Scamdani and the Truth About City-Owned Grocery Stores

Some of my earliest memories are from a grocery store.

My mother, and later her sister, worked at a locally owned Key Market running the deli department. Baked goods, hot meals, sliced meats and fresh salads, and the best donuts you ever tasted made from scratch every day — it was a kid’s paradise. She would sometimes take me to work on Saturdays, and I’d help, doing everything but slicing the meat (age-restricted because it’s dangerous). It was fun for me, and I learned things I would not have learned watching cartoons.

Later, just before I married and became a military wife, I worked at my local Kroger regional office supporting loyalty card and marketing issues for, gosh, I guess it was about 200 stores. I learned a lot about the grocery business.

All this is to say: I know the difference between grocery economics and political theater.

Scamdani’s ever-evolving store plans

Zohran Mamdani, New York’s newest Hizzoner, ran largely on a pledge to create city-owned grocery stores, and today he’s working to fulfill that promise. Sort of. The idea was to decrease prices for consumers by removing the “gouging” profit model.

Some of his campaign promises included:

• “Grocery prices are out of control. The cost of eggs and milk has skyrocketed. Some stores are even using dynamic pricing, jacking up the cost over the course of the day depending on what they can get away with. It doesn’t need to be this way. I’m Zohran Mamdani, and as mayor, I will create a network of city-owned grocery stores. It’s like a public option for produce. We will redirect city funds from corporate supermarkets to city-owned grocery stores, whose mission is lower prices, not price gouging.”
• “I’m Zohran Mamdani, and as mayor, I will create a network of city-owned grocery stores. It’s like a public option for produce.”
• “We will redirect city funds from corporate supermarkets to city-owned grocery stores, whose mission is lower prices, not price gouging.” (This one is especially rich, as you’ll see.)
• “Last month, we announced that we would fulfill a campaign promise: that we would lower prices by creating a network of city-owned grocery stores, one in each borough. In these stores, prices will be cheaper.”

Sounds great. So last month, he announced the reality: a limited core basket including produce, meat, seafood, milk, bread, yogurt, and a few other things to be priced 30% below “typical retail,” whatever that really means, in city-owned and subsidized stores run by private for-profit operators. Operators are entitled to price everything outside the core basket at whatever they like. The discounted “basket” will be subsidized by the city. The city covers capital, rent, and property tax. And users, as announced today, will be required to prove residency with a “library card” style identification.

As Darth Vader said, the deal has been altered. Pray he does not alter it further.

How privately owned grocery stores work

So here are the facts about grocery stores. Conventional supermarkets — not bodegas or convenience stores — run on a very thin overall margin of between 1% and 3%. The competition is so intense that stores will do nearly anything to get people through the doors. Why? Because once you’re in the grocery store, you’re probably going to do all your grocery shopping there.

To accomplish this market capture, these stores sell a short list of high-visibility staples at breakeven or, more often, at a loss. When I was at Kroger, it included milk, bananas, cold cereal, eggs, and six other items — and we called this a basket. These items were priced either at cost or at 20%-40% below retail as compared to our competitors and advertised on the front page of sales fliers. This drove traffic into the stores. Once there, we could reasonably assume customers would buy all their groceries, even those priced so that we could make a decent profit.

That basket of goods were called loss-leaders. They were sold at a loss to lead people inside. And this is standard practice at grocers.

The other government model: military commissaries

Mamdani’s idea is not particularly groundbreaking. Military commissaries have been around for decades. These stores are designed to sell goods to military members and retirees (and recently, Department of Defense employees) at an across-the-board 21%-25% average savings. They do this by setting up good deals with traditional food manufacturers, operating without a profit markup, and relying on a substantial annual federal appropriation to cover salaries, utilities, and other costs. A mandatory 5% surcharge helps fund the buildings themselves.

So, great. I was really excited when I started shopping at the commissary after I married my Navy husband. To my shock, however, the prices there were not really better than prices at Walmart and other discount grocers. I have a very good memory for prices — I had to, as a single mother shopping carefully for a long time. Walmart was better. Sav-A-Lot was better. Later, Aldi, Lidl, and even Winn-Dixie were better on a real shopping list. The commissary’s advertised average savings looked impressive against conventional full-service supermarkets. Against actual discounters, the advantage often disappeared or reversed. And that was with the benefit of decades of scale, volume purchasing power, and restricted eligibility. Mamdani is promising a flat 30% on a limited basket with none of those advantages.

Why Walmart (and real discounters) still win

Let me count the ways a mature discounter like Walmart beats this political project for most households:

• "Everyday low prices" across the entire cart, including the items outside any special “core basket.”
• Massive scale and vendor leverage that no handful of city stores will ever match.
• Online prices that are largely standardized nationally, which already undercuts high-cost New York “typical retail.”
• Aggressive private-label and generics that are often dramatically cheaper than national brands.
• Free delivery with membership (especially with Walmart+ Assist, which cuts the membership roughly in half, to about $49/year, for SNAP, WIC, Medicaid, and other assistance households).
• Full selection, including non-grocery durable goods, in one order.
• Continuous sales and rollbacks.
• No residency gatekeeping or library-card bureaucracy.
• Proven logistics that already work.

Mamdani’s plan calls for five stores — one per borough. Walmart has roughly the same limited physical footprint in New York City. The difference is that Walmart also delivers. Delivery has already largely solved the “food desert” problem for anyone with a phone and an address. I’ve written about this before. Five city stores with an ID check at the door do not change that reality.

I am looking forward to the reality check when these stores open, when someone inevitably compares a real basket of goods from a government-operated store with the same basket from a regular commercial store.

The payoff for Big Grocery

The richest part of the whole arrangement? The same private, for-profit grocery operators the campaign spent so much time calling out for “price gouging” are now being invited, via RFP, to run these city stores because government simply does not have the expertise to do it themselves. They get free or heavily subsidized real estate and no property tax to pay. They get a mandated loss on the politically important core basket that the city will almost certainly make them whole on using taxpayer money. And they get to price everything else in the store for their own margin, ensuring a profit.

They still make money. They just do it with public underwriting and a press conference. This is simply classic loss-leader structure, only the loss is socialized, and the credit for "savings" is claimed by City Hall.

Chicago just watched a similar experiment collapse in real time. The city put serious public money behind private operators running Save A Lot stores in South and West Side neighborhoods. A few years later, the operator hit financial distress, the licensing agreement ended, and seven stores closed permanently in late July, leaving residents with fewer options than before. Public money and good intentions did not create a sustainable grocery operation.

The same old pattern

This is the pattern. Promise the moon. Discover that actual grocery economics are harder than the speech. Narrow the benefit. Add bureaucracy and eligibility rules. Then partner with the very market actors you spent the campaign criticizing, while taxpayers cover the losses and politicians get to preen for the cameras.

Meanwhile, competitive, large-scale, delivery-enabled capitalism continues to deliver lower total costs for careful shoppers without a $70 million capital outlay or a residency card. Walmart and its peers did not need a mayoral press conference to figure out how to sell groceries at prices people can afford. They just did it.

Scamdani’s city-owned stores are nothing but a subsidized loss-leader program. Taxpayers will actually be paying for the same groceries twice. And better prices and more convenience are available at your fingertips using an app. This is socialism in action.

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