Supermarket Characteristics and Operating Costs in Low-Income Areas

Some hypothesize that poor consumers pay more for food because stores that serve them have higher costs. We assess how supermarket characteristics and operating costs differ with the percentage of sales from food stamp redemptions. Results do not support the hypothesis that costs are higher for stores serving the poor. Acknowledgements: This research was funded by the Alfred P. Sloan Foundation through The Food Industry Center and by the Economics Research Service of the United States Department of Agriculture. Opinions and conclusions in this paper are those of the authors and do not necessarily reflect those of the Alfred P. Sloan Foundation or USDA. We thank Gerard McCullough, Paul Glewwe, and seminar participants at ERS and Oregon State University for helpful comments and suggestions on earlier versions of this research. Copyright 2004 by Robert P. King, Ephraim Liebtag, and Ajay S. Behl. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all copies. Supermarket Characteristics and Operating Costs in Low-Income Areas Do the poor pay more for food? This question has been the focus for a rich, sometimes controversial stream of research over more than three decades. Findings have been mixed, often due to differences in data, statistical methods, and the exact specification of the research question (Kaufman et al.). Most of the evidence indicates that shopping opportunities for the poor are more limited than they are for higher income consumers and that prices are slightly higher in stores where low-income consumers do shop. One often hypothesized reason for higher prices is that operating costs are higher for stores that serve low-income households. The poor are more likely to shop in small grocery stores that may have significantly higher operating costs than larger supermarkets. A study on inner city grocery retailing by the Initiative for a Competitive Inner City (ICIC) noted that supermarket operating costs may be higher in low-income areas due to higher occupancy costs, less efficient store designs, higher rates of labor turnover, and/or greater losses due to theft. Smaller average transaction sizes and procurement inefficiencies due to smaller orders to suppliers may also increase costs. On the other hand, lower wage rates and tighter store designs that use space more effectively help keep operating costs down in inner city stores that serve low-income consumers (ICIC, pp. 10-11). This study uses a unique data set – the Food Industry Center’s Supermarket Panel – to assess how supermarket characteristics and operating costs differ in relation to the percentage of sales derived from food stamp redemptions, an indicator of demand from low-income consumers. Specific objectives for the study are: 1. compare and contrast store characteristics and operating practices of supermarkets in low-income areas with those of higher-income areas,