The Impact of Big Box Grocers on Southern California: Jobs, Wages, and Municipal Finances

Prepared for the Orange County Business Council by 

Marlon Boarnet, Ph.D.
Associate Professor
Departments of Urban Planning and Economics
University of California at Irvine
949-824-7695
mgboarne@uci.edu

and

Randall Crane, Ph.D.
Associate Professor
School of Public Policy and Social Research
University of California at Los Angeles
310-206-1859
crane@ucla.edu

with the assistance of Nicholas Compin, Angela Koos, Gregg Macey, and Amanda Wallace.

Final Report: September 1999

The following research analysis, interest in both the fiscal impacts of local land use issues and the economic impacts of government decision-making and changing business climates in California. 

In this report they examine the enormous, and ever-growing retail grocery business, and the many changes occurring in this industry. One of the most important developments is the combination of big-box discount retail and grocery sales into a single store known as a supercenter. While K-Mart and others have experimented with retail grocery sales in recent years, Wal-Mart has quietly become the second largest grocer in the country by adding large grocery stores to their retail stores to form massive retail "supercenters", often as large as 220,000 square feet. 

This study is designed as an aid to public decision-making regarding such projects, which have negative as well as positive impacts. Neither are always well understood, or carefully considered, in the municipal race for sales tax revenue. However, this report clearly shows that the fiscal benefits of supercenters, and of discount retail more generally, are much more complex, and often lower, than they first appear.

THE POLICY QUESTIONS

The nature of the grocery business has changed dramatically in some areas, with conventional grocery stores having difficulty competing on wages. 

Cities, starved for sales tax revenue but also protective of their existing retail base, are unsure how these big-boxes will affect either their economic structure or their fiscal bottom line. This study is designed mainly as an aid to public decision-making regarding such projects, which have negative as well as positive impacts. Neither are always well understood, or considered, in the municipal race for sales tax revenue. 

And now the supercenters are coming to California. What will happen?

KEY FINDINGS

1. The aggressive entry of supercenters such as those operated by Wal-Mart into the regional grocery business is expected to depress industry wages and benefits at an estimated impact ranging from a low of $500 million to a high of almost $1.4 billion per year, potentially effecting 250,000 grocery industry employees. (Chapters 2 and 4)
2. The full economic impact of those lost wages and benefits throughout southern California could approach $2.8 billion per year. (Chapters 2 and 4)
3. Discount retail chains that operate supercenters, including Wal-Mart, typically offer much less comprehensive health care coverage than major California grocery chains. One negative economic impact of Supercenters could be a dramatic reduction in health coverage for most of the 250,000 grocery employees in California. This can lead to lower quality care for grocery employees whose health insurance benefits are reduced. (Chapter 2)
4. The fiscal benefits of supercenters, and of discount retail more generally, are often much more complex, and lower, than they first appear. This is particularly true when big box retailers close existing stores to move into larger quarters elsewhere, when they expand an existing store into food, and when retailers reconfigure an existing store to sell food without expansion. In each case the additional tax revenues generated will in part come from existing businesses elsewhere in the city in the form of lost market share. (Chapter 3)
5. Supercenters, especially Wal-Mart supercenters, are often conversions of existing discount retail stores. Thus local officials should carefully consider the possibility of a future conversion to a supercenter, and any attendant negative economic, fiscal, or land use impacts, when approving big box discount retail projects, even when the proposed land use does not include immediate plans for grocery sales. (Chapter 1)

A CHECKLIST FOR EVALUATING BIG BOX RETAIL PROJECTS:

Overall, our analysis of these data illustrate the great complexity, and possible unintended consequences, of the entry of large footprint discount retail into the grocery business. To help prepare local and regional officials to review proposed big box projects generally, we suggest communities systematically assess the positive and negative local impacts of such projects. The following checklist is one way to do so. It proposes a systematic review of the impacts on local workers, on municipal finances, and on other key community issues. 

1. Economic and Employment Impacts

How much will the new big-box outlet cut into existing local retail market share? TASKS:

1. Need to inventory the local retail base
2. Assess market areas and market impacts

What will happen to the local work force? TASKS:

1. Assess impact on existing local retail
2. Calculate direct impact of job changes, lower wages
3. Calculate impacts of less medical coverage and other fringe benefits
4. Calculate ripple impacts of lower wages on local economy (multiplier impacts)

Will the new big-box outlet lead to vacancies or changes in local land use? TASKS: 

1. Inventory vacant land and commercial properties.
2. Assess re-use or redevelopment possibilities for competing sites.

2. Municipal Finance Impacts

How much will the new development cost your municipality? TASKS:

1. Services and capital expenditures: Calculate cost of infrastructure & utilities (i.e., streets, sewer connections, water lines, etc.)
2. Traffic and other service impacts?
3. Calculate the cost of associated economic development incentives (e.g., tax credits)
4. Assess the impact of redevelopment zone tax-increment financing.

How much will the new development really change local tax revenues? TASKS:

1. Assess net changes in local retail sales (e.g., including sales lost to the new big box).
2. Calculate net changes in sales and property tax revenue.
3. Examine the stability of the retail sales tax revenue over time.

3. Community Impacts

Will the big-box footprint possibly expand in the future? In the same line of business? TASKS:

1. Ask about future plans up front
2. Examine industry trends
3. Plan for expansion contingencies

What localities will benefit from and/or be disadvantaged by the big-box development. TASKS:

1. Assess the differences between local and regional impacts.
2. Are local gains at the expense of losses in other cities? Must these be mitigated?

How will the new retail outlet affect your community’s quality of life? For example, will it reduce the appeal of a downtown core that you are trying to preserve or revitalize? TASKS:

1. Inventory locations of competing retailers.
2. Assess impact on existing local retailers.

Updated Sunday, May 20, 2001 © Copyright, 2000- 2004. All rights reserved. The Coalition of Tri-Lakes Communities, P.O. Box 1763, Monument, Colorado 80132-1763