Government-Run Grocery Store Is Predictably Losing Money

The folly of government-run grocery stores is sadly not a historical relic like the USSR. 

Chicago's city government is infamously corrupt and unable to provide basic services like education and public safety consistently, but Mayor Brandon Johnson is pushing for the city to also try running a grocery store.

It wouldn't be the first government-run grocery store—and not even the first one in the United States. For some context about what Chicago is planning, The Wall Street Journal dispatched a reporter to check out the municipal-owned grocery store in Erie, Kansas, which opened in 2021.

How's it going there? Uh, not great.

"Erie Market, which the city took over in 2021, is losing money almost every month amid stiff competition from a Walmart 15 miles away and a Dollar General across the street," reports the Journal's Joe Barrett. Erie Market posted just a single profitable month during 2022 and lost $132,000.

Maybe Erie's erstwhile government grocers didn't realize that—unlike with other government services—grocery stores are subject to competition. Bummer.

But city officials "aren't giving up," they tell the Journal. Meanwhile, the store's manager says the "goal" is to lose only $100,000 this year.

In other words, maybe Erie should give up?

To be sure, running a grocery store is a tough, low-margin business with tons of competition. There's nothing shameful about a brand new business losing money in that environment—unless that money belongs to taxpayers, many of whom probably aren't even using the government-run store.

In Chicago, officials envision a city-owned grocery store as a way to address food deserts in neighborhoods where privately owned stores have closed and moved away. But rather than trying—and inevitably failing—to duplicate those services at the public's expense, Johnson should instead listen to why the likes of Walmart and Safeway have bailed. "Grocery operators have pointed to crime and homelessness as reasons they've needed to invest more in security, driving up costs," the Chicago Sun-Times reported earlier this year.

Grocery store chains don't have some anti-Chicago bias. If the people in charge of the city made those neighborhoods safe and economical places to do business, groceries would be as plentiful as they are anywhere else in America. Reducing Chicago's high crime rate would surely help, though that's admittedly a long-term project. But there is something city officials could do almost overnight: Reduce Chicago's commercial property tax rates, which are some of the highest in the country, or the city's high sales taxes that incentivize consumers (the ones who can, anyway) to do their shopping outside the city.

At best, a government-run grocery store is merely addressing the symptoms, not the underlying problems plaguing Chicago—and it seems unlikely to improve the symptoms, for that matter.

As Reason's Nick Gillespie pointed out last month: "This is not progress, it's decline, and on an epically confused scale. If the wide sweep of the past century or so made anything clear, it's that governments at all levels really don't need to be involved in the provision of basic goods and services, whether we're talking about food, airlines, utilities, communications, garbage hauling, health care, taxis, or even a post office (when, in the internet age, is the last time you actually visited that museum of dead letters?). We don't even need the government to get into space anymore! Yet Chicago's government needs to get in the grocery biz?"

The most famous failure of government-run grocery stores comes, naturally, from the old Soviet Union, where basic consumer necessities were often in short supply. Soviet leader Boris Yeltsin's 1989 visit to a Texas supermarket—where he was astounded by the variety and supply of goods on offer—has been credited with a significant role in the downfall of communism in Russia.

But what's happening in Erie, Kansas, (and what could happen on a larger scale in Chicago) is a useful reminder that the folly of government-run grocery stores is sadly not a historical relic like the USSR.