Since the Future Is Now the Past, It’s OK in Backward-Looking New York
The New York Observer is reporting that New York City will propose a relaxation of regulations that limit the opening of new supermarkets in low- and moderate-income neighborhoods. Leading the charge is City Planning director Amanda Burden. “With land use rule changes a centerpiece of the plan, Ms. Burden’s agency, the Department of City Planning, has been pushing the effort with the city’s Economic Development Corporation. Now, a Planning spokeswoman said the city hopes to launch the plan in coming months.” The proposal will apparently reduce parking requirements for new supermarkets, and allow them to open in manufacturing districts without a special permit that takes years to obtain, a restriction dating back to 1974 and the fear that competition from stores was responsible for the decline of manufacturing in the city. Among those quoted in the article is Richard Lipsky, who said “the draft policies were a ‘good step,’ but do not go far enough” to turn around the shrinking number of submarkets in the city. He wants the city to give precedence to new supermarkets when selling off new land.
I guess that since no one remembers what happened at point in time A people can pretty much ignore it once they get to point in time B, whether in public finance or in zoning. I don’t run into my former colleagues who still toil at DCP that often these days, but I can imagine how exasperated some of them are. Let’s take the Wayback Machine to the early-to-mid 1990s to put this issue in perspective, and then go Back to the Future an imagine what else might be prevented from coming along.
The issue of inadequate supermarkets in poor neighborhoods, and the lack of large stores in New York City in general, had been identified as early as the Dinkins Administration. As the middle class fled to the suburbs in the 1960s and 1970s and retailing evolved, the new stores opened outside the city even as older ones closed inside the city. Research showed that better off New Yorkers, even many living in Manhattan, were driving out of the city to shop – even as New York City had huge numbers of relatively uneducated workers who could have used those retail jobs, not to mention the lower prices in the newer stores. Their needs were met, to an extent, by local chains providing substandard food at much higher prices than the new stores in the suburbs – the poor were paying more for less. An initiative was announced, but tabled during Dinkins’ re-election campaign. After Dinkins was defeated, it took a few years of convincing, but eventually the Giuliani Administration got on board with the proposal.
The 1996 zoning text amendment proposal was to allow new retail stores up to 100,000 square feet (up from 10,000 in certain categories such as supermarkets, down from unlimited in other categories such as building supplies) on wide streets in manufacturing zones, eliminating a special permit that took years (given related lawuits) to obtain. A comprensive study showed that, unlike the assumption in 1974, manufacturing firms had not left the city due to the construction of stores in manufacturing districts. They were looking for lower labor costs, less crime, and lower taxes. Even with the restrictions on commercial uses, manufacturing continued to leave the city, making the 1974 restrictions a failure. The framers of the 1974 restrictions had also assumed that the city had excess commercial space on commercial streets, leading to low rents and abandonment, so additional commercial development needed to be limited. As neighborhoods that were devasted in the 1970s began to recover, however, those local commercial streets filled, and store rents soared. In any environment other than ongoing urban decline, it turns out that New York City has not a surplus of commercial space but a shortage -- leading to inflated commercial rents, and making it difficult for new stores to open. Larger spaces in particular are in short supply.
The extrememly high parking requirement for new supermarkets (much higher than for other stores) would also have been relaxed by the proposal. Studies showed that among the handful of stores that had been built in compliance (on Staten Island), the result was large areas of empty ashphalt, in some cases fenced off so no one would park there and be vulnerable to attack in an isolated area.
As a staff member at the Department of City Planning, I was asked to sort through the data and predict what would happen with and without the zoning text amendment, for the environmental impact statement and City Planning Commission report. I found that large, wealthy corporations with high-margin stores selling comparison goods to the affluent could probably fight their way into New York City through the special permit, making up for their inflated up front costs by making big profits off New York consumers due to lower competition. But the shortage of sites and years of regulatory process and litigation were an unsurmountable barrier for low-margin supermarkets serving the less well off, and local entreprenuers scaping together the money to open their first large store. Required to do a projection, I predicted that most of the stores that would not open if the existing regulations were maintained were in those two categories, and in particular supermarkets.
The counter-argument was made by one Richard Lipsky, a lobbyist who had been hired by the owners of existing supermarkets in poor neighborhoods, who wanted to keep out competitors with lower prices, better food, cleaner stores, and workers on the books paying taxes. He went around to White neighborhoods telling people that new stores would open in their neighborhoods, drawing traffic and “outsiders” who would commit crimes, and to minority neighborhoods claiming that the amendment was a White conspiracy to put minority businesses out of business, or so I was told. He also claimed that the existing chains had their wholesale operations in the city, as Key Food did at Brooklyn Terminal, and if competitors were allowed to open stores those wholesale jobs would be lost. And, he claimed, that if the amendment passed and competing stores opened the smaller supermarkets on local commercial streets in poor neighborhoods would close, cutting off senior citizens who couldn’t travel far from access to food.
As it happens, at the time that the 1996 amendment was being debated Caldor was seeking a special permit for a large store in a manufacturing district on Third Avenue in Brooklyn. When Caldor went bust, Costco picked up the application. Lispky claimed that the neighborhood would be overwhelmed with traffic, and that storefronts on nearby Fifth Avenue would be abandoned -- and occupied by drug dealers. Since the Costco eventually opened, I suggest a Saturday afternoon trip to the area to see the expected massive traffic jams and neighborhood devastation, so one can judge the truthfulness of Lipsky’s assertions.
The proposal got caught up in the upcoming Mayoral race. Looking for an issue with which to attack the Giuliani Administration, then Manhattan Borough President (and future mayoral candidate) Ruth Messinger commissioned an opinion survey to prove that City Planning data was faulty, and that city residents didn’t shop outside the city after all. Much to her surprise, she found out that in fact city residents who could did shop at large stores outside the city, particularly supermarkets. She was honest enough to release the results of the study, but opposed the amendment anyway, urged on by her politico James Parrot, now with the Fiscal Policy Institute.
Only the Community Food Resources group, and advocate for the poor, backed the proposal by the city planners. And how much do the poor matter? A majority of the community boards voted against it.
At the City Planning commission, some of the commissioners had other “urban design” issues. According to some the new stores were “suburban” and sold low class goods to low class people in a low class setting. Hardly City Beautiful stuff. Just cheap stuff for schmucks. The City Planning Commission passed the proposal, but five of its members voted no, including (as I recall) Ms. Amanda Burden who (as best as I can remember) had been appointed to the Commission by Ruth Messinger.
The proposal went to the City Council which had other issues. It was used to demanding concessions in exchange for allowing businesses to open, such as business contributions to organizations controlled by council members. The businesses could easily make up the “donations” by charging more later, given the lack of competition. I was far from the political battle, but at one point I heard that then-Council Speaker Vallone had said the council members weren’t happy with the rest but would surely do something to make it easier to allow new supermarkets. Perhaps after Lipsky set them straight, it later emerged that supermarkets were the one thing they certainly wouldn’t allow.
As a possible compromise, each councilmember was asked to find a site in their district where they would allow a new supermarket to open. When we got the map, a few councilmembers including Vallone and McCaffery had provided real sites, but most had provided places like sanitation garages, bus depots, and sewage treatment plants. And even in the case of the real sites, if there is only one place in an area where a business is allowed to open, the owner of that site would seek a huge monopoly price for the space -- leading to higher prices for the consumer. The City Council voted down the proposal, but promised to come back with its own plan to allow more supermarkets in the city -- a promise that disappeared after its members were re-elected in 1997.
So what happened? Having taken some hits in the press, the City Council subsequently rolled over and approved every big box retail special permit that passed before it in the years after, sometimes (as in the case of the Brooklyn Fairway) soliciting a bribe or two along the way. And many large stores did come to the city in the years that followed, all from large national chains that could afford all the lawyers and consulants required to get through the speical permit process, as I had predicted. So, in the case of Brooklyn, you got Target, BJ’s, IKEA, etc.-- but not new supermarkets near poor communities, except in a few cases in which the city provided deep subsidies.
More recently, these have been followed by “upscale” supermarkets such as Fairway, Trader Joes and Whole Foods, corporations with the financial resources and stores with the high margins needed to make profits despite the obstables. The large stores that have opened are owned by companies that had been founded and grown elsewhere. No New York entreprenuers, meanwhile, have developed successful large scale retail businesses in the years since the amendment was voted down, although some new businesses not owned by large corporations did attempt to open illegally.
And what about the existing supermarkets? Having successfully kept out competitiors, they felt free to close down anyway when their business needed required it -- blaming rising rents and taxes. In fact, soon after having made the wholesale argument to stop the amendment, Key Food closed its Brooklyn warehouse and moved its wholesale operations to New Jersey. So as existing supermarkets close, perhaps squeezed by rising rents due to the shortage of space with commercial zoning overall, regulations that limit sites prevent new supermarkets from opening.
So here we are. Perhaps I should be glad that New York’s outer boroughs, at least in non-food categories, have captured more of the economic activity generated by the retail spending of their own residents in recent years. In spite of the city’s restrictions.
Perhaps I should be glad that Lipsky, perhaps because he is now paid by someone else, and Burden, perhaps realizing the not everyone is “upscale,” are now willing to allow new basic supermarkets to open as well. Why worry about that 14-year (minimum, assuming the amendment enters the public review process soon) delay?
But the same attitudes that caused the City Planning proposal to be defeated in 1996 are still present -- if we are for it let’s subsidize it, but if we aren’t subsidizing it lets stop it. And as it happens there is a another type of store that suits my lifestyle that can’t be built in most of NYC today, and would presumably still not be allowed under the new city proposal.
Imagine a mini-Costco or BJs located on a 10,000-square-foot corner lot on a local commercial street. The 10,000-square-foot ground floor would have basic, high volume food and other consumables in large economy sizes on basic shelves at low prices. Pasta, rice, bread, beans, potatoes, onions, milk, lettuce, coffee, bananas, eggs, cereal, toilet paper, diapers, soap, etc. -- things you buy every week. And yes, Governor Paterson, gallons of Carlo Rossi Burgundy too.
There would be, at most, two choices for each item -- a high quality generic store brand (like Costco’s Kirkalnd brand) and one mass market brand. The choice of fresh meat, fruit and vegtables would be limited and in the latter case seasonal. Since the store would be located on a commercial street, however, those who wanted other more diverse products could frequent the nearby butcher, baker, greengrocer, gourmet store -- or farmer’s market -- to get them.
The second floor, also 10,000 square feet, would hold slower-moving items such as spices, along with fast moving non-consumables such as basic socks, undewear, sneakers, blue jeans, and seasonal items. Perhaps even Sodaclub cannisters so people could make their own seltzer with less environmental impact. There could be a rental section for infrequently used good such as picnic baskets and volleyball nets and tables for parties, so people wouldn’t feel the need to buy and store their own no matter how cheap the chinese make them. Again, those wanting a more diverse assortment of goods could frequent nearby stores with higher prices.
There would be no off-street parking, because the customers would be expected to use granny carts or car services to bring the goods home. Delivery services might also be provided. The goal would be to sell basic goods as cheaply as possible. The customers could use their savings on such goods to buy special things elsewhere.
Such a store couldn’t be built in NYC because, for one thing, on most local commercial streets only one floor of retail space is permitted, and the total retail space is limited to one times the size of the lot, not double. The exceptions are C4 zones, but these are mapped on the most intensive blocks of the highest traffic retail streets -- where high rents would make a discount store like the one described unprofitable. Current NYC zoning rules, moreover, require the same amount of parking for second story commercial space as for first story space even though second story space (as in our example) generally generates less traffic. As a result in most of the city, even in pedestrian-oriented neighborhoods outside the Manhattan CBD, such a store might not be able to waive the parking requirement.
Nor would such a store necessarily be allowed in manufacturing districts under the new city proposal, given that Lipsky is on board. He is now a lobbyist for the United Food and Commercial Workers, and would thus presumably oppose allowing larger stores that sold both food and non-food items such as underwear. Restrictions of that combination of goods have been imposed elsewhere to keep out non-union Wal-Mart supercenters. It would not surprise me if the City Planning proposal contained specific language to limit the new supermarkets to the very types that might be opened by the very people now paying Lipsky.
The type of mini-warehouse I described does in fact exist elsewhere; in fact it is the fastest growing part of the food retailing business in Europe. It’s called a “hard discounter,” and is described in this Supermarket News article. Since such stores in urban formats are now the future and not the past, there is no way New York’s political process would allow them here. To understand the arguments that would be used by future Lipsky’s to keep them out, just read some of the quotes from a power point presentation I discovered on the “threat” one growing hard discounter company, Aidi & Lidi, poses to competing retailers in Europe.
“The two German-based hard discount food retailers are expanding rapidly across Europe.”
“Aldi’s plans for an apparel brand in the UK highlight a growing impact on non-food categories.”
“The hard discount impact may be greater than Wal-Mart’s feared European expansion.”
“In ways, Aldi and Lidl’s impact on the marketplace, notably on suppliers, may be bigger than Wal-Mart. Their impact is multiplied because of their focus on so few sku’s – 700 to 1,200 – compared with 28,000 to 125,000 sku’s for Wal-Mart’s various formats. That means that Aldi and Lidl’s purchasing power per sku can be several times that of Wal-Mart. As a result, in certain sku’s, Aldi and Lidl can eclipse Wal-Mart’s ability to squeeze suppliers and cut prices.”
“Both Aldi companies operate with the same limited assortment, private label strategy. A typical store is about 15,000 sq. ft. (1,000-1,500 sq. m.) with as few as 700 products and as much as 95% of it private label. Aldi’s well-developed private label skill has created a competitive advantage with a combination of low prices at a high standard of quality.”
Low prices and a high standard of quality? Can’t allow that here, particularly near poor neighborhoods.
“Aldi’s stores in the US include more than 200 Trader Joe’s stores, which extends the Aldi concept to upscale products.”
No surprise that it’s the high price point version in affluent neighborhoods that the firm has opened in NYC. Not the basic goods and decent prices for us schmucks. Less political opposition.
“The Aldi format in the US reportedly aims to grow by 300 stores to reach 1,000 by 2010. Lidl is more promotional than Aldi, which uses an EDLP strategy with nonfood promotions to boost traffic. Lidl’s limited assortment is larger (about 1,200 sku’s) and relies more on brand products.”
“At same time, hard discounters have room to make significant gains in most countries around the world, including the US.”
For example Tesco, a British supermarket chain, is opening smaller “Fresh and Easy” stores in urban areas in the western U.S. Urban innovations from outside the U.S. now spreading outside -- but not inside NYC. And no such innovations are spreading out from New York City.
Hey Key Food, you know that overcrowded one-story store at Prospect Avenue and 11th Avenue in Windsor Terrace? I guess given the bust perhaps you can’t sell it for condos after all, but you just might be able to sneak that second floor past the zoning. How about it? Over all the years I might be pushing the $50K spent mark in that store, perhaps more, and certainly wouldn’t go out of my way to go elsewhere if more basic stuff was available at good prices there. (Sometimes Key Food is better than Costco, sometimes Costco is better than Key Food). But why should they bother, because in New York it is so much easier to use politics to milk a community rather than develop a business strategy to serve it, and there is no need to fear the future when it won’t be allowed until it is the past.
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