A shift in spending

September 22, 2008
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A 10 percent shift in consumer spending to locally owned enterprises would spark an additional 1,614 jobs and $53.3 million in wages, and reduce unemployment by 0.05 percent in Kent County, according to a study slated to be released this week.

Funded by a $36,000 Steelcase Foundation grant, the study was commissioned by Local First, a nonprofit group that promotes local business ownership, social equity and “environmental kinship.”

The study by research and planning firm Civic Economics argues that money spent with nonlocal entities leaves the community to create prosperity elsewhere.

“If you are making a purchase at a locally owned restaurant, more of the money stays here and recirculates, whether they are purchasing food grown by local farms, or spending their marketing by a local marketing company, or paying wages to employees that live in this community,” said Elissa Sangalli Hillary, Local First executive director.

The study looked at four business lines: pharmacies, grocery stores, full-service restaurants and banks. It measured local versus nonlocal market shares and the re-circulation of dollars spent with local businesses.

Pharmacies: Local and institutional pharmacies plus Meijer Inc. claim a 40 percent share of the $503.8 million market in Kent County, compared to national chains and grocery stores, the study showed. Some 17.2 percent of dollars spent at local pharmacies are re-circulated locally, compared to 9.7 percent for nonlocal pharmacies. Meijer was counted as a local entity because it is based in Grand Rapids and privately held.

Groceries: Local independent grocers, including Meijer, have a market edge over food stores that are nonlocal chains or owned by Spartan Stores Inc., which is publicly traded. The locals have 52.4 percent of the $1.3 billion Kent County market. Their recirculation rate is 23.7 percent, compared to 20.2 percent for nonlocals.

Restaurants: Full-service restaurants split the $433.6 million market nearly 50-50 between locally owned and chain restaurants. Franchises, even if owned by local residents, were counted as nonlocal, Hillary said. Local restaurants carry a recirculation rate of 56.1 percent, compared to 36.8 percent in chains.

Banking: Civic Economics was able to determine that 94 percent of Kent County banks are either nonlocal or are locally owned but publicly traded, with just 6 percent under local, private ownership, based on total bank deposits of $10.87 billion. Local banks lend locally, Local First founder and board President Guy Bazzani pointed out, while banks based elsewhere can take local deposits and hand them out as loans in other communities.

“All of this is important because it really is information that gives policy makers the ability to make wise decisions when we’re determining what sort of businesses we want to offer incentives to move into our communities,” Hillary added.

Bazzani said he thinks the study’s results prove that economic development tax enticements should favor local businesses.

“Local First does not mean local only. We think a mix is appropriate,” he said.

He said that the ultimate goal of the study is to change consumer spending patterns.

“If you go out to dinner 10 times a month, go one more time to a locally owned business and you can change the output by millions of dollars. That is the message,” said Bazzani, president and CEO of urban developer Bazzani Associates. “Just 10 percent, folks. That isn’t much in our daily lives.”

Pharmacist Suzanne Anthony, co-owner of Fulton Pharmacy with Sue Lake, said competition is always a factor, especially with the $4 and even free deals that her bigger competitors offer for some common prescriptions. But Fulton Pharmacy’s emphasis on customer service has helped it retain the neighborhood niche it has held for 80 years, Anthony said.

“It’s such an important message right now,” said Anthony, whose pharmacy participated in the Local First study. “The economy is not great. People are willing to support us if they realize their money stays in their area to a higher extent than with a big chain.”

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