By now, most Americans know that the Democratic Party candidate for Mayor of New York has included a proposal for opening five municipally-owned stores—one in each borough—as part of his 2025 mayoral campaign. Not surprisingly, the proposal meets with the approval of several of the more liberal Democrats, prompting Senator Elizabeth Warren to proclaim on CNBC, “It’s a new and fresh plan for New York City, but it’s been tried in other cities around the country and has had some real successes.”
Though I searched, I cannot find any large American metropolitan area that has tried a government-run grocery store. Government-run grocery stores in the United States have been attempted in various forms, primarily in small towns and rural areas, with mixed results.
- Erie Market, (Erie, Kansas). When the town’s only grocery store threatened to close in 2020, due to Covid restrictions, the town stepped in and purchased the store. After four years of operating at a loss, the town leased the store to a private company.
- Baldwin Market, (Baldwin, Florida). A city-owned grocery store operated for five years but closed in 2024. Even though the store operated at a loss, the store faced declining patronage as customers found cheaper prices at private stores.
- Rise Community Market, (Cairo, Illinois). As one of six stores the state opened up in food deserts (defined as a rural community of at least 500 residents, located more that 10 miles from a retail store), Rise is still open, though local residents complain of high prices and empty shelves. Despite millions of dollars in subsidy, four of the state-run stores have closed.
- St. Paul Supermarket, (St. Paul, Kansas). The store, owned by the municipality, is considered a success due to strong community buy-in, motivated by the need to retain residents and attract new ones. The store generates a profit slightly above the average for rural grocery stores, which has been attributed to local support and effective management. Community engagement, local management, and the store’s role as a retention and recruitment strategy for the town are the keys to the store’s success. However, its small scale (serving a population of ~600) limits its applicability to larger urban settings.
The only other grocery stores that I could find that might be considered state-run were tribal stores on Native Reservations and military commissaries on military bases. Unless I missed something, that’s it. Note that all of these stores were attempted in rural areas—none were located in urban settings.
In 2023, Chicago Mayor Brandon Johnson announced a plan for municipally-owned and operated grocery stores to fight urban food deserts (with “food desert” defined as an urban area more than a mile from a grocery store). After completion of a feasibility study, the plan was abandoned.
Besides noting that no large urban city has successfully run a state-owned and operated grocery store, there are good economic reasons why such a store would be doomed to failure. Government-run stores disrupt the natural price signals and competition that drive the greatest efficiency in private markets. Unlike private grocers, who optimize supply chains and quickly respond to changing consumer demand, government entities often lack both the expertise and the incentives to operate efficiently, leading to higher costs and wasted resources.
Let me put that another way: Economists, like Milton Friedman or Friedrich Hayek, would argue that markets allocate resources better than centralized planning. Government stores risk misallocating resources by prioritizing political goals over economic viability. Misallocated resources lead to inefficiency, which leads to higher costs.
Government-owned stores also crowd out private investment. The best way to eliminate a food desert is to provide incentives for private investment. Subsidized stores can undercut prices, discouraging private investment in grocery retail, especially in underserved areas, in a business in which profit margins are already thin (1-3% in the industry). A government-owned store, though poorly run and losing money, may still attract sufficient customers to deter a private store from opening.
Government-run stores inevitably limit consumer choice by offering fewer products or by stocking lower quality goods due to bureaucratic constraints or budget limitations. (Remember back in 2012, when New York City wanted to ban soft drinks larger than 16 ounces?) Private grocers, driven by profit motives, are incentivized to cater to diverse consumer preferences or to innovate new services.
While we lack US examples of urban government grocery stores, there are ample international examples: Vietnam, Iran, Venezuela, and Cuba have all experimented with government grocery stores. All promised lower prices by eliminating profits. The bottom line, however, is that all either failed outright (Venezuela and Cuba) or depended on steadily increasing government financial support.
One last point about government-run grocery stores: For years, big box discount stores like Sam’s have tried to open stores in all of the five boroughs of NYC. Each time, the City has blocked such moves with prohibitive zoning or land use regulations. In each case, the reason for blocking the new stores was to protect existing small businesses, such as bodegas and neighborhood stores. So, if Walmart tries to compete with them, it’s “predatory capitalism”, but if a government agency does it with taxpayer money, it’s “enlightened socialism”?
There are currently over a thousand retail grocers in New York City, each of them competing for customers by offering different levels of services and prices. The idea that the city, with limited purchasing power, with no experience in the market, and with no profit incentive could really compete with lower prices sounds exactly like the kind of pie-in-the-sky idea a thirty-year-old candidate with no real work experience might propose.
OK, I'll bite. Every one of your bullet points cite examples that had or are having limited success. That is, they were responses acute problems, such as the COVID epidemic, or longer term issues, such as food deserts. Where alternatives became available, free market forces provided alternatives.
ReplyDeleteNew York City has diverse food outlets, many if not most of which, depend on imported products. How many will survive a year of import tax increases (tariffs) that are anything but free market solutions to perceived economic "unfairness"? Citing high prices and limited selection as examples of the failure of the government stores sounds familiar to anyone who spends any time in grocery stores today. Since 1979, we have had military benefits which include commissary and exchange access. When we lived near these stores, we saved money in well run, fairly well supplied stores. Amazingly, they did not keep nearby grocers from market entry and success. They do not "crowd out" other stores but provide an alternative to sketchy retailers on the perimeter of military bases that prey on enlisted personnel and their families.
Anyway, NYC will be fine. It survived Andrew Cuomo, after all, and may even return him to office. If you are so inclined, share your opinion (and deep dive research!) of the impact tariffs are having on the economy and will have if they persist for the next, say, couple of years. Thanks for your attention to this matter! (sorry, couldn't resist) Hope all's well with you and yours.
BTW, I meant to post the above under my name, not Anonymous. dj
ReplyDeleteDave, answering all you brought up would take a piece longer than the original blog, but I’ll give it a try.
ReplyDeleteFirst, you need to reread those bullet points. The first two government stores were total failures that couldn’t attract enough customers to remain open even with government support. The third store would also have been a total failure, save for their wise decision to lease out the business to a private company. The fourth, more of a food co-op than a real store, is successful only because it serves a food desert community of less than a thousand people.
As to the tariffs. I don’t like the way Trump is implementing tariff reform, but he is correct when he points out that we are nowhere near free trade—the import tariffs imposed by many countries are not fair and should have been corrected years ago but weren’t because previous presidents of both parties didn’t want to risk a political backlash. And there is a difference between a one-time price increase and inflation. (At least if you believe Milton Friedman). Don’t confuse sectoral inflation with systemic inflation. And even those increases in prices may be discounted by increased government income, cuts in government spending, and increased domestic production. This is exactly what we saw during the 2018-2020 tariff increases on China. Even though sectoral inflation occurred on electronics, the Fed did not increase the money supply and kept systemic inflation down. (This is also why I disagree with Trump about Powell. I think Powell is doing a good job.)
Military commissaries might sound like a good model for government-run grocery stores—but only if you ignore the reality of how they work. They’re not exactly shining examples of efficiency, choice, or long-term cost savings.
First, commissaries are heavily subsidized. While prices are lower than civilian stores, that’s largely because taxpayers are footing the bill behind the scenes. They rely on direct government funding, special deals from suppliers, and don’t pay employees market wages. If a city or state tried this, the budget would sprain an ankle on Day One.
Second, commissaries are for a captive audience—military personnel and their families—who live on or near bases and don’t have the same retail choices as civilians. That’s not the case in most cities, where people can (and will) shop wherever they please. A state-run store would need to compete with Walmart, H-E-B, Kroger, and Aldi... and probably lose.
Third, let’s talk selection. Commissaries are notorious for stocking off-brand salsa, four kinds of soup, and frozen pizza from the year Eisenhower left office. If you think government-run stores would be gourmet paradises, prepare to be disappointed—unless you’re really into dented cans of cling peaches.
Finally, there’s the red tape. Commissaries operate under federal procurement rules that make buying a crate of apples feel like planning D-Day. Imagine your local store trying to restock bananas but needing three forms, a federal bidding process, and a supply chain waiver signed by a colonel.
In short, commissaries are great for soldiers. But they’re a poor model for cities trying to solve food insecurity. A better idea might be supporting co-ops or offering incentives for grocers to serve underserved areas—without handing them a government-issued shopping cart.
One last point. The reason that “sketchy” retailers surround military bases in large urban settings is precisely because the commissary has “crowded out” other stores. As a matter of fact, this is usually the example given in economic classes when explaining the concept of crowding out.