New York City Should Not Run a Grocery Store

No one likes high grocery prices. One New York City mayoral candidate thinks the solution is to open city-owned and operated grocery stores.

Earlier today, The New York Times reported on New York Assemblymember Zohran Mamdani’s campaign trail proposal to open one city-run supermarket in each of New York City’s five boroughs.

“Everywhere I go, I hear New Yorkers talking about the outrageous prices of groceries,” he told the Times. “This is a bold and workable plan.”

Supporters say that a city-run grocery store could offer cut-rate prices if it were provided with free or discount land from the city and property tax exemptions, and if it bought in bulk.

Private grocery stores already purchase in bulk from established networks of suppliers, so it’s not clear how that would give a city-run grocery store a leg up on price competition.

With that caveat, it is technically possible that showering enough tax exemptions and land giveaways on a city-run grocery store would enable it to sell its wares at below-market rates while still being operationally in the black.

Even if we steelman the chances that a city-run grocery store will be successful, that success will generate lots of knock-on problems.

If the city-run grocery store’s prices are sufficiently below the rest of the market, one should anticipate shortages. Customers’ demand for cheaper groceries would outstrip the store’s ability to supply them, leading to queues and empty shelves.

This would be exacerbated by the arbitrage opportunity the city would be creating for entrepreneurs to buy discount products in bulk and resell them at near-market rates on the secondary market.

The city’s store would effectively become a subsidized wholesaler that does little to lower the retail price of groceries for the residents it’s intended to serve.

The city could prevent shortages by rationing goods so that customers could only buy one gallon of milk at a time. Lower prices would then come at the expense of diminished consumer convenience and the awkward optics of government-enforced rationing of stuff that people used to be able to buy endless quantities of.

This all also presumes the city will actually be able to run an effective grocery store operation. There are boundless reasons to be skeptical of that.

The plan to subsidize grocery stores by siting them on city land will have to contend with the problem that there are likely a limited number of city-owned sites that will make for a good grocery store location. If the location is inconvenient, the value of that land subsidy will be counteracted by a loss of consumer convenience.

A city-run grocery store also would be susceptible to an endless stream of political pressures to operate a less efficient supermarket.

Surely, these city-run grocery stores would have to be staffed by union workers with generous wages, benefits, and protections from being fired. Perhaps the unionized city grocery workers will demand minimum staffing ratios and a ban on self-checkouts. This will raise operating costs and lower consumer convenience.

The grocery store’s ability to supply itself will likely be subject to the city’s procurement and budget processes. That would be a disaster for a low-margin business facing off against robust private competition.

Consumer preferences for what the city-run grocery store stocks will also have to contend with political demands for shelf space. One can only imagine the activist energy that will be devoted to demanding that city-run grocery stores not sell GMOs, source goods from small, diverse, locally owned businesses, not sell unhealthy foods, not buy from Israeli companies, only buy from Israeli companies, etc.

If you think “everything-bagel liberalism” makes transit and affordable housing projects expensive, wait till you see what it does to the literal price of literal everything bagels.

There is a lot that New York City could do to lower the cost of groceries and increase their availability without operating stores itself. It would reduce the zoning restrictions and permitting requirements that prevent the development of new grocery stores. It could lower taxes on grocery stores. It could lower taxes in general so that people have more money to buy groceries. Lowering regulations on homebuilding would do the same.

There are frightfully few examples of city-run grocery stores in the U.S. Those that have existed have tended to lose money and be quickly privatized.

If a small Kansas town isn’t able to turn a profit operating a local grocery store, one shouldn’t assume New York City’s socialist foray into the supermarket business to work out much better.

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