Supermarket Characteristics and Operating Costs in Low-Income Areas

Abstract

Research on low-income household food costs shows that the poor often have limited shopping opportunities and pay slightly higher prices for food. It is often hypothesized that higher prices are due, at least in part, to higher operating costs for stores that serve low-income households. This paper reports on research assessing how supermarket characteristics and operating costs differ with the percentage of sales derived from food stamp redemptions. Stores with a high percentage of revenues from food stamps generally offer fewer services that save time and add convenience for shoppers. They also offer a different mix of products, with a greater portion of sales coming from dry groceries and meat. Stores serving low-income shoppers use relatively little labor per 1,000 square feet of selling area. This helps keep labor costs as a percent of sales low, but gross margins for stores serving low-income consumers are also relatively low. Results from a cost function analysis indicate that stores serving low-income consumers are relatively well adapted to their market environment. But larger, more progressive supermarkets operated by major chains could provide significant competition for the typical store serving the urban poor. Overall, our results do not provide strong support for the hypothesis that it costs more to operate supermarkets that serve low-income consumers.