The Local Initiatives Support Corp., a community development support organization, this fall launched a corporate investment equity fund in an effort to develop shopping centers with major supermarket tenants in low-income areas of major U.S. cities.
Local Initiatives' Retail Initiative affiliate has an initial investment fund of $24 million from 10 national corporations to help community groups develop 12 to 14 supermarket shopping centers. Each project will have the potential to generate up to 225 jobs.
Corporate investors, including Prudential Insurance Co. of America, Metropolitan Life Foundation, GE Capital, Bank of America and J.P. Morgan & Co., will receive a projected return of 10% annually.
A Pathmark store in Harlem is the first announced Retail Initiative deal.
Construction is expected to begin in mid-1995, said Stan Sorkin, VP-public affairs, Pathmark Stores.
Investment dollars are targeted for Los Angeles; Chicago; New York; Miami; Washington; Kansas City, Mo.; Newark, N.J.; the San Francisco Bay area; San Diego; Houston; Philadelphia; Boston; Phoenix; and Seattle.
Other major chains that have discussed joining the program include Cub Foods, Lucky Stores, Vons Cos. and Certified Grocers of California, and talks with Giant Food are expected to begin soon, said Peter L. Borges, Retail Initiative president.
The chains are "pretty excited about this, but they are going in with some caution in an attempt to figure out the best way to get in operationally and politically," he said.
Local Initiatives is a non-profit Group started by the Ford Foundation that provides funding and technical assistance to private, locally based, non-profit organizations called community development corporations.
The Retail Initiative and the local groups will develop and own the real estate but won't be involved in store operations. Retailers will lease the space for a minimum of 20 years.
The program will focus on inner city residents' need for quality, affordable food and basic goods. There is generally little competition for supermarket companies in inner cities. The needs of inner city residents are also being addressed by Chicago-based Del Ray Farms, with plans to launch a national grocery chain in low-income areas (AA, July 11).
Supporters of the Retail Initiative program say inner city supermarkets can be profitable.
"The tremendous volume these stores do can make them very profitable. The neighborhoods are poorer, but [residents'] collective buying power" makes the stores profitable, said Paul Grogan, president of Local Initiatives.
Pathmark already jointly owns supermarkets in Newark and the Bedford-Stuyvesant neighborhood of Brooklyn, developed with community development corporations.
To Pathmark, inner city stores "make good business sense because of ... population density, and the amount of food dollars available in the community," Mr. Sorkin said. The two existing inner-city stores "are exceeding trends of our other stores. Their profitability levels are higher than the company averages."
Besides Pathmark's New York radio and newspaper ads, the new store will be supported by tailored direct marketing and circulars. Media buying and radio ads are handled by Popofsky Advertising, New York, with the remainder in-house.
Special event programs are key to inner-city supermarket growth. Pathmark's Bedford-Stuyvesant store sponsors a community picnic and 10K run. The Newark store held a tie-in to National Child Health Day with the University of Medicine & Dentistry of the State of New Jersey.