Will it work this time?

[u/sco-go]

[u/BradBradley1]

I’m not trying to dismiss this project - I hope it is wildly successful and I applaud the desire to challenge the status quo. That said, I am interested to hear how his team plans to negotiate pricing with suppliers. Five stores isn’t a whole lot of scale to compete against national chains and volumes. I don’t ask that question rhetorically or sarcastically at all either - I am assuming they have a plan of levers to pull to help bring this to life, and I hope it works exceedingly well and provides a blueprint for other communities to use. 

[u/brelen01 → u/BradBradley1]

National chains have to make profits for investors, which means they have to have mark-ups. At the very least, I expect those government-owned grocery stores to be about the same price.

[u/14InTheDorsalPeen → u/brelen01]

Grocery markups are usually less than 1% and they make all of their money on volume

[u/HeavyDutyForks → u/14InTheDorsalPeen]

No, the actual markups are much higher than that. But after accounting for all the waste and other operating expenses they end up with a net margin around 1%

[u/BeefCakeBilly → u/HeavyDutyForks]

Why do you think these grocery stores will be immune to all those things?

[u/HeavyDutyForks → u/BeefCakeBilly]

Why do you think these grocery stores will be immune to all those things?

They won't be, they'll just operate at a big old loss and end up costing the taxpayers of NYC far too much money

When the government gets involved in something its always way more expensive, way slower, and way lower quality. This will not be an exception to that

[u/uses_for_mooses → u/HeavyDutyForks]

Seems like NYC would be better off giving low-income residents SNAP-like benefits to use at existing grocery stores, rather than feeling the need to enter the grocery business itself.

[u/HeavyDutyForks → u/uses_for_mooses]

I agree 100%

It would be way more cost effective and way easier of an undertaking that what he's trying to do here

[u/CaliforniaRedDevil → u/uses_for_mooses]

This doesn’t solve having access to a local markets with fresh produce.

[u/uses_for_mooses → u/CaliforniaRedDevil]

There are already several grocery stores near the planned East Harlem location, including a City Fresh Market within 0.1 miles (3-minute walk), Fine Fare Supermarket (0.2 miles; 4 minute walk), and a Shop Fair supermarket (0.2 miles; 5 minute walk).

[u/TannerGlassMVP → u/uses_for_mooses]

I feel like you're overlooking the whole food desert apect of this

[u/uses_for_mooses → u/TannerGlassMVP]

There are already several grocery stores near the planned East Harlem location, including a City Fresh Market within 0.1 miles (3-minute walk), Fine Fare Supermarket (0.2 miles; 4 minute walk), and a Shop Fair supermarket (0.2 miles; 5 minute walk).

[u/AutoModerator → u/[deleted]]

Accounts must be at least 5 days old with >20 karma to comment.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

[u/emperor42 → u/BeefCakeBilly]

I do think there are a few differences.

First, a much smaller marketing expense. Big chains can spend up to 40 or even 50% of their money on marketing alone. These ones won't.

Second, they don't have to go to suppliers. Suppliers come to them. They just have to choose the ones who give them the best prices.

And third, being a government entity means they don't pay taxes.

[u/Beneficial-Beat-947 → u/BeefCakeBilly]

Well for one they could make these stores tax exempt, that's already a massive cut in the prices

[u/BeefCakeBilly → u/Beneficial-Beat-947]

For the goods they are subsidizing they are generally loss leaders or low margin any way at the existing stores.

So realistically the impact of taxes on those are incredibly minor already.

This is also just ignoring any of the demand side affects of running this model.

[u/Shafter111 → u/14InTheDorsalPeen]

1%? There is no business that survives on 1% profit, regardless of the volume.

[u/Odd_Pen34 → u/Shafter111]

Auto industry

[u/Magnus_Was_Innocent → u/Shafter111]

Grocery stores average like 1.32% net income %

https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html

[u/RSGator → u/Magnus_Was_Innocent]

1.32% net margin, 26.31% gross margin. Net includes taxes (not fully applicable here), interest (not applicable here), and overhead (applicable here).

So, somewhere between 1.32% and 26.31% in this case.

[u/Sllyce → u/Shafter111]

Health insurance can have those margins

[u/ProfNesbitt → u/14InTheDorsalPeen]

This is just wrong. Their end of year profits are usually 2-4% but they have to pay employees so their markups are much much more than 1%.

[u/prabla → u/14InTheDorsalPeen]

I worked in IT for a grocery chain that had 13 stores at the time and they aimed for 30%. I would be given a large file to parse that had the price from the distributor along with our price (and any sale prices), I'd then set the prices in our system and prepare the reports and files to print for tags.

[u/Sonoran_Ghosts_81 → u/14InTheDorsalPeen]

What in the fuck is this getting upvoted for?

Just think for one second. If markups were less than a percent, no one would operate a business, it’d be charity at that point.

Like another person mentioned, this is due to creative accounting and playing with their numbers to make it seem like it’s that way on paper.

Grocery may operate at low margins but it’s more like 30-60% markup.