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State & City Help fund competition for existing grocery store

April 11, 2008 Downtown, Local Business, Politics/Policy 27 Comments

Last month Mayor Slay made an announcement many had been expecting:

Schnucks will build downtown’s first full-service grocery store, a 20,800 sf urbanized version, in the Missouri Development Finance Board’s Ninth Street Garage at 9th and Olive Streets.

I guess I am not clear how mayor Slay defines “full-service.” City Grocers opened in October 2004 and offers this downtown resident everything I expect from a grocery store. Of course, I don’t expect to fill a prescription at a grocery store. Nor do I expect to get mylar balloons & florals from a grocery store. I expect groceries.
The Mayor continues:

This is an important step forward for downtown. I can’t tell you how many times people have asked me why downtown doesn’t have a supermarket, and where downtown residents shop. Now we have a great answer to both those questions — we will have a Schnucks downtown later this year or early next year, and downtown residents will shop at it.

And what exactly has the Mayor told all these many people asking about where to shop ? Hopefully City Grocers.

The business journal had more:

It will cost $7.56 million for Schnuck Markets Inc. to build out, stock and open downtown St. Louis’ first full-service grocery store. But the family-owned supermarket chain is getting help.

Lots of help — from tax payers of course.

Schnucks will pay $3.42 million necessary for tenant improvements, inventory and other opening expenses at the downtown location, at Ninth and Olive streets, according to state finance board documents. The remaining money will come from a combination of state, federal and city subsidies.

“If we didn’t have the public support, it wouldn’t be a viable project,” said Scott Schnuck, chief executive of Schnuck Markets. “We’re starting with a space that wasn’t designed for a grocery store.” The location will require a leveled floor, extensive wiring and other improvements, he said.

Not designed for a grocery store? Who’s fault is that? Schnuck’s development arm DESCO was involved in building the garage. And in razing the National register listed Century Building. And in suing two downtown property owners who believed a parking garage facing the Old Post Office would be a detriment to downtown.

Does this mean they could not lease the space to anyone else?

Back to the article:

The grocery chain will receive $1.1 million in state funds from the Missouri Development Finance Board (MDFB), $1.29 million in proceeds through the federal New Markets Tax Credits program and $1.75 million from the city of St. Louis through a development agreement that will operate like a tax increment finance (TIF) plan, according to a resolution approved March 18 by the state finance board. The city’s Board of Aldermen approved the development agreement March 14 and has sent its bill to Mayor Francis Slay for his signature.

So tax dollars are now being used to buy inventory??? Inventory that will be sold for profit! WTF?  Meanwhile we have a grocery store already — just not one that is heavily subsidized.  Granted prices will likely be less at this new Schnucks compared to City Grocers.  So we are helping buy food for downtown loft dwellers.

Do we really want the state and city government handing out favors to help one business at the risk of harming another?  What message does this send to someone looking to start a small business in the city?  That once you’ve taken a huge financial risk and proven the market does exist we will swoop in and give favors to our wealthy buddies so they can steal your customers!
From the same article on the new store; “it will have a pharmacy — something that’s been missing downtown since Walgreens left a few years back.“  Walgreens, ironically was located in the very same spot — on the ground level of the Century.  Walgreens was booted out so the building could be razed for a parking structure.

It will be nice to see a new Schnucks without a massive treeless surface parking lot out front.

 

Currently there are "27 comments" on this Article:

  1. Tom Shrout says:

    Steve,

    My man. You must be on the mend!

    Tom

     
  2. Craig says:

    “Do we really want the state and city government handing out favors to help one business at the risk of harming another?”

    You seem to be fine with historic tax credits (government handouts) being made to loft developers at the expense of other developers who don’t own “historic” real estate.

    [slp — using tax credits to serve the greater good of revitalizing a historic area makes sense and doesn’t compete with development elsewhere.  Expecting one developer to rehab a building with no incentives and then giving credits to the project next door would be wrong and the equal of what is happening here.  The question is what is the return on each dollar of investment and what are the market conditions.  My building, for example, was done without tax abatement so we all pay full real estate taxes.]  

     
  3. Margie says:

    This Schnucks project has everything that is wrong with St. Louis all in one ugly package — wrapped up in a barbed-wire bow of favoritism and subsidies.
    .
    How much private money has Craig Heller sunk into City Grocers, how much personal risk has he taken on, only to watch this go down across the street? And to have the Mayor say the above is like hearing Bush say the Irag surge is “brilliant.”
    .
    All that’s missing now is the award they’ll be giving Schnuck for saving downtown. I just threw up a little in my mouth typing that.
    .
    (But yes, Steve, you sound fully yourself! Keep up the sass, brother!)

     
  4. Craig says:

    Margie, how much public money did Heller effectively take by using historic tax credits and tax abatement on those lofts he built? Millions. In fact, Heller and Co. received a $8.4 million TIF from the city to develop the Syndicate which was to be home to his new grocery store. Is that favoritism as well? You conveniently forgot to mention that. And that is why Heller can’t complain too much; he’s taken his fair share of handouts. You don’t make any sense.

    [slp — a TIF to rehab a building that might not otherwise get done is different than using tax dollars to stock shelves to compete with an existing store.] 

     
  5. Craig says:

    Steve, didn’t the Bell Lofts project (current home of City Grocers) also use some forms of public financing/tax credits. It sure did. A $2.6 million TIF plus state and federal tax credits.

    [slp — yes every historic building downtown has inventives in the real estate — quite different than tenant build out and inventory.] 

     
  6. tree hugger says:

    Schnucks had a store on 10th and Cass. Sold it to Paul Mckee

    [slp — I recall shopping at that store back in the early 1990’s when I lived in Old North.] 

     
  7. Curtis says:

    I agree with Steve. Historic tax credits make more sense in an area that needs redevelopment. Those credits are available to ANYONE who can make a poject work. Here, the government is hand picking their own special interest to funnel money to.

    As Steve has said many times, it comes down to zoning. With proper zoning ordinance in place and general tax incentives available to anyone who takes on a property we would still get the desired development. To subvert that and have a government feel it’s their job to decide what businesses get what money to build where is just stupid and a waste of time and effort.

     
  8. Craig says:

    Steve, even the part of the article that you quoted says that SCHNUCKS is paying for the tenant build-out and inventory.

    Come on. There is no difference between what Heller got and what Schnucks got other than Heller got his first.

     
  9. godoggo says:

    I admire Craig Heller and think he is the gutsiest developer in town; however, City Grocers business did receive other financial support other than that based on historic tax credits, including support from the Empowerment Zone and TIF financing based upon the projected income from City Grocers. If the argument is that we should not be subsidizing business development, then we have to be honest and oppose all of the uses of TIF and other funds (New Market) that are supporting physical redevelopment projects that we happen to like (like loft development). For all that it does well, there are some things that City Grocers does not do well and that another store might do better.

    As a store, employer and all around corporate citizen, I think Schnucks and its family management sucks; however, just because there is an existing food market downtown does not mean that the city should not invest its resources to develop others. Would we make the same arguement for other types of businesses, like restaurants–or loft developments even? You don’t need to fully buy into the notion of the benefits of competition to recognize that downtown can exist with two food markets.

     
  10. josh wiese says:

    Obviously no one took note of the one defining word from Mayor Slay’s statement – “Supermarket” This will be the defining arguement when City Grocers closes. They werent a full service “supermarket” but rather a grocer a bodega if you will.

    Subtle but smooth.

    The perception that downtown is not viable until we have a supermarket is now moot. They are putting together a piece of the puzzle that has scared away too many people for too long. While I hate to see what will likely happen to city grocer the reality is they are making the downtown area more accessable to the type of people they want moving downtown. I dont necessarily agree with that approach but it is one way to do it.

     
  11. scott o says:

    maybe city grocer’s will be fine? Aren’t they expanding as well? The Hanley area has a minimum of four “supermarkets” and at least six if you include the Schnuks on Clayton and the Aldi on Manchester.

    Perhaps this is a chance for City Grocer’s to differentiate themselves with better prepared foods and fresher – more local produce – two things that Schnuck’s isn’t very good at. City Grocers’s can take the top 1/3rd of the market and Schnuck’s can take the bottom 2/3rds… here’s hoping.

    Also – perhaps having more services concentrated there will encourage people to move in.. and draw shoppers from a few mile radius around downtown… and hence benefit city grocers…

     
  12. Matt says:

    Yet another example of the city using suburban tactics to compete with suburbs.

    If only we can bring in a large chain grocery store with all the features of a Swiss Army knife, then we have successful economic development! If only we could subsidize name brands at the expense of smaller independents, we could make headlines and champion downtown “economic development” all over the Post-Dispatch and the Business Journal!

    The nature of competition in a globalizing economy almost precludes sound, urban-scaled development. Slay and crew believe that headline-grabbers are the only way to go to attract more investment and a better urban environment. They were pathologically convinced of the Old Post Office’s need for adjacent parking–but the Schnucks announcement seems to put things in perspective. Why else would Slay so adamantly demand the demise of the Century Building–why, to supply downtown with a rehabbed OPO and a Schnucks of course!

    Slay really needs to quit talking to Dooley and the County folks and realize that St. Louis needs to prove ITSELF worthy, not prove to the County that its full embrace of strip centers and huge shopping centers complete with chain store after chain store might just work in the City as well.

    St. Louis can prove itself as a city by behaving like one.

    The city is largely one without much of any retail services. There are restaurants and coffeeshops aplenty, but if you’re looking for groceries, books, music, electronics, cards, gifts, etc., you have scant options for keeping your cash in the local economy.

    Yes, Schnucks is technically local, but their stores lack any personality or local flavor. Even the Trader Joe’s in Brentwood painted a mural of St. Louis on its wall.

    This Schnuck’s deal is a bad precedent. If the Century had never been demolished and if Schnucks were choosing a different location (say, on Tucker, which is screaming for pedestrian traffic and activity, as well as MAJOR facade improvement program) without subsidies, I would see this as a major sign of downtown’s health.

    But how should I feel about downtown knowing that with its supposed 10,000 residents (Downtown St. Louis Partnership figures, correct?), a grocery store cannot succeed without TIF-like assistance?

    Hmm…

    As I read on one blog regarding the closing of Dierdorf and Harts–“what about that downtown renaissance?”

     
  13. urbanian says:

    This is an outrage …as usual.

    I’m a capitalist (with very little capital) who believes that if the market won’t bear its own weight, it doesn’t need to be in business.

    I know this is a very unpopular view, but since I only go downtown for business at city hall, the vibrancy of a downtown night life is irrelevant to me. If STL had a “Michigan Ave”, I still would have little interest in going downtown. I know it’s “cool”, and “cool” is popular, but it adds no value to my life. I feel no need to have a vested interest, and resent MY tax dollars going to the benefit of so FEW.

    I’m delighted to see the redevelopment of downtown. I’m delighted to see positive growth anywhere in the city, but not at MY expense. Actually I am heavily invested in my near-southside neighborhood, and plan to see a payoff some day, but I didn’t go to City Hall with my palms out.

    I’m incensed.

     
  14. Craig says:

    Urbanian, if you are a capitalist with very little capital and are upset by the handouts our city, state, and federal governments are making to benefit others, here is a way to go about making some money. Get some friends together and start buying cheap property on the near north side ala McKee. If a white southsider runs against Slay this year, he’s going to have to get a little help from the north side and the money/public financing will start flowing. Even if he gets elected, his viability will depend on what he gets done up there. Get in on the ground floor, Urbanian. Buy north.

     
  15. Jim Zavist says:

    This isn’t a precedent, it’s just more of the same. The problem isn’t zoning, the problem is direct taxpayer incentives funding over half of the opening costs. I don’t have a problem with Schnuck’s deciding to open downtown, nor do I think City Grovers should be protected from competition just because the were the contemporary trailblazer. My problem, much like Steve’s, is giving one business a lot more than other businesses that are just a valuable, contributing or “good”.

     
  16. thoughts from south grand says:

    Schnucks and Dierbergs have always had their backs turned on the City of St. Louis. The few stores that Schnucks has open in the City are redheaded stepchildren, except Schnucks on the Hill and Hampton Avenue and a few others. Compare the inventory and upkeep of “my” Schuncks at Grand and Gravois to that of the Schnucks on Clayton Road in DeMun. There is not comparison, and it is not because of the clientele. The Gravois Schuncks is an understocked, understaffed dump.

    Now Schuncks wants to get into the game when it is clear that downtown is the future, and is happening now. I think the City of St. Louis should have turned their backs on Schnucks, and considered supporting and expansion of City Grocers, a local startup, or a large out of town grocer.

     
  17. Craig says:

    Hey, thoughts from southgrand, you said you wanted to see the city support an expansion of City Grocers. Guess what? It did. It helped finance the Syndicate Building where the new City Grocers was going to open.

    In the alternative you said that the city should have supported a local startup. The grocery industry is insanely competitive. I don’t think there are many people looking to startup a major grocery store. The track record of City Grocers shows that it is next to impossible to compete with the big boys.

    Your next alternative is to invite an out of town chain to open a store. I would have loved to see what you would have said if, god forbid, a Wal*Mart opened downtown.

    The bottom line is that the city needed this deal a lot more than Schnucks. The city had about zero leverage. If you want to think critically about development, you need to get out of your Sim City fantasyland.

    [slp — by your logic every tenant in a building that was rehabbed using tax incentives is getting susidized even if they pay for their own tenant finishes and inventory.  So that would include the St. Louis Business Journal, Pasta House and so on.] 

     
  18. theotherguy says:

    Pet Peeve about groceries, Across from the old City Hospital tax incentives are being given to subsidize a Supervalu, which is a somewhat upscale chain, I think. There is Vincent’s in Soulard, a small grocer with meat and produce, not that great quality on either, but you can get most things you would need in a pinch. Supervalu gets the subsidy, Vincent’s left to make it in the marketplace. Not fair, not right. If you need a full-full service grocer, Steve’s least favorite place, Loughborough Commons, is about ten minutes down 55.

    Where’s my subsidy?

    [slp before my stroke I could walk to City Grocers from my loft in 10 minutes   I could also scoot to Straub’s in 10 minutes time, passing a Schnucks in the process.   In 15 minutes or less I could be at local harvest.  I could even get to Vincents in good time.]

     
  19. Craig says:

    [slp — by your logic every tenant in a building that was rehabbed using tax incentives is getting susidized even if they pay for their own tenant finishes and inventory. So that would include the St. Louis Business Journal, Pasta House and so on.]

    That’s disingenuous. Loftworks got TIF to construct the Bell Lofts and built out a grocery store space which it leased to City Grocers, a company owned, in part, by Heller.

    The same process was “going down” with the Syndicate building until the new City Grocers project was scuttled.

    Those are absolute facts. If you go back and read the press releases from those projects, you’ll see that Heller had his groceried planned from day one and could build out spaced to accomodate them with the financing he had.

    No so with DESCO. The financing that DESCO got to do the “garage” was nowhere near enough to do a grocery store build-out. If DESCO would have acquired more funding to do the grocery build-out for Schnucks 6 years ago, would that have been any different than what Heller did? No.

    [slp — Show me where Heller got tax payer help with deli cases, store shelving, cash registers and initial inventory.  But say you are correct — that would make giving incentives to a competing store rather foolish and poor fiscal policy.  ] 

     
  20. Jim Zavist says:

    “But say you are correct — that would make giving incentives to a competing store rather foolish and poor fiscal policy.”  But it would be more “fair” than giving it to just one store, or worse, picking and choosing, based on political connections.  Unfortunately, by extension, common local practice now seems to be that we need to give it to every new store or business.  That is simply not a sustainable fiscal policy.
    .
    The simple reality is that the business world is not “fair”.  It’s a cut-throat, Darwinian world.  A successful retailer buys low and sells high – makes a profit.  You can’t have a small loss on every sale and make it up on volume.  Retailers open where they think they can make money, and making money includes paying the overhead (rent, salaries, inventory, benefits, taxes, etc.).  And if you guess wrong, or the market or styles change, you lose money and likely go out of business.
    .
    Incentives can help the equation “pencil out” and convince individual retailers that they have a better chance of making money in a specific location or area.  But they need to be used sparingly and judiciously.  Taxes are socialism.  You’re taking money from your citizens, including existing businesses, and with incentives, you’re giving it to competitors.  If the net result is that you attract more shoppers and everyone sees increased sales, it’s a “win” and a wise use of tax dollars – both the new business and the existing business are generating more in taxes than before.
    .
    The deal here doesn’t pass the smell test.  “‘If we didn’t have the public support, it wouldn’t be a viable project,’ said Scott Schnuck, chief executive of Schnuck Markets.  ‘We’re starting with a space that wasn’t designed for a grocery store.’  The location will require a leveled floor, extensive wiring and other improvements, he said.”  Well, duh, very few spaces are designed for a specific tenant before they’re leased.  The vast majority of Schnuck’s are built on bare ground in suburban locations.  They require some expensive basics like walls and a roof, that are already in place here.  Yes, this space will require an investment by the tenant – it’s the cost of doing business!
    .
    Yes, a supermarket downtown would be a wonderful amenity, for both existing and future residents.  So, as you point out, would be a pharmacy.  Do we now give an incentive package to Walgreen’s?  CVS?  The Medicine Shop?  How about Trader Joe’s?  Whole Foods?  Aldi’s?  Shop and Save? Dierberg’s?  If it makes sense, trust me, they will all figure out a way to be there.  In the meantime, the city is sticking it to its taxpayers (both business and residential) in 20+ other wards to play in a world where they have little expertise and apparently no way of tracking relative success or failure – in the end, the only guaranteed winners will be the businesses receiving the incentives!

    [slp — Incentives should used to help out when the natural market doesn’t do what we want it to do.  In 2004 City Grocers opened and filled a void in the grocery market.  Once this Schnucks with pharmacy opens we won’t need to give any incentives to a Walgreens or similar as we will already have a pharmacy.   Unless we decide we want a 24-hour store in the downtown mix.  The line must be drawn somewhere — we must as communities decide what we want and then how much we are willing to pay to get it.  But now we are paying to get a second grocery store because nobody else wants to lease space in the garage.  Why not a third store?  And a forth?]

     
  21. Josh says:

    So what the hell did City Grocer’s do to piss off the Mayor? And how long has the Shncuck’s “family” been going down on him?

    This is kind of horse shit is so disgusting to me. Schnuck’s didn’t have the balls to stick with downtown themselves, so they let some brave entrepreneurs who actually gave a fuck about downtown pour their heart, time, and money into a project to set the groundwork. That’s great, let the little guy take the risk for you so you can harvest the rewards of their hard work.

    If Schnucks gave a damn about neighborhoods and cities and revitalization they’d open their grocery store on the other side of downtown, where they new development was needed, or maybe closer to Grand.

    I seriously hope none of you downtown residents shop there once they open. A successful Schnuck’s downtown will destroy the possibility for a diverse, convenient and thriving downtown of independent retailers and service providers. No one is going to take the risk and open an independent bread shop, meat market, or produce stand, etc if Schnuck’s is successful. I hate these kind of corporate fuck bags. God damn it, I haven’t been this pissed off in a while.

     
  22. Craig says:

    Josh, here’s what Craig Heller, one of the owners of City Grocers, did to the Mayor. When the Mayor got a group of developers, lenders and tenants together to rehab the Old Post Office, a huge, huge project, Heller came in at the last minute with an alternate “plan,” lacking proper funding and paperwork, designed to break the Mayor’s plan to pieces and kill the development as it was planned.

    Heller bowed out eventually after he was promised other opportunities by the city (he got a profitable opportunity when he “won” the bid for the Syndicate from the city).

    By the way, the Schnucks family does “give a fuck” about downtown. DESCO was among the coalition that stepped up to rehab the Old Post Office.

    Heller is hardly the little guy he is being made out to be.

    [slp — allow me to translate — after the mayors office back a closed deal with the feds and others on the old post office they threw the Century into the picture.  Heller and others made a last ditch effort to put together a viable rehab plan for the Century which would have meant workers at the old post office might not get an adjacent garage and have to actually walk a block or two or perhaps take mass transit.  DESCO cared enough to get a share of the millions of dollars in development fees for razing the historic structure and building a parking garage facing the old post office even though the officially adopted downtown plan was clear that no garage should face the post office.]

     
  23. Jim Zavist says:

    10% subsidy? Might be a good idea. 25%? Sounds excessive. >50%? (7.56 – 3.42 = $4.14 million!) There’s something fundamentally flawed with the underlying assumptions.
    .
    I really don’t care about the underlying politics – who did what to whom and/or who didn’t kiss whose you-know-what. I do care about fiscal prudence. We’re an older city with many needs, including many existing businesses, many small, some large, that may survive and continue to contribute, or may choose to move to greener pastures, or may just fail. Massive subsidies to any one business simply makes no sense. Whether it’s here or at BPV, if the business model is not sustainable, it will either a) require on-going public subsidies, over and above the initial “investment”, or b) it will fail, leaving us poorer and with more vacant space and dashed/unfulfilled dreams. Give us all a subsidy, thorugh lower taxes, and you’ll likely see more long-term success and interest in reinvesting in the city . . .

     
  24. thoughts from south grand says:

    Craig,

    Your mindset that “The City had about zero leverage” is foolish.

    For some reason the City management has this mindset and gets the short end of every deal that goes down.

     
  25. samizdat says:

    Ya’ know, it sounds like a classic case of “it’s not who know, it’s who you b…” Just more of the usual corruption down at City Hall. Craig Heller may put millions into his buildings, and has assisted mightily with the improvements downtown, but he’s an interloper compared to the “old money” of the Schnucks family. I don’t know why everyone is so surprised by any of this.

     
  26. Michael Allen says:

    There was nothing “last minute” about the plan for the Century and Syndicate Trust that Craig Heller, Kevin McGowan and Mansur Real Estate announced in 2002. Developers of that stature could easily have stayed on the sidelines and not said a word. They would not have come forward had they not thought the deal made sense financially. There is nothing obstructionist about developers offering an idea for a building sitting vacant and not being developed. That’s how all development starts. After all, that’s how DFC and DESCO got the Old Post Office project underway — they took the risk of offering their unsolicited vision. Nothing ventured, nothing gained — development is all about moxy.

    After the Heller/McGowan/Mansur plan was shut down — and there’s a bleak story — another plan by Restoration St. Louis came forward. Guess there were two “last minutes.” Demolition of the Century didn’t even commence until October 2004, so how could anyone have seen 2002 as the last minute?

     
  27. Craig says:

    Mr. Allen, I meant “last minute” in the sense that a deal was done before Heller/McGowan/Mansur came in and tried to alter it. It was meant in relation to the timing of the deal, not the actual demolition of the Century building. There is certainly something obstructionist about trying to alter a fundamental aspect of a development deal without consulting with the major players of such a deal.

    Certainly Heller’s group would have proceeded without proper financial backing, as many people believe they did. Why? To either gain enough political support to stop the project and/or to gain leverage for other developments (like the Syndicate).

     

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