WASHINGTON (FNS) -- Strong public-private partnerships are the key to successfully launching supermarkets in distressed areas, according to industry experts speaking at the U.S. Department of Agriculture Conference on Access to Food here.
Whether the distressed area is an inner city neighborhood or a small rural community, the strength of the store's support network -- which includes local government officials, bankers, wholesalers, brokers, federal loan agencies and store management -- can mean the difference between success and failure, the experts said.
This is particularly true for independents, which are more vulnerable because they often lack the financial support and business expertise of a larger company.
A Case in point is Covington Foods, Covington, Ind., a family-owned chain of four IGAs and two County Market discount food stores in rural Indiana and Illinois. Don Clark, president, told conference participants that in 1993 he secured a USDA business and industry loan guarantee to rebuild his chain's 34-year-old original store in Covington. The project cost a whopping $3.9 million because the old, 11,000-square-foot store had to be torn down, a new 29,000-square-foot unit built, and the company had to purchase the land, which had been leased, as well as a large downtown parcel for parking. All the small local banks had loan limits of about $200,000, but one enterprising banker took the time to learn about the USDA program, which guarantees up to 90% of loans to rural businesses. The banker procured a $1.6 million loan guarantee for Covington Foods that allowed the project to go forward. Finding the right banking partner was also key to financing a 20,000-square-foot replacement store in Attica, Ind., in 1979, Clark said. For that store, Clark proceeded with construction with only a verbal commitment from a local banker to help procure a loan from a large Indianapolis bank. The banker reneged, and Clark approached about six other banks before finding one that was willing to help.
About two weeks before the store's doors were to open, Clark found a bank that agreed to buy $925,000 of municipal economic development bonds issued by Covington Foods and the city. The
interest rate on the bonds was only about two-thirds the rate the company would have been charged for a bank loan, Clark said. Although the store opened without incident, Clark said he will never again accept a construction bid without signed letters of commitment from financial institutions in his hand. Clark also credits the services of his wholesaler, Supervalu, Minneapolis, for much of the success of his company, which generated sales of $64 million last year. Covington Foods buys $40 million in products from Supervalu annually, and Supervalu provides support in areas such as construction, engineering and accounting, he said.
Strong local support is just as crucial in the city as in the country, according to a panel of experts who helped open a 35,000-square-foot Winn-Dixie store in the Liberty City neighborhood of Miami in 1984.
Launching the store on the site of a former Pantry Pride that had been gutted and burned during a riot in 1968 took two years of lobbying, panelists said. Tacosy Economic Development Corp., a developer that was affiliated with a local community service organization, tried to find a black-owned retailer to take the spot, but was unable to find one with the expertise and financial resources needed, said Arnold G. Montgomery, one of two private consultants who worked on the project. When Winn-Dixie, Jacksonville, Fla., surfaced as the only interested candidate, the project's sponsors, including the community development organization Local Initiatives Support Corp., worked with local officials to develop a revitalization plan for the entire commercial area. This included bringing in many black merchants to open stores. These merchants were impressed with the traffic that Winn-Dixie could bring to the area, and so they eventually supported the Winn-Dixie opening. Attracting the support of financiers was also crucial to the supermarket's success. The investors eventually included the Ford Foundation, LISC and other nonprofit organizations. Nine years later, the store generates above-average volume for the chain, said John B. Hicks, who oversees the Liberty City unit and about 15 others as a Winn-Dixie district manager. Winn-Dixie is working with LISC to expand the Liberty City store to 52,000 square feet, added Sandra Rosenblith, an LISC official who sat on the panel.