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American ‘food deserts’ are getting worse. Here’s how technology will fix them.

August 11th, 2020

For years, millions of Americans — an estimated 8% of the population — have been living without adequate access to healthy, nutritious food. It’s a problem exacerbating all sorts of health problems, including obesity, diabetes, and cardiovascular problems.

Now, the problem has gotten bigger. As Voice of America explained, people who would normally have taken a bus to get to a supermarket now face the risk of exposing themselves to COVID-19. The pandemic is worsening “food deserts” for 23.5 million people.

The U.S. Department of Agriculture (USDA) defines Food Deserts as low-income neighborhoods having “a substantial number or share of residents with low levels of access to retail outlets selling healthy and affordable foods.” These areas also typically have a higher percentage of minority residents.

With limited transportation options to reach stores 30 or more miles away, residents are more likely to consume the food they can find nearby. With no grocery stores, the remaining options are often limited to liquor store snack food and fast food. 

Why do food deserts proliferate? Traditional explanations have ranged from the theory that retailers don’t want to open new stores to the peculiar notion that low-income people prefer an unhealthy diet. But through my work at Grabango, I’ve been meeting and speaking with heads of grocery store chains and digging into what the biggest obstacles are. I’ve found that one problem in particular outweighs all the others. It’s a problem my team has been working to solve.

Low margins sliced by shrinkage

To understand the problem, we need to first look at how low the margins are for grocery stores.

For every dollar a consumer pays, the grocer spends about 70 cents to buy the food at wholesale. Then, they spend on rent, electricity, labor, insurance, equipment, and so on.  That leaves just a few cents.

To make matters worse, stores see some of that margin stolen every day. The biggest causes are employee fraud and consumer shoplifting.

While operational issues like employee errors or damaged goods are problems supermarkets can try to solve through greater efficiency, many have found it harder to counteract theft. Store managers often can’t know who’s stealing what.

It’s the theft, and the fear of it, that most grocers tell us is their biggest concern in setting up new store locations.

How shoplifting happens

Shoplifting mostly isn’t what people might imagine. It isn’t a guy walking into the store and walking out with a bottle of gin tucked into his jacket. Sure, that happens, but if that same guy came into his local store twice a week and appeared to leave empty handed, he’d look suspicious and eventually get questioned.

Often, theft happens through “partial shoplifting.” For example, someone stashes gin in his jacket before legitimately buying a candy bar. To the store staff, he’s recognized as a kindly old gentleman with a sweet tooth. No one knows that he’s also the one stealing 100 bottles of booze a year.

Employee fraud, meanwhile, comes in a variety of forms. A common one is called “sweethearting,” when cashiers neglect to scan certain items — often, the most expensive items. (Maybe skipping their friend’s four T-bones steaks, then meeting up later for a celebratory BBQ.)

While theft can cost grocers about two cents on the dollar in a typical store, it can be substantially more in some stores. And because margins are so tight, even a slight increase in theft can make it unprofitable to operate stores in some locations.

Neighborhood effects

Business leaders have told us that they’ve faced higher rates of theft in many low-income areas. And given the institutional memory of past experiences — which often led to store closures — they’re understandably reluctant to open new stores that they fear may lose money. From everything I’ve seen, this is the leading economic cause of food deserts.

To be clear, a neighborhood having lower average incomes does not necessarily mean it will have higher crime rates. The Courier-Journal in Louisville, Kentucky, investigated this as part of a series on food insecurity supported by the Center for Health Journalism at USC Annenberg. Among its findings: two grocery stores in the area had about the same number of crime reports, even though the poverty levels in those two neighborhoods were very different, at 37% and 7%.

Crime reports and shrinkage are different, since the disappearance of items over time doesn’t always lead to the police being contacted. Still, a study by California Food Policy Advocates did observe the correlation that “stores in low-income locations may experience a higher level of ‘shrinkage.’”

In all stores, a very small number of bad actors can have an outsized impact. The difference between a low-crime and a high-crime store might just be a few dozen people out of a community of thousands. The actions of those few can literally drive a store out of business — and out of a neighborhood. Then, the vast majority of honest members of that community suffer a life-altering loss. So shoplifters who may think they’re committing a ‘victimless crime’ might indirectly be stealing life and vitality from an entire community.

Technological solution

What would happen if a store automatically knew when an item was taken off a shelf, and who took it?

With the checkout-free system we use at Grabango, as well as a different one used by Amazon Go, people shop for what they want and then walk out. There’s no longer a need to wait for each item to be dragged across a barcode scanner or keyed into a register. The point of sale system automatically bills shoppers for what they leave the store with.

In addition to getting rid of checkout lines, these systems virtually eliminate theft as well. Shoplifters must go elsewhere. Workers tempted to steal from their employer learn they can no longer get away with it. Dishonest people are systematically thwarted.

These checkout-free systems return the 2% to 8% of lost revenue to the store every day. It’s big enough savings to more than pay for the installation of the technology. And the savings are far greater where theft is higher. The very stores that had previously struggled to stay open can actually reduce prices for the consumer. Chains that had been reluctant to operate in these neighborhoods can reinvest with the expectation that new stores will do just as well there as anywhere else.

The Time is Now

The solution is at hand. Several chains are planning broad rollouts of this new technology over the next two years. They’ll have a tremendous competitive advantage over stores that don’t invest in this kind of solution.

Irrigating food deserts with checkout-free technology will produce an urban spring, allowing full-service grocery stores to sprout up in areas long abandoned.

The health benefits of a more balanced diet and the pleasure of good, healthy food will follow — as will local commerce, jobs and economic revitalization, empowering the local population.

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