Food Deserts, Restrictive Covenants, & Market Failures

My least favorite refrain from judgy frugality bloggers is telling people to stop eating fast food & junk food, and to just cook all their meals at home.

Which is weird, right? What could possibly be wrong with that advice? Thousands saved every year, and healthier living, too. And all this abundance for only $11.

But the high horse advice reeks of a privilege that most of us are totally blind to: the fact that most of us have a dozen grocery stores we can easily drive to, in the car we just happen to own.

Or, heck, maybe we can bike there, since we apparently have all this free time and, you know, it's important to keep it tight.

But not having a car is a thing. Cities without great public transportation are a thing. And for thirty nine million Americans, food deserts are a thing.

Let's tackle the last one a bit today.

Grocery stores sometimes close. And when they do, the fact that another doesn't take its place is often not just the free market in action: it's not just that all other grocers see this area as a poor investment.

Grocery stores like Safeway regularly insist on non-compete clauses to be inserted into leases and sales agreements or, amazingly, agreements with cities themselves, preventing any other super market using the same space they vacated, for up to fifteen or twenty years. This has led to organizations like the Food Empowerment Project to petition that Safeway end this practice.

So when the urban or rural Safeway closes down, a Kroger or Trader Joes or Aldi cannot use the space, even if they see an opportunity there, even if the landlord would jump at the chance. There is no opportunity for a different grocer, perhaps a smaller one more able to meet the demands of this particular market, to even try.

A different type of tenant, a sporting goods store or a Ross can move in, sure: but no company that sells groceries. It's not allowed.

The clause in rental agreements which prevents a future tenant in the same industry from renting the space is a type of restrictive covenant: put in place specifically to protect the competitive interests of an industry.

But why would a landlord agree to such a clause in the first place? The restrictive covenant is a result of a lopsided amount of leverage in negotiations between landlords who have a space which serves as an anchor in a shopping area, for which there are very few tenants who are in the market for that space, since grocery stores are pretty huge.

But if grocery stores in a neighborhood close, without sufficient ability to bring in new players, what often results is a food desert: areas where there are few or no options for fresh produce, meat, and other staples. Residents are then faced with a dilemma: travel at a significant cost of time and money to where grocery stores are, or get their food at the places left in their community...liquor stores, gas stations, and fast food restaurants. 

It's terribly unhealthy and, in an economic sense, terribly inefficient.

Once again, this is a type of market failure: when the market creates a system in which goods and services are distributed inefficiently. It's terribly inefficient for consumers to spend time taking multiple busses out to other grocery stores. It's terribly inefficient to force competing grocers to wait 15 years to enter the market again, simply because the prior grocer wants all the customers to go to their next closest market several miles away.

The cruel irony is that these are often the very areas with citizens who can least deal with all the hurdles of a food desert, as they are both cash poor and time poor.

These harsh realities make the ignorant claims shouted from laptops in the suburbs ("Just shop at Aldi's! Stop eating junk, get a Costco membership, and cook at home!") not all that helpful. 

Of course, this issue is larger than micro economics. Food deserts are political, since the issue disproportionately impacts low income and minority communities. It's an issue of personal finance, as individual households need to spend more money on daycare and transportation in order to get groceries every week, and likely may spend more on healthcare later on if nutritional options are lacking. It's obviously a public health issue, as well.

There are a lot of different ways to get angry at this situation.

But the procurement professional in me keeps coming back to the stupid clause in that rental contract: the restrictive covenant. This is a case where the free market has allowed a contractual term to eliminate competition, rather than encourage it.

Many of our citizens and politicians frame the free market as something that always fosters more and more competition. If governments and bureaucrats just left it alone, competition would naturally occur, prices would be driven down, and all consumers benefit.

But the reality is often more complicated. In this case, regulation is needed so that competition can occur: the free market is allowing a single, powerful actor to stifle and eliminate competition. The laissez faire approach has led to less competition, and a market failure.

We see the same thing occur fairly often in unregulated free markets. Without proper oversight, monopolies and oligopilies form, nearly eliminating competition. When employers have overwhelming power and are allowed to push whatever terms they like onto their employees, non-compete agreements are foisted on employees, who are prevented from working for other employers which, again, stifles competition in the marketplace.

We citizens, and our politicians, would do well to stop framing the free market as some sort of perfect system that always does the best overall thing for workers, companies, consumers and investors, alike. Often, it just does whatever is best for the strongest player on the field.

And we need to stop framing common sense regulation as something that always hurts the free market. In this case, with citizens who are finding it hard to meet the most basic of human needs, indeed, regulation is the thing that could actually help the market operate.

As always, thanks for reading.