The future of Fields Foods is in question. What went wrong for the grocer?
Fields Foods started with the goal to bring grocery stores with high-quality products to food deserts, said owner Chris Goodson at an August town hall for the redevelopment of the Cleveland High School. (Goodson is the developer leading that project.)
“Grocery stores in food deserts are challenging,” he said. “They’re difficult.”
But there are other factors that may have contributed to Fields Foods' troubles, said Raphael Thomadsen, a professor of marketing at Washington University’s Olin Business School.
“This is a very competitive industry,” he said. “If the local store is not offering what people want, you're going to lose a lot of demand as people shop at a little bit more distant store that does match their needs.”
Fields Foods’ goal to provide high-quality, healthy food may have also hurt the business, since such items are typically more expensive, Thomadsen said.
St. Louis Public Radio’s Eric Schmid recently sat down with Thomadsen to discuss the local grocer and challenges it faced.
This interview was edited for clarity and brevity.
Raphael Thomadsen: I think one issue Fields Foods had is it's not clear that the product that they were offering really matched the areas they were moving into, as noble as the cause was.
Eric Schmid: Can you explain a little bit of the economics of grocery stores, what makes them unique businesses to run?
Thomadsen: Grocery stores are a very low-margin business, it's a pretty competitive industry. There's a lot of different stores filling in a lot of different niches; you have the healthy niche like Whole Foods, you have the dollar stores that have a smaller assortment but usually a little bit of a cheaper price. And then you have conventional grocery stores in between.
Many of the products within each of those tiers are very similar to each other. It’s very competitive, and there's only a few ways you can get competitive advantage. One is to have a lot of stores in the area to get economies of scale. Another is to cut back on the amount of variety you offer. Because managing more products is more expensive than managing fewer products.
Schmid: What makes bringing healthy food into food deserts or lower-income or impoverished areas difficult?
Thomadsen: To begin with, there's an issue of demand and supply. And many of these areas that don't have grocery stores just don't have very much demand. And you add on top of it that grocery stores are typically a fairly low-margin business, it can be very hard to run a grocery store to begin with.
Schmid: When you say demand, what does that mean?
Thomadsen: When I say demand, what I really mean is: Are there enough people in the local area who want healthier foods, for example, who want a bigger variety of foods to support the cost of providing those additional products?
Schmid: What I hear from that is demand isn't necessarily somebody stepping up and saying what they want or what they need but actually how they end up spending their money.
Thomadsen: That's exactly right. It's about how people spend their money. Sometimes people want things, but they don't want to pay for it — which by the way, is a true preference, but unfortunately, not an economically viable one. Part of the problem of capitalism is that in many aspects, we're really beholden to where the mass of consumers are.
There's always going to be some people who want healthier foods and who want more variety. But if not enough people are willing to pay the prices that are needed to support those additional options, then unfortunately, it's not economically viable.
Schmid: What are some of the challenges or considerations to make when trying to maintain that business moving forward? Because that's the second part of this equation, on top of opening up a place.
Thomadsen: I think it's a mistake that policymakers can make, trying to focus on opening the stores. The problem of economics is long-term profits—is there enough demand to offset the costs, which are very high costs? At the end of the day, we don't really want to come hard on people who are trying out new things. In our economy, we see businesses fail all the time. I think that's a good sign. If you don't have failure, you don't have innovation. You don't have people trying things.
Schmid: Maybe the next time around the next grocery store that opens up, they’ll take this as an example and say, here's how we're going to be different this time, and we're going to learn from what has happened in the past.
Thomadsen: Yeah, I do hope it's a lesson. Instead of thinking that they did harm, I certainly think that we should applaud them for trying to do something good for the community and hope that the next person also steps up and tries things.