Food Fight In Brooklyn


Wall Street Journal, 1998



Food Fight in Brooklyn --- Pathmark Supermarket Chain Competes for Urban Customers
By Ericka BlountWall Street Journal (Eastern Edition). New York, N.Y.:Oct 21, 1998.  p. B22 


New York -- Ruth Lewis moves down the aisles swiftly but methodically, knowing just what she needs. She surveys the fish, orders two fresh pieces of salmon and heads toward the vegetable section to get fresh squash. Though her hands are delicate with age, she doesn't worry about carrying the bags. She knows the boys who bag the groceries are friendly and will walk with her as far as needed.

A typical suburban scene? Perhaps. But Ms. Lewis, 76 years old, lives in the Bedford-Stuyvesant neighborhood of Brooklyn, N.Y. Although an urban neighborhood, Pathmark Stores Inc., a Carteret, N.J.-based, food and drug retailer, has successfully operated a supermarket partnership here for 19 years with the Bed-Stuy Restoration Corp., a local community group.

The 32,000-square-foot Bed-Stuy store is the second best performing Pathmark unit in the nation. Revenues include a stand-alone pharmacy. The result was so encouraging that Pathmark in 1997 opened a larger, 60,000-square-foot store about two miles west of the original.

Serving urban neighborhoods has become one of the supermarket industry's latest tactics to boost revenues. Lena's Big Value Supermarket Inc., Milwaukee, has taken over two sites abandoned by a rival chain during the past few years. The stores proved so successful that Lena's has opened a third. Thriftway Supermarkets, Atlantic City, N.J., recently opened a store in Renaissance Plaza, the first new supermarket center in Atlantic City in more than 25 years.

"The inner city is the largest emerging frontier for retail expansion in the U.S.," said Deirdre Coyle, a spokeswoman for the Initiative for a Competitive Inner-City, a Boston group that has studied the exodus of retailers from urban neighborhoods -- and their recent return. As suburban areas become overcrowded with stores, supermarkets are looking for other places to set up shop. The drop in crime has also added to the interest of retailers, some of whom previously avoided poor urban neighborhoods.

Consider Giant Food Inc., the largest supermarket chain in the Washington metropolitan area in terms of revenue. Ten years ago, the Landover, Md., company abandoned most of its urban stores to chase customers in the suburbs. But Giant has returned, opening two new, larger stores in the Washington area.

"As a merchant, we know these markets are now being served," says Barry Scher, Giant's vice president of public affairs.

Safeway Inc. operates a two-year-old store in Anacostia, one of the lowest-income neighborhoods in the nation's capital. The store in Anacostia "is doing as well as our stores in the suburbs," says Greg TenEyck, director of public affairs for the Pleasanton, Calif., chain's Eastern division. Each of the chain's stores carry the same merchandise, he adds.

On the West Coast, Lucky's, a supermarket unit of American Stores Co., Salt Lake City, has opened four stores within the past three months in Oakland, Calif. The company plans to open 10 new urban stores a year for the next three years.

Pathmark has moved to expand its urban operations as well. In addition to its seven Brooklyn outlets, the company plans to open new stores next year in Philadelphia and New York's Harlem.

The first Pathmark opened in Bed-Stuy in 1979. "Investors were willing to take the risk with the caveat that Bedford-Stuyvesant Restoration would also invest," says Roderick Mitchell, president of the local community group. "The idea was, `If you think it is such a good idea, put your money where your mouth is.'"

The nonprofit Bedford-Stuyvesant Restoration Corp. did just that, and the store generated $19 million in sales in its first year. Two-thirds of the Pathmark is owned by Bedford-Stuyvesant Restoration and one-third is owned by the supermarket chain.

The joint venture invested $350,000 and borrowed $700,000 from Citibank, today a unit of Citigroup Inc., New York, and Chemical Bank, which has been merged into Chase Manhattan Corp., New York.

The store employs 150 people, most of whom are black.

"This Pathmark defies the myth that it you put something like this in the black community, your products will walk away," Mr. Mitchell said. "People in the inner-city have tremendous purchasing power and food is one of the items they have to buy."

The new SuperCenter Pathmark, complete with a 700-space parking lot, 20 aisles, and a deli and bakery, attracts customers from various neighborhoods in Brooklyn. It has also taken away some business from the Bed-Stuy Pathmark store: After the SuperCenter Pathmark opened in 1997, revenue at the first Pathmark fell to $28 million, down from $31 million in 1996.

"Yes, there have been some adverse effects for the Bed-Stuy Pathmark," says Harvey Gutman, Pathmark's senior vice president of retail development. "But you can afford to put stores a little closer together than you can in the suburbs because of the population density."

The Bed-Stuy area has a population of 138,696, according to the 1990 census, making it comparable in population to Hartford, Conn.; Durham, N.C.; or Savannah, Ga.

Local residents say the Pathmark stores have been welcome. Rosa Watkis, a 74-year-old resident of Bed-Stuy, grew accustomed to leaving her neighborhood to get fresh food because she didn't trust smaller chain stores.

"Prices were usually higher and you had to watch the date on the food," she says. "I think some of the products were rejects from other areas."

Few leading retailers have followed Pathmark's lead. But that hasn't diminished the enthusiasm of its customers. Mrs. Lewis, a 40-year resident of Bed-Stuy, says she visits the SuperCenter store for flowers, fresh doughnuts, and prune danishes, goods that aren't normally available at the Bed-Stuy store where she usually shops.

Still, she says "the Bed-Stuy store is more personal for me. You get to know everybody. If there is something I don't like, I have a relationship with the people there and I can tell them about it."