Soaring food, rent, insurance and utility costs have become a burden not just to consumers but also to the supermarkets that serve them.
“New York supermarkets pay the highest electricity rates, the highest tax rates, the highest insurance rates and the highest per square foot lease rates,” said Nelson Eusebio, president of the National Association of Supermarkets, a Flushing-based trade group that represents chains including Associated, Met Foods and C-Town.
“In the last year, 35 to 40 members have closed supermarkets and about half of those have left New York.”
Out of 400 member stores, the 75 in Queens have seen dramatic cost increases in just a few years that have not been followed by an increases in their profit margin. The disparity has caused some grocery stores to close, leaving communities with fewer options for groceries.
“With the real estate boom, the landlords raised rents on supermarkets and they [the supermarkets] lost their profit margin,” said Councilmember Leroy Comrie, whose southeastern Queens district recently lost three supermarkets, at Farmers Boulevard and 113th Avenue in St. Albans, Springfield Boulevard and 115th Avenue in Cambria Heights, and Merrick Boulevard and Linden Boulevard in Jamaica.
“The community is upset because we have a lot of people who can’t drive and seniors who can’t walk the distances,” said Comrie.
According to Eusebio, who represented the supermarkets in Comrie’s district, in those cases the property owners asked for $10,000 in rent plus taxes. “If they couldn’t come up with the money, the landlords asked them to leave,” said Eusebio.
But, in response to the breakdown in negotiations between commercial landlords and tenants, Comrie and several Queens Councilmembers joined their colleagues in introducing the “Small Business Survival Act,” which would include a two-step procedure with mediation and, if necessary, arbitration for negotiating commercial lease renewals between landlords and tenants. The bill is still in the negotiation process.
“We are trying to encourage landlords to keep businesses in the community and not price them out,” Comrie said. He added that a Supermarket Task Force comprised of City Councilmembers has been meeting to draft policy on how to maintain supermarkets in their areas.
Jason Ferreira, a manager at the Met Foodmarkets at 76-10 37th Avenue in Jackson Heights, doesn’t want to get priced out either. His family has leased their commercial space for the last 13 years and though he has a good relationship with their landlord – he won’t reveal his lease terms – Ferreira said that he has seen rents almost triple since the 1990s.
“In the 1990s in Queens, the average square foot ranged between $8 and $12. Nowadays it can range from $24 to $50 per square foot,” said Ferreira. “No matter how good business is for me, I can’t pay an unrealistic rent.”
Since the supermarket opened in 1996, Ferreira has noticed that, instead of growing, his profit margin has shrunk. From 1996 until 2008, the yearly insurance rate increased from $20,000 to almost $70,000, taxes have gone up 20 to 30 percent and electricity bolted from 6 cents to 18 cents a kilowatt hour.
To stay competitive, however, Ferreira must keep food reasonably priced.
“You used to make $1 profit for a sale of a $4.99 [sack of rice], but now you sell at $9.99 and still only make $1 off the sack of rice because you need to remain competitive,” said Ferreira. “The percentage of what you make is less now.”
Supermarket owners welcomed the defeat of the Albany proposed 18 percent beverage tax on juice drinks and sodas, which they claim would have taken a major toll on their volume of sales.
“We are happy because we don’t have to pass this [cost] on to the consumer,” said Eusebio, who had organized a coalition of supermarket and bodegas owners against the measure.
The death of the wine bill, which would have permitted supermarkets and bodegas to sell wine, could have helped increase their profit margins, according to Ferreira.
“Thirteen years ago, there were less drug stores selling what we sell. Now you see Duane Reade, CVS, Rite Aid,” he said. “They sell those items at a loss because their real business is to sell pharmaceuticals. We need different items at our stores to drive business, like wine.”
But driving business gets harder each year due to another growing cost – that of complying with city regulations.
“As a supermarket owner you find yourself, instead of selling groceries and running your business, spending a lot of time doing paperwork and dealing with inspections,” said Ferreira. “I understand that they serve a purpose and the city has to worry about safety and food quality, but fines have increased tremendously.”
In an attempt to provide another lifeline, legislation has been introduced in the Council entitled “Small Business Regulatory Flexibility” that would offer city agencies methods of establishing less stringent and simpler ways for small businesses to comply with certain reporting requirements. This bill would move forward the City Council’s agenda to help small businesses during the economic crisis.
The NYC Economic Development Corporation estimates that there are more than 220,000 small businesses throughout the City of New York. Businesses with fewer than 100 employees comprise 98 percent of all businesses in the City and employ nearly 50 percent of all private sector workers.
Keeping small businesses, like Ferreira’s Met Foods which employs 50 people, in business has become an important goal for the city. However, striking the right balance between the interests of supermarkets, governments and landlords has been a challenge.
“Government cannot keep hitting on the grocery industry to generate revenue,” said Eusebio, whose National Supermarket Association is prepared to fight future attempts to tax beverages. “When you need to balance your revenue, you can’t think of a supermarket as a fat cow.”
