Food Desert Pains

St. John, Kansas, (population 1,295) is the quintessential All-American small town.

It is a place where children ride their bikes to school, the store and the roller rink; people leave their cars and doors unlocked, and everyone knows everyone else by name. The park in the town square even boasts a small scale Statue of Liberty. Surrounded by farmland as far as the eye can see, the scenic 1.88 square-mile city, the county seat of Stafford County, would be the idyllic place to live were it not for one key thing—St. John does not have a supermarket. 

At least not since Feb. 2. That is the day the Hutchinson, Kan.-based Dillons division of Kroger pulled the plug on its 5,200 square-foot store on the north side of the square, ending a presence in St. John that went back some 88 years. The move left town residents and elected officials both reeling and seething.

“I got a phone call on Jan. 22 from one of their representatives informing me that the store would be closing in two weeks,” says Juliann Owens, the mayor of St. John.

“It was a relatively small store, but it was the only one we had,” she says. “We have a lot of older folks and lower income residents that can’t always afford to drive to the next grocery store.” That is a half-hour drive, either north or south, to two larger communities that each have a Walmart and full-service Dillons, although there is an independent in Stafford, 10 miles away. “But it is a small independent and their prices reflect that,” Owens says. 

“Dillons operates maybe three of these small stores in really small towns and St. John was one of them,” says David Procter, director of The Center for Engagement and Community Development, in the Office of the Provost at Kansas State University in Manhattan, Kan. “I think it was simply not making the margin that Kroger was after. What’s ironic is St. John is kind of out in the middle of nowhere, so it is not like they were butting up against a Walmart 10 miles away.” 

As small as the store was, it did offer St. John residents a meat counter, and while it did not offer an in-store bakery, the store manager lived in Great Bend and brought in fresh baked goods from the Great Bend Dillons. “We were the basics—produce, meat, milk—that kind of stuff was the focus of the store,” Owens says. “They carried things like dog food, cleaning supplies, and at holiday times they would bring in fresh flowers.”

City officials are doing their best to bring in another supermarket, but that might not be easy.

“Dillons has another 10 years lease on the building,” Owens says. “The last I heard is that they weren’t going to let go of that lease.”  

With St. John’s economy based almost solely on farming, Dillons’ closing dealt a blow to the labor force in more ways than one. “Dillons was the main training ground for most of our high school kids as far as employment is concerned,” Owens says. 

St. John is not alone in its plight. Similar scenarios are playing out all across the Heartland. 

Take Emmetsburg, Iowa (population 3,800), 522 miles to the north. The county seat of Palo Alto County, Emmetsburg is luckier than St. John in that it still has a supermarket, in this case a Fareway, but it once boasted three. 

“One of the things that Fareway prides itself on is being closed on Sundays,” says Billie Jo Joyce, Emmetsburg’s economic director. “That is really affecting our community right now because our residents are traveling elsewhere on Sundays to get their groceries and they are taking their dollars with them.”

For Emmetsburgians, “elsewhere” is Spencer, Iowa, some 30 miles away, where there is a Walmart Supercenter, as well as a Menards home center. 

“The closing of our second grocery store has had a ripple effect throughout our whole community,” Joyce says. “Our building center and our lumberyard are really feeling it because when they are in Spencer people go to Menards since many have the perception that Menards is cheaper. It is the same thing with Walmart. It is kind of a spiraling effect of what is happening to our community.”

According to the 2015 NGA/FMS Independent Grocers Financial Survey, supercenters continue to be a competitive challenge to independent grocers, with Midwest independents pointing to supercenters as their primary competitor.

One of Emmetsburg’s three supermarkets closed years ago; the building has since burned down and been replaced by another business. The second, a Food Pride supplied by Nash Finch, was part of a small chain that had been acquired by a businessman from Ida Grove, Iowa. He closed the store a year after buying it, right after incentives provided by Nash Finch expired. To make matters worse, Food Pride shared its lot with ALCO, a general merchandise chain servicing rural communities that went bankrupt and liquidated in 2015. He then donated the entire parcel to the Ida Grove Kiwanis Club Foundation. 

“Ida Grove is about 90 miles from here and he has a successful store there,” Joyce says. “The buildings are still on the tax role, and the Kiwanis is trying to resell it, but obviously 40,000 square feet or retail buildings isn’t exactly a fast mover here.”

Parts of Minnesota have also been hit by the loss of independents.

“It is almost an oxymoron because we have a very viable independent grocer base here and we’re seeing all sorts of chain growth, with Meijer, Lucky, Fresh Thyme and Hy-Vee coming into the [Minneapolis-St. Paul] metro area,” says Jamie Pfuhl, president of the Minnesota Grocers Association, based in St. Paul.  

But in the rural “outstate,” as Pfuhl calls it, it is a different story. 

“A challenge is the changing demographics in those rural communities,” she says. “You’re seeing a shift in the economy. We’re seeing an aging population and a more transient consumer that is making greater choices, including driving 15 or 20 miles to go to a supercenter.”

Some of that is necessitated by the loss of the local hardware, clothing and department store, Pfuhl says, but when the supermarket closes the little town usually goes into a free fall. 

“The grocer is the anchor and if you lose that grocer, Main Street really does dissipate,” Pfuhl says.

Things have gotten so bad that State Representative Rod Hamilton (R-Mountain Lake) proposed $10 million in state funds to devise ways to staunch the exodus. As of press time it was uncertain whether his bill would make it to the floor for voting before the session ended for the summer on May 23. 

While agreeing that something has to be done, Pfuhl expressed concern because the politicians were debating whether to expand the funding to include things like farmers markets and non-traditional ways to bring food into rural communities. “Our concern is we’d like it to be a little more holistic to supporting brick-and-mortar before we start bringing in more things to crush them,” she says.

“We get a lot of calls saying, ‘Hey, we lost our grocer,’” Pfuhl says. “We get consumers calling. We get cities calling frustrated that there is nowhere to pick up that milk or those eggs. But those convenience stops don’t keep the grocer alive. We find the consumer wants it when they want it, but they don’t generally want to support it. They’ll say, ‘It is cheaper to drive to X Big City and shop at X Super Center. I have to shop there to support my family, but I really need that corner grocer if I have to pick up a box of cake mix.’ Truth is, that does not keep that small town grocer alive.”

According to industry observers, there are things small-town grocers can do to not only survive, but thrive.

For starters, they can turn to the National Grocers Association, which offers a number of resources for retailers seeking to open a small town store.

“Our NGA Share Groups provide non-competing companies with the opportunity to learn from each other and share new ideas and best practices in a number of company operations, such as human resources, finance, technology, succession planning, marketing and more,” says Laura Strange, senior director, communications and marketing at NGA, based in Arlington, Va. 

NGA also offers classes to assist retailers, Strange notes.

“The NGA Online Training and Education Center offers a continually expanding selection of online courses that have been developed to meet the needs of food retailers,” Strange says. “Store employees can participate in more than 130 grocery-specific training courses anytime, anywhere and at their own pace. NGA also offers webinars every Wednesday on trending topics within the industry, as well as government affairs and compliance updates.”

Supermarkets have to readapt to the changing marketplace, and especially in a small town, implement strategies to keep consumers from traversing elsewhere to shop, says Dr. Richard George, professor emeritus at Saint Joseph’s University in Philadelphia.

“You have to be the town’s draw,” George says. “If you have a parking lot, offer it one day a week for the high school band to practice in and serve them cookies afterward. Let the local CYO or Little League use your parking lot for a car wash, and work with the local dietician so you are perceived as the local health and wellness place.”

They also need step up their game when it comes to quality.

“You’ve got to have the right assortment and be spot on when it comes to fresh,” George says. “If people are going to a Walmart Supercenter or the town is large enough to warrant a CVS or Walgreens, they are going to have food, but not too much in the way of fresh. You have to be identified as the butcher, the artisan baker. You have to offer the things that the other stores either do not or cannot go into. You have to be perceived as the community’s grocer—you are the lifeblood and you have to do whatever it takes.”

Time is value

“Time is a value proposition,” says Mike Smith, a former vice president at ALCO, and presently a consultant and owner of Plan-ergy, a Grand Rapids, Mich.-based consulting firm. “Time is still a huge value proposition in a community where the nearest Walmart is 25, 35 or 50 miles away. So there is still a tremendous amount of opportunity for large scale chains or local independents to capitalize on these communities.”

Interestingly, online shopping is not as big a threat in rural America as in the rest of the country, Smith says. “Online commerce and e-commerce penetration is still a very small fragment of the business,” he says. “UPS and FedEx do not deliver as often, and the availability and stability of the internet is a whole different ballgame.”

However, with a much more limited population small-town retailers need to practice strict category management, Smith says. Using apparel as an example, he says if a store in a rural community over-buys on XXL dresses and no one in town wears that size, no level of markdown is going to make that product move. “So inventory management becomes this crucial endeavor. It is interesting to see what frozen SKUs sell in the Heartland versus the aggregate of the U.S. It is a heavy penetration of fried goods, think bulk bags of mozzarella sticks and fried chicken. There is less penetration of fresh produce, fresh meat and fresh seafood. Don’t get me wrong because frozen bagged tilapia is still this ridiculous seller in the more rural markets,” Smith says.

To be more competitive, rural independents need to utilize a broader distribution network and team with strong wholesalers, like C&S or Associated Wholesale Grocers. Even a chain like Dillons might be wise to use someone like an Associated to service far-flung rural stores, like St. John, Smith says. 

“The more progressive chains have been thinking through some of those logistics, using third-party logistics (3 PL) providers, and partnering up with non-competitive retailers in the area, like those in apparel and general merchandise categories. I think it is a huge and enormous efficiency conversation that will help those local communities thrive,” Smith says. 

Spirit of co-operation

An increasing number of small towns are looking at establishing a supermarket co-op as a last-ditch effort of getting their stores back.

Both St. John and Emmetsburg are examining that option.

“Right now we’re open to anything,” says Owens. “We want to try and get a grocery store back in the community before people get in the habit of shopping elsewhere and it gets so ingrained that they just continue to do that.”

“I get five to 10 phone calls a week from people that own businesses here in town or just community members asking ‘What can we do? What are our options? Could we do a co-op grocery store?” Emmetsburg’s Joyce says. 

In Emmetsburg a co-op looks like a strong option, especially since Hy-Vee ruled out opening up in town and the townsfolk will not go for a Walmart Neighborhood Market because residents like companies that give back to the community, Joyce says. Aldi has also been ruled out.

“I looked at Aldi’s requirements and they need 10,000 car counts going past the building,” Joyce says. “We’re at 3,000.” 

Emmetsburg officials are looking at purchasing the Food Pride/ALCO property and Joyce says she already purchased 90 percent of Food Pride’s fixtures. “That would be another incentive we’d be willing to give a grocer,” she says, along with a $10,000 grant. “Another supermarket is something that our community definitely wants and needs.”

“We think these communal models of organization are going to be the way that the communities move forward in many cases,” says Procter. “The co-op is one model. Another is the community-owned model and we’ve seen a little bit of an increase in the number of non-profits that are running grocery stores.”

Historically, co-ops were found in more highly educated areas.

“There tends to be co-ops in places where there may be universities, or the Upper Midwest, Northeast and Northwest—areas where the population has that nature of working collaboratively to get this done,” says Eric Davis, a spokesman for National Co Op Grocers, the Iowa City, Iowa-based trade association representing 80 percent of the established co-ops in the U.S.

Communities looking to establish their own co-op should reach out to Food Co-Op Initiative, a Savage, Minn.-based non-profit that provides services for communities starting co-ops.

Converting an existing store, such as the St. John Dillons or Emmetsburg Food Pride, to a co-op can shorten the process, says Stuart Reid, executive director of Food Co-Op Initiative.

“What takes time is that you have to do business organization, get incorporated as a cooperative and write bylaws,” Reid says. “Then you have to sign on owners, ‘members’ as they are typically called, who make a one-time investment of $100 to $300 per person to own a share in the store.

“Some co-ops allow members to buy more than one share, but they can never have more than one vote in electing board of director members, so it is a very democratic organization. The big issue of getting started is where does the rest of the money come from.”

That can come from the local bank or wealthy residents who make a loan, Reid says.

The good news for small towns is that cooperatives are on an upswing.

“Co-op development sort of happens in waves, and we’re going into the third wave now,” Reid says. “In the last 10 years more than 100 co-ops have opened and I’m working with 125 communities.”     

Nonetheless, the Heartland continues to lose stores.

Since the Center for Engagement & Community Development started operation in 2008 with the goal of stopping the loss of independent, rural grocery stores, Kansas has permanently lost 32 of its 213 small-town supermarkets, or 15 percent of the total, says Procter. In both 2008 and 2009, six stores closed, seven in 2010, two in 2013, and five apiece in 2014 and 2015. 

“I think we’re going to slow the trend of closing,” he says. “When you see population numbers just continue to go down and down, it is hard to ultimately overcome that. But there are some grocery stores in some super small towns that are successful. We feel good about that.”     

Big Apple Parallel 

Small-town rural America is not the only place where the traditional supermarket is an endangered species—they are becoming increasingly rare in New York City as well. Gentrification and its accompanying skyrocketing rents and redevelopment are mostly to blame, although last year’s bankruptcy of A&P saw dozens of New York City Pathmark, Waldbaum’s and The Food Emporium units shutter.

Manhattan’s latest casualty is the Associated supermarket on W. 14th Street, which serviced the now trendy Chelsea, West Village and Meat Packing District neighborhoods. A W. 14th Street mainstay for decades, it was forced out by rising rents. Associated’s landlord sought to triple its rent from $32,000 a month to $104,000 a month—for a 6,000 square-foot store.

“It’s crazy,” says Carlton McQuilkin, the store manager. “With the levels of margin that we work with, that’s unmanageable. Maybe double, but triple is way too much.”

Local residents, politicians and community leaders staged rallies outside of the store that received coverage on the radio and the local CBS TV news; petitions were signed and online efforts were undertaken, but it was all for naught, as the landlord refused to back down from the $104,000 figure. McQuilkin says loyal shoppers took the news hard.

“I’ve had customers that when they heard word that we were closing, they just started crying in front of me. It’s tough. It’s tough,” McQuilkin says, his own voice starting to crack. “We are like a neighborhood store. There are people that have lived here for years and years and you get to know everybody. We were an affordable market, especially for the older clientele on fixed incomes. It is hard for them to go on the subway and we deliver within a 10-block radius.”

In recent years the neighborhood has lost a Gristedes and two D’Agostino stores. There is a Westside Market a block up 14th Street, but McQuilkin says they are “a little on the pricey side,” while the new Mrs. Green’s is “very expensive.”

He adds, “There is a Western Beef on 9th, but from what I hear from my customers, they’d much rather come here. They say the level of service and the quality is better and they like our overall atmosphere and friendliness towards the customers.”

Shoppers are not the only ones heartbroken; 40 Associated workers also lost their jobs.

“We have two other stores on the Eastside. They are fully staffed, but we are trying to move people,” McQuilkin says. “I have some employees that have been fortunate enough to find other employment and saying goodbye to them is hard. I just said goodbye to a guy that has been with the company for 20 years. Some of my workers have had to walk away because their eyes started welling up.”

Associated closed on May 15. McQuilkin had no idea what would come in next. “It might be some kind of boutique. They will probably gut the building and totally redo it. The way things are going they will probably cut it in half. Two doors down they just put up a 15-story building and are asking $2 million for a studio. The crazy thing is that somebody will pay it,” he says.

Associated is not the only New York supermarket finding itself in a vise. 

D’Agostino which bills itself as “New York’s grocer” has also closed stores, the most recent its longtime Murray Hill location on Third Avenue and 35th Street.  At its peak, Larchmont, N.Y.-based D’Agostino operated 26 stores in New York City and neighboring Westchester County. It is now down to eight stores, and according to news reports may close another two, and slash dozens of jobs at its remaining units.     

And Fairway—the upscale chain with a once fanatical following known for its produce, meat, seafood, deli and gourmet foods—whose rapid expansion ate into the sales of those traditional supermarkets filed for Chapter 11 bankruptcy restructuring in May, casting its own survival into doubt.