Chicago entrepreneur Karriem Beyah grew up working in the grocery business, but when he courted some industry heavyweights to bring stores to the South Side, their response was disdainful: "Who wants to go over there, in that negative element?"
It's not just a Windy City problem. According to the USDA, 13.6 million Americans have low access to supermarkets or large grocery stores.
In many of these neighborhoods, like the Lower Ninth Ward in New Orleans, the South Side of Chicago, and the Seventh and Eighth Wards of Washington, D.C., residents often rely on overpriced convenience stores and discount outlets such as Family Dollar (FDO) for packaged goods and staples foods. Even then, they can't find quality produce nearby.
Finding Healthy Choices in Food Deserts
Over the past three years, as first lady Michelle Obama has shone a spotlight on nutrition and obesity through her Let's Move program, the issue of food deserts has come under increasing scrutiny. These locations, often in inner cities, are defined as areas where residents lack convenient and affordable access to groceries.
Inadequate access to healthy food has been blamed as one cause of the country's obesity epidemic, but food deserts are also a curious example of the flaws of our relatively free market. Based on the theory of the invisible hand, supply should meet demand at a given price point in an open economy, especially in the case of necessities such as food.
While the grocery budgets of America's lower-income enclaves may be smaller than in other populations, these communities still have money to spend on food. The USDA estimates a low-cost monthly food budget for a family of four to be $820. Multiply that out through large populations, and such areas should be able to attract adequate food suppliers.
But in many places, that's just not happening.
There are a number of suspected causes for the lack of supermarkets in these areas -- crime, security issues, poverty, lack of overall economic development, and urban decay among them. But a study by economists at the University of California and Michigan State shows that little progress has been made in pinpointing the real reasons that some areas become food deserts. And some possible causes are more insidious than you'd expect.
Deed Restrictions: I Don't Want It, But You Can't Have It
It only seems logical that if a neighborhood grocery store shuts down, another one should be allowed to move into the abandoned space. But the anti-competitive policy of deed restrictions often prevent that from happening, which leaves the neighborhood without convenient access to groceries.
Often, the store that is shutting down is moving to another location, and uses deed restrictions to keep competition at baby so it can charge higher prices. Safeway, (SWY) for example, has used this tactic in areas such as Seattle and Vallejo, Calif., drawing flack from the locals over its behavior. This problem is only exacerbated in urban areas, where large tracts of real estate suitable for a supermarket are hard to come by.
Walmart (WMT), the world's largest retailer, also takes advantage of this anti-competitive practice. As of 2010, the company had 250 abandoned stores across the country sitting empty because of deed restrictions. The retail giant openly defends this tactic, saying, "We welcome competition in the marketplace, but what we can't be doing is providing infrastructure for our competitors in the same market."
The Light at the End of the Aisle
Where the big chains have gone AWOL, others have found opportunities.
Beyah, the Chicago entrepreneur, decided to take matters into his own hands, starting his own chain called Farmers Best Market. Since opening his first store in 2008, Beyah has grown his enterprise to three supermarkets in the Chicago area, two of them occupying spaces previously vacated by other grocery stores.
And HBO fans may recognize another member of the newest generation of grocers. Wendell Pierce, who played Detective Bunk Moreland in The Wire and now stars in Treme, has focused his efforts on his native New Orleans. Along with two business partners, Pierce is preparing to open his first Sterling Farms grocery store, one of many he intends for New Orleans' poorer neighborhoods.
"Bringing fresh food into these areas helps create economic growth," he explains. As the city has rebounded from Katrina, supermarkets have been slow to come back; before the hurricane there were 30, as opposed to just 21 now.
At the behest of Michelle Obama and others, some of the national chains are reconsidering their flight from the food deserts, and following the independent upstarts back into them. Walmart has pledged to open 300 stores in food deserts by 2016; SuperValu (SVU), parent of Albertsons, Shaw's, and several other supermarket chains, has planned 250 stores in such locations. Pharmacy chain Walgreen (WAG) is taking on the problem in its own way by stocking produce and other grocery staples at 500 of its locations in food deserts nationwide.
Motley Fool contributor Jeremy Bowman holds no positions in the companies mentioned in this article. The Motley Fool owns shares of SuperValu and Walmart Stores. Motley Fool newsletter services have recommended buying shares of Walmart Stores, creating a diagonal call position in Walmart Stores, and buying calls on SuperValu.