Shopping carts

Suppose you managed a 9,000 square-foot, chain, grocery store in a fairly up-scale community and your gross profit margins were 3% on sales. You get complaints from customers about the lack of grocery carts so you order five more from "HQ" and you expect to get "dinged" for $100 each.

You are surprised when they are delivered by UPS instead of the normal supply truck but don't think anything of it until you see that HQ dinged you for $250 a cart. You call up your buddy, Nick, and ask him what the hell is going on.

He tells you that the additional cost was due to indirect operating overhead. Your request had to be processed and approved which consumed managerial man-hours. The people who approved it had lights and heat and rent allocated to their footprint. They also had wages and healthcare costs.

There was also the cost of the shipping, which was significant due to the bulky nature of what was shipped.

With a 3% profit margin, you have to sell $8000 worth of groceries to pay for the cart. If the average customer drops $100 at check-out, then that equates to 80 customers where you didn't make a dime.

Now do 1% profit margin

The cost, delivered, of the grocery carts stays the same but now you need 250 customers/cart before you start making money again.

Cutthroat environment

Every manager gets compared to the other managers in the store.

Every store gets compared to every other store as HQ looks for "leverage".

Base salaries for entry-level managers might be $40k/year with the possibility of doubling it with bonuses. Bonuses are handed out based on relative performance and the net profit per quarter and the direction it is heading in. You don't want to be the manager who is blamed for taking a store from a 1.0% profit margin to 0.7% net profit margin.

And then there are stores that lose money, every quarter

Consider large chains that have legacy outlets in areas filled with people who believe they are entitled.

***Random fact: The item with the highest loss-rate on a per-item basis in many stores are false eyelashes. "Customers" open up the packages and fish out two or four eyelashes, rendering the package unsalable.***

It takes very few "entitled" customers (i.e. thieves) to drive the outlet deeply into losses. The chain is on the horns of dilemma because they will be accused of Racism if the close the outlet and it is in a legacy city. They will be accused of the same if they raise per-unit prices to account for the higher "shrinkage" rates. They rarely act until they face a profitability crisis and their shareholders are demanding action.

City-run grocery stores

According to Zohran Mamdani, front-runner to be the next mayor of New York City, the answer is to have city-run grocery stores.

So, how does that work? Let's say a store is primarily staffed by part-time workers making $15 an hour and no benefits. Mamdani proposes replacing them with workers whose median wages in 2024 were $87k with another $25k of benefits on top of that.

Let's see: Losing money with$15/hour workers but going to flip right-side-up with employees making the equivalent of $65/hour. And we all know how customer-oriented most public-sector employees are.

And consider all the struggling families running the bodegas and convenience stores that they will be putting out of business. It is very tough to compete against entities that are bankrolled by City Hall.

And where will the funding for all of those new, gold-plated employees come from? I doubt that the current POTUS is willing to throw money at it. I don't think China will either. The only other options are to float bonds (which will raise interest rates on all of the existing bonds NYC rolls-over) or to raise taxes.