A subsidy is not a saving. New York's municipal supermarkets prove it

A POLITICAL promise has been dressed up as a grocery list. New York City's mayor, Zohran Mamdani, has advanced a plan to open five city-owned supermarkets, one in each borough, offering a core basket of staples at prices roughly 30% below what private stores charge. The first store will open in the South Bronx in 2027; the second, in East Harlem, in 2029. The project is expected to cost taxpayers at least $70m to build. In the mayor's own words, grocery shopping will "no longer be an unsolvable equation."

The surface claim is simple: the government can sell food cheaper because it does not pay rent or property tax. The real question is more structural. A discount achieved by waiving costs that a private firm would bear is not a saving - it is a transfer. The city is not eliminating rent; it is paying it through the budget. The arithmetic is straightforward. If the stores lose money, as municipal grocers elsewhere have reliably done, taxpayers will make up the shortfall. New Yorkers who shop at private stores will subsidise New Yorkers who shop at public ones. That is not how price competition works. It is how a cross-subsidy does.

The incentive map is telling. Mr Mamdani campaigned on municipal supermarkets as a campaign promise and has moved to deliver one as a legacy project. For a politician, a ribbon-cutting is useful whether the underlying economics are coherent. For private operators, who the city has asked to run the stores, the offer is irresistible: no rent, no property tax, and a government backstop against losses. The city's Economic Development Corporation is seeking experienced private managers while providing the locations and covering overhead. It is a generous deal. The question is why private companies would need such generous terms to sell eggs and bread.

To be sure, food insecurity is real. About 1.5m New Yorkers lack reliable access to affordable food, according to the CUNY Urban Food Policy Institute, and nearly half of households with children are at risk. Food-at-home prices have risen roughly 33% since 2019, as the Bureau of Labour Statistics records, and continued to climb 2.7% in the year to June 2026. The mayor's administration says the discount would save the average family about $90 a month, or roughly $1,000 a year. These are not trivial numbers. But the diagnosis of hunger does not entail this particular cure.

The trouble is scale. New York City already has more than 1,000 grocery stores. Most residents live within walking distance of one that sells fresh food. Five additional stores, limited to a curated basket of staples, will not move the needle on citywide food prices. They will not force the system to reform. They will, however, cost the system money. The city's own officials have admitted the stores "might not have all the items" a typical supermarket carries. They will lack hot food counters and butchers. One social-media user called the concept a Trader Joe's, which was unintentionally accurate: a narrow-assortment discounter, but one funded by the municipal budget rather than by scale.

History is not encouraging. Municipal grocery stores have been tried before, in places with fewer private competitors and less competition for government attention. In Baldwin, Florida, the town's only grocery store closed in 2019; the city opened its own and shut it down in 2024 after five years of losing customers to a Walmart eight miles away. In Erie, Kansas, the city purchased its local store in 2020; it lost $132,000 in 2022 and had only one profitable month before being leased to a private operator in 2024. The Illinois Fresh Food Fund, launched in 2012 to subsidise grocery stores in underserved areas, opened six stores, four of which have since closed. Rise Community Market in Cairo, Illinois, averaged less than half the sales needed to break even in the first half of 2024, according to ProPublica. The common thread is simple economics: grocery stores operate on net profit margins of 1% to 3%. A business model that requires permanent subsidy to undercut competitors by 30% is not a competitive strategy. It is a perpetual fiscal drain.

The strongest defence of the plan is that food deserts are themselves a market failure. Private grocers abandon low-income neighbourhoods because the margins are too thin. The government's presence, on this view, corrects the failure. That argument has some force in rural America, where a single store may serve an entire county. It has less force in New York, where density is the default and bodegas, dollar stores, farmers' markets and chain supermarkets are already everywhere. The real issue in citywide food insecurity is not access to shelves; it is access to income. A $70m investment in five stores is a small sum in the context of the city's $124.7bn budget, which faces a projected $12bn structural deficit. It is a large sum for what it buys.

There are second-order effects, too. Adam Lehodey, a policy analyst at the Manhattan Institute, has warned that pricing goods significantly below market rates invites resale and short-selling arbitrage - people buying cheap staples to sell elsewhere at market prices. He is probably right. Artificially low prices attract volume that exceeds the store's inventory capacity. The result is not cheaper food for everyone; it is intermittent stock-outs for those who need it most. And nearby private grocers, particularly small immigrant-owned bodegas, may find themselves unable to compete on the subsidised items that draw foot traffic. The DSA co-chair Gustavo Gordillo's response - "maybe they shouldn't have been in that business in the first place" - is politically defiant but economically illiterate. Those bodegas serve functions a municipal store cannot: extended hours, credit for regulars, culturally specific products, and community trust. Displacing them with a narrow-assortment public discounter is not progress. It is gentrification by procurement.

A wiser policy would address the mechanisms that actually drive food costs and food insecurity. The first is wage levels: if low-income households earned more, they would buy more food without needing a municipal store. The second is competition among wholesalers and distributors, where real price-setting happens; the average New Yorker's grocery bill is set by the bargaining power of Kroger, Ahold Delhaize and their suppliers, not by the absence of a city-run store on the corner. The third is the tax structure itself: property-tax abatements for private grocers in underserved areas, or subsidies directed at existing stores that agree to cap staple prices, would reach more households at lower fiscal cost than building five new ones. The military commissary system, which offers prices 18-25% below private supermarkets, works because it serves a captive, bounded population with predictable demand and a dedicated appropriation. It is not a model for urban retail in a competitive market.

The deeper problem is not that Mr Mamdani wants cheaper food. It is that the plan confuses political theatre with economic mechanism. A municipal grocery store does not defeat the market; it opts out of it and asks taxpayers to pay the bill. The danger is not immediate collapse. It is slower: a constituency for permanent subsidy, a template for other cities to follow, and a slow drift toward treating ordinary retail as a public service. That path has been travelled before, in places far richer than Kansas and far less complicated than New York. It rarely ends well.

Better to subsidise incomes than to subsidise shelves.