service grocery store in an underserved area. And if appropriate, offer financial assistance commensurate with the ultimate public benefit. The public assistance could include business or commercial property redevelopment loans, grants or loans for storefront improvements or adding green features to the grocery store. 2. Provide assistance to grocers in navigating the permitting and land use process. Many grocers expressed concern about the length and complexity of the process. Time saved can lower the construction costs for the grocer and/or developer. The City may consider an accelerated permit process for grocery store developments. 3. Stay in contact with other established respondents should they decide to re-evaluate their decision not to expand into an underserved areas. Also, as new incentives or programs are redeveloped, reengage to see if these incentives can spark new interest. 4. Facilitate or offer directly, financial assistance to My Street Grocery. The mobile grocer concept holds promise, but unless this start-up receives critical early funding Portland may miss a creative
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opportunity. As the business grows, it may need a warehouse, an area where PDC can provide financial and technical assistance. 5. Consider funding for the Greenville Initiative’s convenience store pilot project. Greenville is still in the planning stages of its concept and is developing its business plan. Helping the individual convenience stores that choose to participate, gain access to PDC financial and business assistance tools would be needed given their lack of familiarity with PDC and possible language and cultural barriers by potential store owners. 6. Provide or coordinate technical assistance to NAM and Montavilla Food Cooperative to accelerate store development. Consider offering financial assistance when they are in a position to consider a specific store location. 7. PDC can consider extending commercial property and business finance loans to potential grocers and developers of grocery stores with lower interest rates and longer payment schedules than is customary. This could help close cash flow shortfalls for grocers and/or developers in the critical early years of operation while the grocer is becoming established. 8. Extend PDC predevelopment assistance such as Development Opportunity Service (DOS) grants to grocers and/or developers to assist in determining project feasibility.
Conclusion The Grocery Store Initiative is moving from an inquiry and discovery phase into an implementation phase in which PDC and the City work to partner with one or more established or emerging grocers to expand access to healthful foods in underserved areas. During the inquiry and discovery phase, staff learned or confirmed previous assumptions about the challenges facing grocers attempting to expand into underserved areas. These include: • •
• • •
Many underserved markets do not have the population density to support a new large format grocery. Specialty grocer’s business models often require a specific demographic profile in order to be successful. Usually, this profile includes a higher level of education and income than exists in most underserved areas resulting in forecasted profitability below levels that justify the risk of opening a store, even with financial incentives for construction. For both large format and specialty grocers, problems of crime and theft can eat into small profit margins and can be significant impediments to expansion or maintaining a store. The construction and operational subsidies required to bridge a financial gap and open a store in an underserved area could be substantial, as evidenced by what has been required in other cities. Mobile and non-traditional food distribution systems provide worthy new concepts to explore.
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However, even with these challenges, expanding food access to underserved areas is possible if the appropriate resources and creativity are employed. It is advisable to continue working with traditional large format and specialty grocers. Resources must also be devoted to assisting creative food providers such as mobile and micro grocers, as well as working with existing convenience stores and food cooperatives to help alleviate the problem of access to healthful food in Portland.
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Attachments 1. Grocery Stores: Distance, Density and Income Map 2. Request For Interest (RFI): Recruitment of Grocery Store Development in Underserved Neighborhoods Appendix – Documents and Sites Referenced in this RFI
1 Hatherly, Joanne, “Distance from grocery store determines weight: Study,” Vancouver Sun, April 6, 2009. Accessed on May 14, 2009 at http://www.vancouversun.com/business/fp/Want+lose+weight+Move+closer+grocery+store/147 0781/story.html. 2 Centers for Disease Control and Prevention (CDC). Behavioral Risk Factor Surveillance System Survey Data. Atlanta, Georgia: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, 2007 3 Department of Human Services, Physical Activity and Nutrition Program, “Oregon Overweight, Obesity, Physical Activity, and Nutrition Facts,” January 2007
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