Grocers Flocking to the Inner Cities

By Carol Wolf

Wal-Mart Stores is gearing up to open small outlets next year in U.S. cities, where it hopes to sell a lot of groceries. Trouble is, at least a half-dozen others are also seeking accelerated growth in urban America. CVS Caremark, Walgreen, Supervalu, and Family Dollar Stores all are offering more fresh food at their urban outlets or opening small stores in neighborhoods with limited access to nutritious grub.

 While selling food is a mature business, 23.5 million Americans live in underserved urban areas—a market potentially worth $100 billion a year, says Jim Hertel, managing partner with retail consultant Willard Bishop. "It's easy to go into a liquor or convenience store and find potato chips," he says. "But in terms of something you would feel good serving your family, not so much."

The big grocery store chains largely abandoned the cities in the 1970s and followed their customers to the suburbs. There they found abundant, cheap land and built superstores and parking lots large enough for 1,000 cars. Now they have saturated that market and are turning their attention back to urban neighborhoods that have long been served by mom-and-pop stores—or not at all.

About five years ago, Family Dollar began selling a limited selection of mostly packaged and frozen food in New York, Chicago, and Detroit. As the concept caught on, the company began carrying staples such as bread, eggs, and milk. "We have a bulkhead in many major urban areas, and we'll continue to build on [that]," Chief Operating Officer R. James Kelly said in October.

Now other retailers that traditionally haven't carried groceries are moving in. Pharmacy chain CVS Caremark is adding fruit, salads, sandwiches, and other prepared meals at a growing number of its city locations. The second-largest U.S. drugstore chain, behind Walgreen, plans this year to remodel about 300 urban stores to carry food items in Boston, New York, Washington, Detroit, and Philadelphia. Eventually one-fifth of its 7,000 stores could be reconfigured, CVS says.

While CVS is aiming at a cross-section of consumers, Save-A-Lot, a no-frills grocer owned by Supervalu, targets households with incomes below $45,000 in neighborhoods where supermarkets are scarce. The U.S. government is offering $400 million a year in loans and tax incentives to lure stores offering better quality food to these underserved areas by 2017, part of First Lady Michelle Obama's campaign to reduce childhood obesity.

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