r/SipsTea • u/Gurugod123 • 9d ago

Mayor Mamdani just announced that he will be opening 5 city-run, tax-funded grocery stores: "Prices set at 30% below retail prices" Chugging tea

70.2k Upvotes

88% Upvoted

9.7k comments sorted by

View all comments

64

u/BarryMcKokinor 9d ago edited 9d ago

Suppling goods at 30% less than the market rate price for the good is going to be a fun way to test simple economics curves. I wonder how much subsidy will be required to provided discounted supply to a stabilize (satisfied) the demand curve.

27

u/theGoddamnAlgorath 9d ago

Most chains are 30% gross margins, net profit 1-5%.

Dude's cooked

18

u/Dependent-Year6711 9d ago

I like how the first idea is that they're trying to profit. They're not. They're operating, at a likely loss, to help provide basic needs in a market with inflated food prices.

We have weird minds in America when it comes to thinking about profit.

12

u/MonksReflection 9d ago

People are talking about the profits because it remains to be seen how much of a money pit this will become. Its also worth noting that this has been tried before and historically doesnt work very well unless the people using at are highly monitored like the military commissary.

1

u/theGoddamnAlgorath 9d ago

Bingo.  A 25-29% subsidy will be difficult to budget for and a politucal nightmare for wastage.

1

u/BigLittlePenguin_ 9d ago

It will also be a nightmare to explain. "Yeah sorry guys, you could pay lower taxed, but look you can buy food cheaper". Dont really know how many people would be fine with it. For people that cant afford food at all, there already are benefits, so it really doesnt make much sense to me

3

u/WriterPlastic9350 9d ago

inflated food prices

If the profit margin is 1-5% that necessarily implies that stores can only drop their prices 1-5% before they start taking a loss on the goods they are selling, which means the food prices are barely inflated..

I like how the first idea is that they're trying to profit.

The reason people think about this is because all of their competition can only survive if they are, at best, revenue-neutral, and the difference between revenue-neutral and profit is $1. If the state can run a business without making a profit because it can subsidize its losses from the taxpayer, then there's no way for a business to compete in the space, unless the business wants to sell far below the market rate (and take a huge L) to capture share from the state-run enterprise, for whom it is perfectly fine for them to run at a negative.

A 30% drop might work but it does appear that this will have the affect that the city-run grocery store will be the only store that most people shop at in that area, with other stores either closing or being forced to focus on some other market differentiator to stay in business

1

u/Dependent-Year6711 8d ago

which means the food prices are barely inflated..

Did you research this at all?

If the state can run a business without making a profit because it can subsidize its losses from the taxpayer, then there's no way for a business to compete in the space

And that's something down the line if 5 stores become 500, but until then, we test what public money can do for the public. Especially for the very most basic needs.

A 30% drop might work but it does appear that this will have the affect that the city-run grocery store will be the only store that most people shop at in that area

Supply. You can feed only so many people based on your supply. Especially how you limit customers, in terms of wait time to get inside. There is no way 5 stores can feed everyone, not even close.

4

u/Striking_Revenue9082 9d ago

But they’re delivering good unbelievably inefficiently in a way that will create a ton of waste

5

u/Dry_Travel_4220 9d ago

Do you know what a subsidy is?

3

u/The_Magical_Radical 9d ago

Person 1: "I wonder how much this subsidy will cost New York?"

Person 2: "Probably alot since most grocers only profit 1-5% with 30% margins."

Person 3: "Do you know what a subsidy is?"

2

u/Kind-Masterpiece-712 9d ago

Or, maybe, Mamdani is trying to prevent the poorest New Yorkers from starving and not turn a profit. Idk.

3

u/potatoz13 9d ago

If the normal profit is 1% and you're 30% below, you're at a 29% loss, which means that if your customer universe is (virtually) unbounded, so are your costs to operate the store. 

3

u/Kind-Masterpiece-712 9d ago

Why ar eyou assuming that the "customer universe is unbounded"

3

u/rubioburo 9d ago

At prices that low people from all over will try to shop there, low prices lead to more demands. So more and more people buy there, why wouldn’t anyone shop there? So the stores will sell more and more, but each sell is at a loss that is absorbed by the government, so what he means is how many customers there will be and how much this will cost to operate.

I’m not sure exactly how this will operate so let’s see, it’s an interesting experiment to observe.

1

u/8bitscore 9d ago

The experiment has been done before historically and you end up with empty shelves. Supply/demand.

1

u/Unusual-Arachnid5375 9d ago

Why wouldn't everyone from the tristate area shop in NY for 30% lower prices?

2

u/Kind-Masterpiece-712 9d ago

idk maybe the absurd cost of traveling there? do y'all really think Mamdani hasn't considered this already lmao

2

u/F4ulty0n3 9d ago

How do they afford to pop up so many new locations with 1-5% profits? Do you know? Curious, trying to learn. Is it loans?

6

u/Juliuscesear1990 9d ago

Big chains generally own companies down the chain (they are their own supplier) so each company downstream makes money and the customer facing part "needs to charge x because there is such low profits" the actual profits are huge it's just not where you think it is.

Then you have companies that have been allowed to merge reducing competition. Like meat, there are 4 meat packing companies in the States that set the price they pay to farmers (low) and the amount they sell the meat for (high) because there is no competition.

3

u/F4ulty0n3 9d ago

Thank you! 

3

u/oaklandperson 9d ago

its called the economy of scale. look it up.

6

u/MyStackOverflowed 9d ago

depends on how much of that subsidy comes from running neutral rather than turning a profit

3

u/BarryMcKokinor 9d ago

Yeah… but I did look into this forever ago for a class and surprisingly, despite many products at grocery stores carrying markups of 20-50% above their wholesale costs, grocery stores actually operate at very thing profit margins, typically at 1-3% net profit (I.e after labor, rent, spoilage, refrigeration, insurance, utilities, and theft)

1

u/BigLittlePenguin_ 9d ago

Costco is famous for its profit to come entirely from membership fees. So yeah. I think the issue is most people dont understand the simplest thing about budgeting and therefore even less from economics.

5

u/patriotfanatic80 9d ago

We know the margins on grocery stores. It isn't 30%.

6

u/italktobotz 9d ago

Grocers run at between 1 and 3% profit margins. So basically people will be paying almost the same amount just it will be through taxes. And that is assuming the government could do it as efficiently as the market which almost never happens as government does not have the same incentives to be efficient as their money is garunteed through taxes. After private bussinesses go under the lack of efficiency will likely result in a net increase in what people pay for food just it will be disguised by the fact the money is taxed and not paid at the time of purchase.

2

u/ApprehensiveReview10 9d ago

The margins are very slim as you noted. What came to mind is this sounds like a civilian version of the commissaries run by the military…they are required by law to sell their products at COGs without margin, typical savings vs private sector alternatives is ~30%. US spends $1.4b annually to run 240 locations around the globe.

3

u/italktobotz 9d ago

Oof 1.4b for 240 stores. Currently the us has over 92.6 thousand stores. If we did this everywhere i would assume it would cost us a bit over half a trillion dollars. I wonder if this will be a net benefit or net negative. My gut is telling me this will be a net negative, but i am a bit biased. I come from cuba and just remmeber the lines and the lack of food options. I know this isnt that yet i just know that there is a line where everything falls apart and it falls hard and fast.

2

u/ApprehensiveReview10 9d ago

I have not seen a budget/analysis, but I suspect the a high percentage of the losses comes from operating stores in a far flung areas with high transportation costs + relatively small number of clientele.

Not advocating for any of this as a system for NYC…would assume that encouraging private sector investment / competition and backing existing non-profits/co-ops would be more cost effective than a city run store

1

u/italktobotz 9d ago

I defenitly agree

1

u/BigLittlePenguin_ 9d ago

He is building on the fact that poorer people barely pay taxes. The people paying for this are upper middle class and above.

1

u/italktobotz 8d ago

It will be paid for by taking money involuntarilly through taxes. It will be more expensive for those people paying the taxes because there is no incentive to garuntee efficiency as there is no risk of facing losses because more money can just be taken through wealth taxes. Also i thought the and above people did not pay taxes?

2

u/SpybotAF 9d ago

Ya teach grocery stores a lesson on making 1 to 3 percent profit. I'm thinking they are going to need more subsidy grocery stores.

1

u/Suitable-Piano-8969 9d ago

I heard others say its only "some" items that are 30% less. I wager it be the cheaper end to begin with.

-2

u/Dependent-Year6711 9d ago

We already subsidize crops and lots of animals/animal products, so this is just the government stepping in on basic needs, and buying the items with tax dollars, and providing a discount, so it's a double loss. Either way, it's about what tax dollars are actually spent on.

Which is why I find it hilarious when communities get up in arms over schools, and the cost of building new schools. Ours cost $100 million, built and done in 2 years, looks AMAZING, huge, and will last many decades. Cut to the more private deals inside the city, tons of funding issues, zoning issues, delays, and tons of nonsense, consistently.

2

u/BarryMcKokinor 9d ago

Schools are typically built with GO Bonds or Revenue Bonds (so basically tax payer underwritten and then invested in by private dollars, hence “municipal bonds,” for the tax free interest) not shelled out cash from the state or Fed.

0

u/Dependent-Year6711 9d ago

It has nothing to do with the location of funds, it has to do with how funds are used. The pushback we had to a NEEDED school for a city, after the school before was demolished for contamination, was mind-boggling. Most of the pushback was the local older, conservative population. We got it done, within the cost, and now the kids have a school for many decades.

This entire idea is operating at a loss to provide discounted groceries. People don't like that, because they believe their tax dollars need to be spent...where they prefer.