After vowing to open more than 1,000 stores selling fresh fruit and vegetables in underserved urban neighborhoods, or “food deserts,” grocers have opened a fraction of them, putting in jeopardy Michelle Obama’s effort to improve food choices for low-income Americans.
Wal-Mart Stores Inc. (WMT:US), which said last July it would have 300 food-desert stores nationwide by 2016, has opened 23 and delayed opening some locations after a backlash from activists. Supervalu Inc. (SVU:US), which pledged to double to 2,376 its Save-A-Lot stores, has slowed the pace of openings amid declining sales (SVU:US) and scarce financing for its licensees. Meanwhile, grocers are opening stores in wealthier urban enclaves.
Food desert locations, by definition, aren’t profitable, according to Nelson Lichtenstein, director of the Center for the Study of Work, Labor and Democracy at the University of California at Santa Barbara.
“The whole phrase ‘food desert’ sort of implies the weather created it,” said Lichtenstein. “It’s not the weather -- it’s because people don’t have any money.”
Shoppers who live in low-income city neighborhoods “don’t fill up a basket and spend $100, they buy $10,” said Lichtenstein, who wrote “The Retail Revolution: How Wal-Mart Created a Brave New World of Business.”
The First Lady has made the eradication of food deserts a central part of her anti-obesity “Let’s Move!” campaign. About 23.5 million Americans live in low-income areas that are more than 1 mile from a supermarket, according to Obama’s Healthy Food Financing Initiative.
Her calls for more grocery stores selling fresh fruit and vegetables come as grocers seek new ways to grow. Sales at U.S. supermarket and grocery stores, which totaled about $495 billion last year, have stagnated and will grow 0.1 percent annually until 2016, on average, according to IBISWorld Inc., a research firm based in Santa Monica, California.
Wal-Mart is trying to rekindle growth in the U.S. and has made opening urban stores a central piece of its strategy. The world’s largest retailer has encountered resistance from unions and activists who say Wal-Mart’s move into U.S. cities won’t create jobs that pay well and offer benefits.
As part of its effort to persuade Chicago officials to let it open stores in the third-largest U.S. city, Wal-Mart in June, 2010, vowed to open “several dozen stores” to “help eradicate food deserts and stimulate local economic development.”
Since then, Wal-Mart has opened four Chicago stores. It has three more in the works, according to Steve Restivo, a company spokesman.
“We will continue to identify sites where residents need jobs and better access to fresh food, while also looking for opportunities to help all Chicagoans save,” Restivo said in an e-mail. This year Wal-Mart will open between 50 and 60 stores in food deserts nationwide, he said.
On May 9, Wal-Mart will open a store in the city’s gentrifying River North neighborhood, about half a mile from a Whole Foods Market Inc. (WFM:US) location and less than a mile from a Trader Joe’s and a Supervalu-owned Jewel-Osco.
“They really messaged publicly about being the savior to the food deserts and look at where they’re at,” said Elizabeth Drea, a Rosemont, Illinois-based spokeswoman for the Local 881 United Food and Commercial Workers International Union, representing workers in Illinois and Northwest Indiana. “They’re kind of going in a different direction.”
Supervalu, the third-largest U.S. grocery chain, also has put a priority on opening urban stores as competition from low- priced, big-box retailers Wal-Mart and Target Corp. (TGT:US) cut into the Eden Prairie, Minnesota-based company’s sales. In January 2010, Save-A-Lot’s then President Bill Shaner vowed to double the number of locations by 2015 by tapping into under-served demand in “urban food-desert” centers.
The 1,330-location Save-A-Lot chain, which sells food that’s about 40 percent cheaper than that sold by mainstream grocers, will open 50 stores in fiscal 2013, compared with 52 in 2012 and 92 in 2011. Save-A-Lot is “still seeing good growth in the licensees, but it’s not quite the pace that we had outlined a couple of years ago,” Chief Financial Officer Sherry Smith said at an investor conference on April 24.
It may be easier for Walgreen Co. (WAG:US), the second-biggest U.S. drugstore chain by revenue, to live up to its food-desert promises because it already has the locations, according to Meredith Adler, a New York-based analyst at Barclays Capital. The drugstore is “already in food deserts -- they’re just going to be shifting space around in their stores to sell more food.”
Last July, Walgreen pledged to open or convert at least 1,000 so-called food oasis stores over the next five years in the U.S. It has so far opened nearly two dozen, according to Robert Elfinger, a company spokesman, who added that Walgreen is “on pace” to meets its goal. The Deerfield, Illinois-based company’s “urban oasis” project includes stores that carry about 750 more food items, including fresh fruits and vegetables.
Customers now see Walgreen stores as a “destination for meal solutions,” said John Grant, market vice president for Chicago and and Northwest Indiana. In food oasis locations, submarine sandwiches and fruit are selling well, he said.
“They see us a little different than what they’ve seen us as in the past,” Grant said.
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