Buying local pays off

IN ECONOMIC GAIN AND LOWER COSTS

Sound Consumer | May 2004

by Dave Smith, Lawrence, Kansas Community Mercantile Co-op

(May 2004) — PCC Natural Markets, like other co-ops across the country, is a locally owned business that intentionally supports other locally owned growers and businesses. To anyone with a stake in their local economy, buying from local businesses pays off.

The findings of an economic impact study done in Austin, Texas show that locally owned businesses create greater economic benefits. The study compared the economic activity generated by two locally owned bookstores to that of a large national chain. The results showed that the local businesses generated more than three times the economic activity than the chain bookstore. Specifically, the local bookstore generated $45 of economic impact for every $100 spent, compared to $13 by the chain.

According to the survey, several factors account for this high difference in yield:

  • Locally owned businesses spend more on payroll because they tend to employ their own ad writers, buyers, accountants and other positions, whereas chain stores often centralize these types of positions in a single, headquarter location.
  • Locally owned businesses purchase more from other locally owned businesses than do chain stores.
  • A higher percentage of a locally owned business's profit is recycled back into the community. Bigger doesn't necessarily mean better when it comes to economic return.

A September 2003 survey of eight locally owned businesses in Maine revealed the same economic impact as the Austin survey. The locally owned businesses returned 44.6 percent of their revenue to the surrounding two counties and another 8.7 percent elsewhere around the state. By contrast, a similar survey done for a big box retailer revealed only 14.1 percent of its revenue was returned to the local economy.

Hidden costs
Growth does not necessarily mean increased net revenue. In fact, many types of development actually drain local economies.

A study of various types of residential and commercial developments in Barnstable, Massachusetts compared the tax revenue generated against the cost of providing additional required services. The findings? Big box retail, shopping centers, and fast food restaurants cost taxpayers more than they produce.

The biggest drain comes from fast food restaurants with a net annual deficit of $5,168 per 1,000 square feet. The next biggest drain is from big box retail stores that show a loss of $468 per 1,000 square feet, and then shopping centers whose loss is $314 per 1,000 square feet.

On the other hand, smaller specialty retail shops were found to generate positive returns to the community at a rate of $326 per 1,000 square feet. Other positive producers include business parks, offices and hotels.

Why the higher cost from big box and fast food businesses? Their biggest expenses came from higher road maintenance costs and greater demand for public safety service, specifically the need for increased police coverage because of the higher commercial crime rate.

This was certainly the case in Pineville, North Carolina, a community that has openly embraced chain superstores during the past decade. When faced with an increased cost of $120,000 a year for two additional police officers required in the proposed new Wal-Mart super center, the city put the brakes on development growth, tightened its zoning rules, and turned down the proposal. The additional expense far exceeded the municipal revenue the store would have generated.

For the most positive economic growth, it seems obvious the emphasis should be on local business.

Article adapted and reprinted on permission from The Community Mercantile, a natural food cooperative in Lawrence, Kansas. David Smith is the director of marketing and membership.


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