The Problem with City-Owned Grocery Stores

Of all Mayor Zohran Mamdani’s initiatives, his proposal to build five “affordable, well-run, city-owned grocery stores” to address high food costs is probably the most novel and puzzling. New York City will invest tens of millions of dollars to build brand-new supermarkets across the five boroughs and bid out the right to manage these franchises. In exchange for paying no rent, the store operators must agree to sell a basket of staples at 30 percent below the average retail price. Such a plan, if enacted, would use taxpayer dollars to undercut neighborhood grocery stores while doing little to reduce food prices.

Hunger and food “affordability” are certainly perennial problems, especially in a city like New York, where 25 percent of the population lives below the poverty line. Ensuring that poor people have programmatic access to food has been a preoccupation of the social-services sector—both charitable and governmental—for over a century. Through decades of trial and error, professionals in this area have worked out certain solutions that, while imperfect, efficiently distribute resources to the needy.

“Food stamps,” now known as the Supplemental Nutrition Assistance Program (SNAP), are a means-tested system of giving money directly to consumers in the form of a debit card that can be used only to buy groceries. This federally funded program has been around in various forms since the 1930s, when it was seen as a means of transferring surplus production from farmers to poor families, who would buy food stamps of one color at par value in order to receive free stamps of another color that were good for surplus food, such as milk or wheat. Today, some 40 million Americans receive these benefits, amounting to roughly 12 percent of the population. Federal taxes cover the $100 billion annual cost of SNAP benefits, with the states contributing to the administration of the program.

The federal government also funds the Women, Infants, and Children (WIC) supplemental nutrition program, which allocates food to expectant and nursing mothers and their children up to age five. Congress allocates roughly $8 billion annually for WIC, which reaches around 40 percent of American infants.

Despite all its experimenting with solutions to poverty and hunger, the federal government never appears to have considered going into the retail grocery business. Selling food is infrastructure-heavy, logistically complex, and notoriously low-margin. The grocery industry, while unglamorous, is nevertheless more complicated than most bother to consider. The average hardware store carries about 20,000 Stock Keeping Units (SKUs), a code that storekeepers use to designate every product, in every size or color. A typical bookstore might have 15,000 SKUs, while a good-sized furniture store could offer 5,000 different items, many of which would have to be ordered off-site. A standard supermarket carries about 30,000 SKUs, at an extremely high rate of inventory turnover, and much of its stock is perishable.

Given that a network of grocery stores already exists, our social-welfare planners must have concluded that they should give consumers themselves either chits or cash to buy the food they need from their local supermarket. They did not see the need to build a parallel, competitive system. Grocery stores aren’t analogous to rural electrification, where the government had to step in to fill a gap that the private sector hadn’t covered. The stores, especially in a dense city like New York, are all up and running.

Why, then, did the Mamdani administration overlook the obvious solution to the unaffordability of food—namely, to issue coupons to supplement SNAP benefits—and choose instead to build a complicated, expensive new system, one mandated to undercut existing taxpaying businesses? It seems preposterous, in fact, for the mayor to wage war against neighborhood enterprises while he simultaneously promises to help small businesses thrive.

This is where knowing something about the Democratic Socialists of America (DSA), of which Mamdani is a member, comes in handy. One of the DSA’s precepts is that it is odious for anyone to profit from the needs of another. “We demand a complete decommodification of the systems that determine our health and well-being,” say party theorists, and that includes housing, health care, education, and, presumably, food.

This helps explain the emergence of the city-owned grocery stores, which is not, in fact, intended to help consumers but to bankrupt the small local bodegas and groceries that—unlike major national chains—would find it impossible to match the deep discounts on staples that Mamdani has promised. Rolling out just five stores, as critics have noted, is not going to help many people. But the point of the project is to establish proof-of-concept that government can create an alternative model of heavily subsidized state stores that will drive privately operated retailers out of business.

Mamdani has said exactly this. “I look forward to the competition,” he announced in April. “May the most affordable grocery store win!” In the context of business, “winning” means bankrupting your rivals. If this were a question of capitalist “creative destruction,” as when discount grocer Aldi recently entered the local market, it would be reasonable. But if a store has no concern about the bottom line because it is backstopped by the government, that’s hardly an example of a free, competitive market.

“Affordable” in Mamdani’s sense of the term is just a euphemism for “subsidized.” If government’s power to tax is also the power to destroy, the same can be said of its power to spend, as some local groceries are likely soon to learn.