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Business Lessons From A Failed Grocery Store In Mendota, California

The New York Times ran a rather bizarre article about the closure of Mendota Grocery in Mendota, California, titled As Grocery Dies off, Down-and-Out Town Lives On, if Barely. The thesis of the article, written by Brooks Barnes, seems to be that things have gotten so terrible in this town that it could no longer support this institution:

MENDOTA, Calif. — Westside Grocery, serving this self-described Cantaloupe Center of the World since the 1940s, removed its gasolinepumps around 1980, the result of increased regulation. Fresh steaks and pork chopswent by the wayside in the 1990s: too few could afford them.

Fresh milk was the next casualty. No one ever seemed to hurt for money for beer, but Westside Grocery eventually stopped selling that, too. “Too many alcoholics stinking of urine and worse,” said Joseph Riofrio, who took over the business from his father, who had taken it over from his. “But the truth is that the electricity for the cooler was getting expensive.”

Now Westside Grocery is gone. Last month, Mr. Riofrio, a City Council member and former mayor of this Central Valley town, where a street is named after his grandfather, pulled the plug — done in by a 38.7 percent unemployment rate, the foreclosureand credit crises and hoped-for economic help that never came. “How can a community in the heart of the most abundant farmland on earth suffer this way?” Mr. Riofrio said, fighting back tears.

Another question: If Mr. Riofrio, 50, cannot make it here, can anyone?

The Detroit of California. The Appalachia of the West. This town of 11,100 has been called both, and it is not an exaggeration. About half of Mendota’s residents, according to city officials, live below the poverty line. Alcohol abuse is unbridled. A recent killing appeared to be tied to the violent street gang MS-13.

Mendota has garbage collection, but you would not know it from looking at some of the front yards along Juanita Street. A squalid trailer park greets people arriving from Fresno, about 35 miles to the east; to the south is a prison, built in a former cotton field. Shopping is mostly done at Dollar City or the 99 Cents Store, both competitors of the 98 Cents Store.

Although Mendota is in especially bad shape, the entire Central Valley has been hit hard by the recession and sluggish recovery. Unemployment for the region is about 15 percent. Stockton, on the valley’s northern end, filed for bankruptcyprotection in June. A homeless camp continues to grow at a Fresno exit along Route 99. Bakersfield, to the south, has perked up lately, but it has something the rest of the valley does not: oil and natural gas fields and proximity to Los Angeles.

Unemployment has long been a reality in Mendota, which was first settled in the 1890s as a railroad stop. California’s agricultural towns rise and fall depending on what crop needs picking and how much water is available for irrigation. Social problems are nothing new, either. “The fields have always been a magnet for impoverished people trying to find a way out,” said Rick Wartzman, the executive director of the Drucker Institute at Claremont Graduate Universityand the author of several books examining the Central Valley.

Still, Mendota’s unemployment rate is high even by farming community standards, which typically see a seasonal average of about 20 percent. As the worst of the worst, Mendota has gotten its share of attention over the years; in 2009, when Gov. Arnold Schwarzenegger needed a backdrop to announce that he had petitioned President Obama to declare Fresno County a drought disaster area, he chose Mendota.

But nothing ever seems to get better here. That disaster request was declined. Thousands of acres of surrounding farmland — once used to grow corn, bell peppers, tomatoes and melons — have been forced out of production because of salt buildup, the result of flawed irrigation and drainage systems. Thousands of additional acres have been left fallow because of a lack of water. This part of the Central Valley relies almost exclusively on federal irrigation supplies that have been curtailed amid environmentalist pressure to restore fish habitat.

There is no question that Mendota is a rough place and that the business community in the Central Valley has been hurt badly. In the brief excerpt from the article, there are four governmental issues identified that have hurt the viability of the business:

  1. Environmental rules that made it too expensive to continue to sell gasoline.
  2. The police have failed to control street violence and gangs.
  3. Ineffective garbage collection and public sanitation
  4. Federal restrictions on irrigation

In this political season in which every politician promises to create jobs, it is worth understanding how jobs are created. When government is expansive — say pushing regulations that raise the cost of selling gasoline — there will be fewer people selling gasoline. On the other hand, when government is weak — say failing to maintain public safety and public order — it will also reduce jobs by increasing costs — say more private guards — and reducing the willingness of people to shop at night, etc.

It is, however, highly unlikely that the high unemployment rate in Mendota had very much to do with the closure of Westside Grocery.

First, one of the great issues in America today is the growth of a culture of dependency. Almost 15% of the US population is now on Food Stamps. In 2008, that percentage was about 9% and in 2001 about 6%. There are many issues with this, but one positive effect is that it does keep demand for food fairly strong even in the face of high unemployment. In other words, this New York Times article seems to imply, without any evidence, that total expenditures on food are down and this is what caused the closure of this store. This seems highly unlikely.

Indeed, the article manages to dismiss economic progress in the community:

A 1,152-inmate federal prison opened here last year, but the expected jobs have yet to materialize. About half of the workers have been transferred from other facilities, and most of the jobs that are available require a college degree; fewer than 31 percent of Mendota residents have even graduated from high school, according to census data.

One wonders what jobs were “expected” to materialize? If workers were transferred from other facilities, then they have either moved somewhere near or are close enough to commute. In either case, their wages are surely spent nearby. These people are, in fact, part of the community now. After all, communities change and evolve.

The Riofrio family, which has owned and operated the food store, seems admirable and hardworking, but it doesn’t take a brilliant business analyst to see this story not as the inevitable decline of a business caused by bad economic conditions as much as the story of the difficulty that confronts a family business in the face of economic and demographic change.

The author of the piece doesn’t know it but the difficult economic times of Mendota have probably bought this business an extra decade, because if Mendota was even semi-prosperous, it would have its own Wal-Mart Supercenter — there are at least three within an hour — not to mention its own Vons (Safeway), Foods Co. (Kroger), Trader Joe’s, Whole Foods and Fresh ‘n Easy. Throw in a Costco and a Sam’s Club, too, plus an assortment of other alternatives. Westside Grocery would have been blown out of the water long ago in this more competitive environment.

Part of the issue is demographic change. Although the article claims that Westside Grocery stopped selling meat and pork chops in the 90’s because “too few could afford them,” a Google search shows no shortage of places to buy meat, but they tend to have names such as La Fiesta Meat Market. A reviewer on Yelp explains the place this way:

This is a small town and you can have a great dinner, send money to South America, and get your groceries in the same place. They sell most ingredients, including meats and produce, necessary for Mexican cuisine and it really improves the quality of their restaurant. Their food is exemplary of good home-style Mexican and they never skimp on portions. Since they don’t have to go out to buy their ingredients from elsewhere, their prices are also really awesome. Just beware, go there after Sunday mass and you’ll be waiting for a long time.

Google butchers in nearby towns and you see names such as Carniceria Y Taqueria, Michuacana Meat Market and Estrella Meat Market.

Another part of the problem is that Mendota is not an island. When Westside Grocery decided not to invest in its gas tanks, that just meant that people sought gas elsewhere. If it declines to sell meat, that just drives customers away. If its reaction to low sales of beer — insufficient to justify the electric in the cooler — is to pull the plug, people will seek beer elsewhere. It seems to have never occurred to the New York Times author, but isn’t it more likely that instead of saying this store was killed by high unemployment, we say this store died because it no longer served its community very well? Its customers probably all use gas, eat meat, drink milk and beer… once the store made its customers go somewhere else for all those products, wasn’t it highly likely they would buy a lot of other items while getting all these products?

Perhaps the business lesson is that we are reminded of the limits to cost-cutting to stay in business. It kept them alive for a while but, in the end, they either needed to innovate — say by remerchandising their fresh foods offer — years ago to appeal to specific ethnic groups then spending money in town. There is a New York area retailer named Western Beef that opened an outlet in swanky Boca Raton. Yet when we went into its butcher area, we saw a freshly slaughtered goat. That is targeted marketing and has made it a success.

Alternatively, the store needed investment. Safeway and Kroger compete with ethnic merchandisers by building bigger, better located stores than the ethnic operators can manage.

We think the situation in the Central Valley is a Californian and American tragedy. That a state with such natural advantages has managed things so as to create a truly depressed area is a shame. 

Its causes are complicated, with immigration and water policies, excessive regulation and inadequate public institutions, but even in the worst of situations, individual retailers can and do thrive. To blame the closing of this store on high unemployment is to ignore the contributions of the entrepreneur. 

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