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VOL. 133 | NO. 10 | Friday, January 12, 2018

Exit Strategy

Kroger store closures prompt resentment, action

By Bill Dries

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When Kroger’s Delta Division announced last week it would shutter its stores at 1977 S. Third St. in the Southgate shopping center and 2267 Lamar Ave. near Airways Boulevard, there was already a considerable history of what might follow the Feb. 2 closing.

Customers shop at the Kroger grocery store on South Third Street. Kroger’s decision to close two stores Feb. 2 has become an embodiment of the civic debate over food deserts. (Daily News/Houston Cofield)

Local elected leaders and community development corporations have been working on financial models. It is a way to make large or small grocery stores with a 3 to 4 percent profit margin work in areas that need stores but aren’t top of mind in a company’s search for new markets.

There is a lot of resentment at the outset of that process. And there is some talk of a Kroger boycott tempered with the reality of consumers going to newly built or renovated Kroger stores in other parts of town, including the Whitehaven Kroger, where the chain spent $5 million on a complete renovation in 2014.

City Council member Martavius Jones lives close to the Lamar store but goes to the Kroger on Union Avenue in Midtown – a new location that opened a little more than a year ago.

“I’m no different than anybody else,” he said. “I’d rather go to a place that’s inviting for me to spend my money.”

But Jones still has a problem with what he called Kroger’s “lack of investment” in its Lamar and Airways stores.

The resentment over the Kroger closings, and the steps beyond that to recruit new grocers or supermarket chains to both communities, have made Roshun Austin, president and CEO of The Works Inc., very busy.

Kroger plans to close this store at 1977 S. Third St. in the Southgate shopping center, along with one at 2267 Lamar Ave. near Airways Boulevard, on Feb. 2. (Daily News/Houston Cofield)

The Works, a nonprofit community development corporation working in South Memphis, operates The Grocer, a green grocer located in the eight-year-old South Memphis Farmers Market, 1400 Mississippi Blvd. The farmers market is seasonal, but The Grocer is open year-round and sells produce, frozen foods, meats, poultry and other goods that are selected with the intent of someone making their own healthy meals at home.

“We have a small store. We don’t want to grow up to be grocers,” Austin said of the calls and offers she’s taken in the last week.

“We lose money in our little store because there’s not a lot of volume, but we are a nonprofit that can subsidize that,” she said. “We’re just a stopgap. We want to show the industry that there is a market for this here. Meanwhile, we want to work on corridors and putting people back into houses so that we build density back in this neighborhood.”

That’s not to say Austin hasn’t learned a lot about the economics of grocery stores – both mom-and-pop markets and chains.

When The Works got a federal grant of $741,000 several years ago to address the food desert issue, her first thought was to approach Kroger headquarters in Cincinnati. Her idea was to use the grant as an incentive – a low-interest loan to Kroger for upgrades to its inner-city Memphis stores, including Lamar and Southgate.

Kroger wasn’t interested, she said, but did pursue the same kind of incentives in Ohio after the Memphis pitch.

She turned to Castle Retail Group, which owns the local Cash Saver stores, with an offer of a $600,000 loan at 1.5 percent interest over seven years for upgrades to its Whitehaven location. It’s the kind of incentive smaller stores like Cash Saver don’t normally have access to.

“More than anything, we are a food desert. We need food. ... That’s one of the services that we need.”

–Roshun Austin
President and CEO, The Works Inc.

“You want to reduce the amount of their debt service so they have some kind of profit,” Austin said. “If we give them low-cost loans or grants, then it underwrites some of those costs that they have to incur as grocers that are not related directly to the sale of food.”

That would be shelving, refrigeration units and other similar hardware.

Along with the loan arrangement, The Grocer formed a supplier relationship with the Cash Saver chain, which is part of a grocers association that can buy from wholesalers at a discount – something The Grocer and other small, one-off stores could never do on their own.

In that arrangement is a possible model for the immediate aftermath of Kroger’s exit.

“Bringing a grocer or two or 10 to the table so we understand their industry, how they make money, what makes sense and have them partner with us on doing groceries,” she said. “Whether it is the co-op model from the old days or we go back to a mom-and-pop grocery store.”

City Councilman Edmund Ford Jr., whose district includes the Southgate Kroger, said he has talked with eight grocers or supermarket chains who have expressed some level of interest about the two store sites.

He wouldn’t say what brands they are but has his sights set generally on a nationwide full-service supermarket chain.

“Who would love to see a Publix right there in the heart of South Memphis and in Orange Mound?” Ford asked a week ago at a City Hall press conference with about two dozen residents from both areas.

If the decision is to pursue Publix, Austin’s advice is for city leaders to go to the top – the corporate headquarters – in search of a contact, not the local ownership group or a regional ownership group.

Austin said local government needs financial incentives that are tailored to the grocery industry.

“Making sure there are no encumbrances and also that there is a carrot and no stick,” she said.

The specific use of the incentives – either grants or loans – would be for site improvements, like the renovations at Cash Saver’s Whitehaven store and for surrounding businesses.

“Maybe there is a collaborative effort by a small group at Southgate that can keep that as a grocery store and anchor that development,” Austin said. “But there is a lot of investment that needs to be made. This is where government, for me, should step up like the feds have done historically in terms of incentives.”

The Kroger store on Lamar is across the street from the Airways-Lamar shopping center, and as a result has a different setting than Southgate.

“We need to address the corridor,” she said. “Many of the people who live in that neighborhood are pedestrians. It can’t be just totally automobile-friendly. I understand it’s a highway, but it’s in the city.”

City Councilwoman Jamita Swearengen, who shops at the Lamar Kroger and whose district includes the store, said a full-service supermarket with a bank branch and pharmacy should move in once Kroger is out, instead of a basic store that draws those services in other storefronts nearby.

“Why should we have to do it when other communities don’t have to?” she said. “And why in the black community? … Why should we have to undergo that when others don’t have to? We deserve the same treatment.”

Austin said a full-service store may be a goal down the road.

“More than anything, we are a food desert. We need food,” she said. “If we have the Fred Montesi’s of my childhood – it’s groceries. That’s one of the services that we need. We don’t have to have everything in the grocery today.”

The Lamar Kroger includes a Tri-State Bank branch.

The bank’s board chairman, Lucy Shaw-Henderson, on Wednesday said Tri-State found out the store was closing as the public did last week and is looking for a new location in the same area.

“We have a vested interest in the economic health of this community,” Shaw-Henderson said in a written statement. “We will take every step necessary to ensure our customers’ banking needs continue to be met.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 84 122 20,754
MORTGAGES 113 158 23,903
FORECLOSURE NOTICES 7 31 3,078
BUILDING PERMITS 128 315 42,909
BANKRUPTCIES 53 110 13,290
BUSINESS LICENSES 12 35 6,657
UTILITY CONNECTIONS 22 52 7,841
MARRIAGE LICENSES 18 45 4,688