Barriers to Entry


Barriers to Entry

Getting food into neighborhoods is a tricky affair. Multiple reasons exist that prevent small grocers from opening up and from succeeding once they are open.

Grocery stores typically have low margins. Combine this with the increased cost involved in sourcing for one store, lack of financial incentives that are typically provided to big box stores like Walmart, cost of land/rents within the inner city, and you will start to understand why prices are more expensive at the corner market than at the suburban supermarket where land is cheap and incentives abound.

Rent

In densely populated urban areas, premium rental rates generally apply. For small landowners who need to rent their property, finding the most stable business that can pay the rent that will allow coverage for property taxes (commercial property taxes are much higher than residential property taxes), mortgage payments, maintenance fees, federal taxes, utility payments (sewer and water), security fees, and still enable them to make a profit means that healthy corner stores are directly competing with liquor stores, barbershops, hair salons, music studios, and bars for commercial space.

For those of you who cannot fathom what commercial property owners have to pay in taxes each year, here is an example based on this particular building: Fulton County collected $22,128.63 in taxes for the 2011 year for less than 14,000 square feet of interior space within which 5 small businesses operated.

For a residential property next door that has 16,110 square feet of interior space the property taxes paid for 2011 totaled $5966.14.

Bars can easily afford to pay higher rents. Barbershops, hair salons, and weave shops can afford to pay higher rents, the overhead is pretty low and the margins are excellent. There is a reason why there is a proliferation of these types of businesses within inner city neighborhoods and a lack of healthy establishments.

To start a healthy corner stores, based on the intensive costs involved in operations combined with the low margins involved with selling food, it is difficult to operate within the city limits given the premium rental rates without being consumed by debts.

Employment

The Boxcar Grocer is open from 9 am until 8 pm Tuesday through Saturday. On Sundays and Mondays we are open from 11 am until 6 pm. We are open 7 days a week. Now go ahead and add those hours up. Yep. My brother and I are on the store floor at the moment for 69 hours a week. That is every single week. No weekend breaks. We have been open for just over 4 months.

We have two employees who work part-time so that it enables us to run errands and do paperwork associated with the store and quite possibly take a lunch break. When we consider how many extra hours it takes to deal with all the aspects involved in running a business that do not involve active selling on the floor –cleaning up after shifts, answering emails, HR, marketing, graphic design, meetings with vendors, bookkeeping, returning phone calls, etc. – it is safe to say that for at least 3 hours before and 2 hours after the store opens and closes every day we are actively working. So that leads to a grand total of 104 hours per week that my brother and I are working to get The Boxcar Grocer up and running.

We need employees.

The trouble lay with the fact that finding suitable labor is time intensive and exhausting. It is also difficult to add labor if store sales cannot cover the cost of adding multiple shifts to the schedule. We need people who have grocery store experience and a strong work ethic. These are two things that very few –if any– of the resumes that come across our desks show. There are plenty of people who are aligned with our values who desire to work at Boxcar but there is a misconception that working in a grocery store does not require a particular skill set. Math skills, retail work history, physical strength (unpacking inventory is no joke), ability to problem solve, respect, ability to listen (to customers and to us), strong communication skills, commitment to good personal hygiene, and the ability to not bring your personal problems into the workplace, are all the minimum requirements to working here.

Having even one person who is disruptive can lead to product loss, customer dissatisfaction, reduction in employee morale, and trust issues. All of these things cost store owners money. For a start-up, every penny is the difference between making payroll and the ability to afford ordering inventory for the next week, or closing up shop.

Solutions

Landowners need incentives to enable them to provide below market rates to individuals who would like to open healthy grocery stores as opposed to allowing typical liquor stores to occupy their space. Although I am familiar with tax incentives for large stores like Walmart (sales tax refunds? really?) that want to move into a community, I am not familiar with tax incentives provided for small landowners who may have a strong desire to see a positive change in their tenant line up but are at a disadvantage to provide low stable rent if needed. We were recently approached by a small building owner who desperately wants to improve her building and her community but just doesn’t have the means to do so. They practically begged us for help to get something like The Boxcar Grocer to replace the gross corner store that previously occupied the premises. She wants to see change but the instruments for change are not readily accessible to her.

Three months of build-out concessions and six months of free rent would be a great incentive to a healthy grocery store operator to get into a space, build business, and be able to grow that business. This is a total of 9 months of rent free occupation.

However, small landowners still have mortgages to pay on that property as well as maintenance, taxes, and security to provide. It’s pretty painful to let a property sit vacant while waiting for a tenant. Providing healthy corner store operators access to grant money to make rental payments during the first 6 months of business would allow the landowner to maintain that property but also allow the healthy corner store operator to build a quality business.

A city fund that helps healthy grocery store owners pay employees during the start-up process would be infinitely helpful. Tax incentives are great but they usually happen nearly a year after the money is needed to pay employees. Start-up capital is easy to find for tech superstars but difficult to find for store operators.

Why can’t tax payers decide whether their tax dollars go to support opening up another Walmart or towards opening up a business like The Boxcar Grocer?

Access to free parking is necessary for grocery store operators. While I understand from an economic perspective why ParkAtlanta scoots all over the city ticketing drivers, I think some common sense is needed to know that grocery stores need access to free parking. One or two city designated street spots that ‘belong’ to the grocery store to allow customers to park for 20 minutes or less keeps business moving.

The Boxcar Grocer happens to have access to a parking lot. Believe me, this is an anomaly in our neighborhood. Any other location on the block would have our customers battling for parking with all the residents and other businesses. We basically are donating free day parking to the entire neighborhood during the day. Yet, we still have to pay for daily maintenance (you’d be surprised how dirty a city parking lot gets each day), signage (graffiti proof parking signs cost hundreds of dollars), property taxes on the parking lot (this is on top of the $22,128.63 paid for the buildings), and security.

Outlook for Community Development

Improving this one small community based only on the things we are doing that are associated with running The Boxcar Grocer costs thousands of dollars per month. These are costs that really should be shouldered by the City of Atlanta but instead are being shouldered by my brother and me. Our time and our resources are being drained because we believe that someone needs to be on the ground who can actually do the work involved and report about what works and what doesn’t work.

Let me get this straight: I am in favor of taxes. I have traveled in countries where people do not pay taxes and they are not places where I would like to live. I like publicly funded access to education, I like paved roads, I like public transit, I like street lights that work, I like knowing I can call the police if I feel threatened and they will show up and not try to kidnap me themselves. All of these luxuries are possible in this country because of the taxes we pay. But let’s start thinking beyond the basics and work towards seeing how we can leverage those funds to actually improve our existing communities before we provide tax incentives to people who only want to take money out of our communities without really investing in building a healthy community around them.

We are less than a mile from City Hall and it is one of the most shady, least developed forgotten about stretches of pavement in the City. Can we say poor economic and community development?

Unless Alphonzo and I can actually be the catalyst for structural change that is so sorely needed within cities like Atlanta so that all of this can run with or without us in communities all over, then we will have succeeded in nothing but running ourselves into the ground.