America has state liquor stores and military commissaries.
But Northeastern University food supply expert John Lowrey says a proposal to establish government-run grocery stores in New York City would make it difficult for existing stores to compete.
Lowrey says the proposal may put pressure on area stores already dealing with slim profit margins.
“I have some reservations about government-run grocery stores,” says Lowrey, an assistant professor of supply chain and information management and health sciences at Northeastern.
“The current proposal to allow government-run stores to operate in close proximity to private or publicly owned big box grocers would negatively affect competition, especially price competition, as adding government-run stores that use price fixing would place pressure on already-established stores to lower their prices, which could dramatically affect store profitability.”
And while lower prices across multiple stores may sound good, the reality is more complicated.
“Prices below marginal cost plus 5% (which is the price available at a commissary) is not competitive,” Lowrey continues. “It would form a large part of an entirely new business model and incumbent stores would find it hard, if not impossible, to compete.”
Zohran Mamdani won the Democratic primary in the New York City mayor’s race, running on several progressive policies including free buses, freezing rent, free child care and other cost-of-living issues.
The New York State assemblyman and Democratic socialist is also proposing to establish a pilot program of municipal grocery stores that aim to provide affordable groceries to New Yorkers.
It is a popular proposal.
Two-thirds of NYC voters support the proposal, including 72% of Democrats, 64% of independents and 54% of Republicans, according to polling by the Climate and Community Institute and Data for Progress.
Lowrey points out that the commissary model has “long existed” in the military. Moreover, 17 U.S. states have state-run liquor stores.
But Lowrey says differences exist between these models and the government-run grocery stores that Mamdani is proposing.
“Commissaries cater to a very defined market segment or those in the military and those who typically live either on or nearby a base, which generally tends to be in a rural or remote area,” Lowrey says. “Because of where they are located and the types of consumers they cater to, the presence of a military commissary doesn’t dramatically affect competition in food retail.”
State liquor stores, meanwhile, Lowrey notes, work because alcohol is a substance whose promotion and sale is regulated by the government.
Moreover, the economic impact of supply-side regulations restricting the sale of goods among certain consumers is distinct from demand-side subsidies generally accessible to all.
Under Mamdani’s plan, “all consumers will have access to the new government-run grocers, even mid- to high-income consumers who might otherwise shop at the established stores,” Lowrey says.
He adds that this could result in what economists call “demand cannibalization,” where a new product (or in this case a new store) ends up decreasing sales in existing products/stores rather than increasing overall sales in the supermarket sector.
In addition, Lowrey predicts that food manufacturers would likely respond to this scenario by not paying for promotional space inside a store, resulting in less non-food revenue for the store and a lower assortment of products.
Add in the tight profit margins of food retail — around 3% for nonperishables and a slightly higher percentage for perishables, Lowrey says — and even a slight change in market share can lead to a longtime corner market having to shutter.
“A 1% decrease in price can affect the incumbent stores’ profit,” Lowrey says. “Food is a consumer good and is best governed by market forces rather than centralized control.”