Upscale grocers aren’t a win for all

March 28, 2012

Neighborhoods like the amenities of high-end food stores, even if everyone can’t afford them or what tends to follow.

If upscale grocers like Whole Foods Market help raise real estate values of the urban neighborhoods they open in, nearby property-owners gain on paper, but renters face less affordable living if pricey stores follow and an area gentrifies.

All parties have an agenda:  Cities want the tax base and the better image; residents want the amenities and access to wholesome foods; the retailers want the city, state and federal incentives upfront and dense customer traffic to follow. But let’s not forget the neighborhood residents who might not be able to afford a step up, or other food sellers long committed to the area that feel they’re getting a raw deal.

If, for example, Whole Foods will pay $6 per square foot in rent for a 20,000-square-foot store it plans to open in downtown Detroit in 2013 (as reported by Crain’s Detroit Business), and this government incentive to the site developer helps Whole Foods to keep prices low, can local grocers compete? “They’re getting tax breaks that we independents have never received. We should all be on a level playing field,” Norman Yaldoo of University Foods told The Wall Street Journal recently. The Yaldoo family has served the community for more than 30 years.

Whether the Detroit site succeeds remains an open question—but Whole Foods sees signs of promise in the area such as 800+ community gardens, a vast farmers market, and high education levels of residents which could correlate to interest in a healthier diet, sources told WSJ.

“In cities across America, we see neighborhoods adding housing while still seeing rapid increases in the price of housing….Any developer can tell you why: amenities….New housing comes with the higher-end supermarkets, restaurants and stores, which increase the value of the neighborhood faster than the new housing units can absorb,” wrote Forbes recently.

Indeed, a Johnson Gardner study conducted in Portland, Oregon, An Assessment of the Marginal Impact of Urban Amenities on Residential Pricing, documented the pricing effects of urban living infrastructure. We won’t delve into their formulas here. But we will quote one relevant finding from the 2007 research:  “People are more focused on where they live, and whether they can walk to get coffee, a meal or a bagel. The most mentioned tenant perceived to be marketable is a specialty grocer such as Trader Joe’s, Zupan’s, New Seasons and Whole Foods. These tenants have the ability to significantly improve the living experience in the area, providing a needed amenity with grocery good, ready to eat foods, flowers and gifts.”