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Upscale grocers see business opportunities in ‘food deserts,’ but will residents pay the high prices?

August 30, 2014 5:00AM ET

BY MARK GUARINO | AL JAZEERA

CHICAGO — The intersection of 63rd Street and South Halsted Avenue in the Englewood neighborhood here was once the center of the South Side’s busiest shopping district, a destination for middle-income families who came to buy school clothes, Christmas gifts and groceries. But the loss of manufacturing jobs in Chicago over the past few decades drove retailers away, and today the area suffers from neglect, with convenience-store items like cigarettes and candy the only wares available for purchase.

That is changing. In July, Mayor Rahm Emanuel helped to break ground on a business that, until now, was considered an anomaly in low-income neighborhoods: Whole Foods Markets.

“This is a groundbreaking,” he said, “but it’s about a breakthrough for Englewood.”

For the Austin, Texas–based grocery chain — often referred to as “Whole Paycheck” for its high prices — opening a store in one of Chicago’s most marginalized neighborhoods is part of a new strategy. The upscale store and other national chains like it see business opportunities in “food deserts” — neighborhoods that lack supermarkets and other options for purchasing fresh produce and healthy food.

“There is now a rising tide of interest in healthy foods, and it crosses socioeconomic boundaries,” says Eric Johnson, president of Ignited, a Los Angeles advertising agency that works with the grocery chain Fresh & Easy. “Smart retailers are finding out ways to make products price-competitive and still make money.”

In the past three years, Whole Foods has opened stores in Boston’s Jamaica Plain, Detroit’s Midtown and New Orleans’ Mid-City neighborhoods, repurposing its model of organic and locally sourced food for gentrifying areas with high crime, vacant storefronts and crumbling infrastructure. In Englewood, the unemployment rate (24 percent) is double that of greater Chicago and the per-capita income ($12,255) roughly half, according to city data.

Walter Robb, Whole Foods’ co-CEO, told reporters at the Chicago groundbreaking that the new store “will be accessible and affordable … [and] one of the most meaningful things we’ve done as a company.”

Easy access to organic yogurt or heirloom tomatoes is not an immediate solution to ending the existence of food deserts, but it will help, says Mari Gallagher, a Chicago-based food industry consultant who calls the Whole Foods Englewood launch a “game changer.” Nearly 400,000 Chicagoans live in food deserts, and two-thirds of them are black, according to her 2011 research. Gallagher says the long-term strategy for grocers like Whole Foods is to open only a few locations in low-income neighborhoods and to stay put for five to 10 years until the area is revitalized.

“So while it’s not an obvious moneymaker, the goal is to hash it out and break even and even do a little better,” she says. “That is a win-win strategy: You win on the public-relations front and you win the community outreach.”

The Englewood location will have a smaller footprint, just 18,000 square feet, than Whole Foods stores in larger neighborhoods, and it is the anchor tenant of a 13-acre mixed-use construction. Developers hope the grocer's presence will help generate interest from other companies that have shied away from the South Side in favor of more gentrified areas north and east.

For Emanuel, the project presents an opportunity to appeal to constituents in areas where his approval numbers are lowest. That means taxpayer money is in the mix: Whole Foods is investing more than $3 million in the project, and the city is providing $10 million in tax-increment financing. More than 100 jobs are promised.

While Englewood residents will have to wait until 2016 for the store to open, its New Orleans counterpart, opened in February, could provide a blueprint. Located on the edge of the Mid-City neighborhood, which was devastated by the federal levee failures during Hurricane Katrina, the 25,000-square-foot store was intended to draw in low-income residents through a greater emphasis on the chain’s lower-priced 365 Everyday Value brand and partnerships with community groups, and through two full-time “healthy eating educators,” who conduct tours and sessions on healthy food.

The store is the anchor in a $20 million development and received more than $2 million from the city as well as private community groups.

Kristina Bradford, a spokesperson for Whole Foods in New Orleans, said the store expects to broaden its community-outreach efforts, which include fundraising for local groups and working with organizations like Liberty’s Kitchen, which teaches culinary skills to at-risk young people. The store employs 125 people; 74 percent of them live within the city limits.

“We definitely want to offer fresh, healthy food to the neighborhood,” Bradford said.For Whole Foods, the primary risk of operating an upmarket store in a downmarket neighborhood involves protecting the company’s reputation as a premium retailer.

Although more of its lower-priced brands will be on shelves, Whole Foods is careful not to suggest that the Mid-City and Englewood locations are outlet stores. (The company’s representatives would not acknowledge whether the new stores would have an alternate pricing structure.) Bradford insisted prices will remain “competitive,” but said the company expects “shoppers to see the value behind our products.”

That may work, said Gallagher. Luxury brands like Starbucks have proved that even lower-income people will sometimes pay more for a product — a $3 cup of coffee, for example — if it is part of an experience that makes them feel good, she said.

But that doesn’t mean there aren’t risks.

“Even if [Whole Foods] wanted to, it wouldn’t be fair to their regular customers to offer a better deal out in Englewood, making middle-income customers spend twice as much. They don’t want to make other customers feel like they are subsidizing” the Englewood shoppers, said Gallagher. “You have to be careful not to denigrate the brand. You want to make sure that when people see that logo, they expect a certain standard of quality.”

Asiaha Butler, a community activist who leads the Resident Association of Greater Englewood, says some people she knows will spend more for groceries if they feel the food is healthier and fresher than other nearby options. She sees the Whole Foods not just as a place to shop but as a potential employer and a way for community gardeners and urban farmers in the area to bring their produce to a wider market.

“We are a little more economically sound when it comes to grocery shopping and getting fresh produce,” she says. “Personally, I always have to go outside my community to buy fresh fruit and fresh vegetables, and I don’t mind having to pay more.”

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