- Email: [email protected]
Doing Well by Doing Good? A Supermarket Shuttle Feasibility Study
RESEARCH BRIEF
Doing Well by Doing Good? A Supermarket Shuttle Feasibility Study D I A N A C A S S A DY, D R PH; V I D H YA M O H A N , MBA Department of Epidemiology and Preventive Medicine, School of Medicine, University of California at Davis, Davis, California
INTRODUCTION
ABSTRACT
The social ecological model posits that the environment is an important influence on individual health behavior, including diet.1,2 However, changing the food environment is often outside the sphere of influence of most nutrition professionals. Instead, they must find innovative ways to persuade decision makers in government and the private sector to alter the ways in which food is processed, marketed, distributed, and sold. Supermarkets are central in creating a supportive neighborhood environment for healthful food choices. Compared with other food retailers, supermarkets offer a wide variety of healthful foods at lower prices.3 Furthermore, the majority of low-income consumers prefer shopping in supermarkets than in specialty stores or farmers’ markets.4 Transportation barriers are another important aspect of the food environment.This is particularly true for inner-city residents, who face the double bind of having lower rates of car ownership5 and fewer supermarkets per capita6 compared with their higher-income suburban counterparts. A portion of a family’s limited food budget may be diverted to taxi fare to acquire lower-priced food at a distant supermarket or be used inefficiently to purchase higher-priced foods sold at nearby smaller markets. A US Department of Agriculture survey revealed that 22% of food stamp recipients reported out-of-pocket expenses for transportation for food shopping and that the average cost per trip was $6.54.4 Organizations as diverse as the Food Marketing Institute,7 the National Academy of Sciences,8 and the Community Food Security Coalition9 have documented the success of supermarket-sponsored shuttle services in transporting “transit-dependent” customers who do not own a car.These agencies describe successful shuttle programs operated by supermarkets in low-income urban areas of New York, Newark, Charleston, Houston, and Los Angeles. The purpose here is to determine whether there is a financial incentive for supermarkets in low-income urban areas to implement a shuttle program.This line of research is an important first step toward influencing decision makers who directly control the neighborhood food environment.
Objective: Creating a more healthful food environment requires a new line of research that examines the impact of healthful changes on business’s bottom line.This study investigates whether supermarket-sponsored shuttles can be selfsupporting or make a profit in low-income urban areas. Design: 2000 Census data were used to identify zip codes in California with low income, low vehicle ownership, and high population density to identify potential markets for shuttle programs. The breakeven point was calculated for a hypothetical shuttle program operating in these zip codes. Main Outcome Measures: Breakeven point in the number of months of shuttle operation. Analysis: Breakeven analysis. Results: Sixty-seven zip codes met the criteria for inclusion in the study. A supermarket shuttle program would break even in most zip codes if 10% of households without a car used the shuttle. If 15% used the shuttle, shuttle programs in all zip codes would make a profit. Conclusions: A shuttle program could be self-supporting in all 67 zip codes. Implications: Those interested in changing the food environment to support a healthful diet could use this information to share with supermarket executives and other key decision makers. KEY WORDS: social ecological model, low income, policy, supermarkets ( J Nutr Educ Behav. 2004;36:67-70.)
This research was funded in part by California Nutrition Network contract number 01-15625.The author has no financial conflict of interest to declare. Address correspondence to: Diana Cassady, DrPH, Department of Epidemiology and Preventive Medicine, One Shields Ave TB-168, University of California, Davis, CA 95616.Tel: (530) 754-5550; Fax: (530) 752-3239; E-mail: [email protected]. ©2004 SOCIETY FOR NUTRITION EDUCATION
67
68
Cassady and Mohan/SUPERMARKET SHUTTLE FEASIBILITY STUDY
Specifically, we examine the feasibility of a sustainable, private sector solution to transportation barriers faced by innercity food shoppers. This article presents the results of a breakeven analysis to determine whether a company policy to provide a free ride home to customers is economically feasible in urban areas with a large number of transit-dependent residents.
STUDY PROCEDURES First, a literature search and qualitative interviews were conducted to determine the model used by existing shuttle programs. Because no relevant information was found in the public health or medical literature, reports by the grocery industry and advocacy organizations were the main source of background information. To augment the literature review, telephone and in-person interviews were conducted with 5 managers who supervised shuttle programs hosted by their supermarket. All of the supermarkets were part of a small chain except one. All of the shuttle programs identified in the literature and in interviews were located in low-income urban areas. It is worth noting that the shuttle program was a policy supported at the corporate level. But shuttle services were offered only at those markets within the chain that were perceived to have a high volume of transit-dependent customers. For instance, a shuttle program was offered in 3 of the 9 supermarkets in 1 chain. Managers perceived their primary customer base as those living near the market; therefore, markets located in low-income areas attempted to meet the needs of a large percentage of their customers who did not own a car. The interviews and literature search revealed that supermarkets organized their shuttle programs similarly. They reduced logistical problems by requiring customers to get to the supermarket on their own, and the supermarket shuttle provided a free ride home. Supermarkets used a passenger van to transport customers, sometimes requiring a minimum purchase and limiting the distance traveled to 5 miles from the store. Shuttle programs were implemented only in stores with a high percentage of walk-in customers and were initiated for a variety of reasons, including improving customer service and reduction of costs from loss of shopping carts. The primary difference in shuttle programs was that small chains operated their own shuttle program, using their own employees and fleet for the van service, whereas the corporate supermarket contracted the shuttle to a transportation firm. Supermarket managers reported that their customers who used the shuttle tended to be senior citizens or families without a car or in which the car was being used for transportation to work. Passenger demographics varied according to the demographics of the neighborhood. One manager reported that the shuttle served a majority of low-income senior citizens, whereas another store shuttle served primarily immigrant families.
The number of passengers who used the shuttle varied from 4% to 16% of transit-dependent households located in the supermarket’s zip code.The supermarket with the lowest percentage of passengers has one of the most successful shuttle programs and costs less than 1% of store revenues to maintain.8 It was not possible to determine whether these shuttle programs generated enough revenue to sustain the program or make a profit, primarily because financial information from private businesses is proprietary, and the grocery industry is highly competitive. Nevertheless, we assumed that the shuttle programs provided some financial benefit to the supermarket chains because all of the shuttle programs were well established. Next, a market analysis was conducted to identify areas in California in which a supermarket shuttle service had the greatest likelihood of success. Based on results from interviews and analysis of demographic data for zip codes surrounding supermarkets with shuttle programs, it became clear that neighborhoods with successful shuttle programs shared the following characteristics: low income, high population density, and high percentage of households without a vehicle. Demographic data from Summary File 3 of the 2000 Census were used to identify zip code tabulation areas (ZCTAs) in California with these characteristics.5 ZCTAs are geographic areas that closely follow borders of zip codes created by the US Postal Service. Low income was defined as a median household income equal to or less than 185% of the federal poverty level for a family of 4 ($33,485). A population of 20,000 or more was used as a proxy for population density. ZCTAs in the 90th percentile or greater for households not owning a vehicle were defined as transit dependent. Sixty-seven ZCTAs or zip codes met all 3 criteria. For each of these zip codes, the number of passengers for the hypothetical shuttle service was estimated at 5%, 10%, and 15% of households not owning a car. Finally, a breakeven analysis was conducted to determine whether a shuttle program would be financially feasible in each of the 67 target zip codes. A breakeven analysis is used in business to determine the point at which a project neither loses nor makes money. It also has been used to evaluate nutrition education and other public health programs.10,11 This breakeven analysis tested a specific type of shuttle program already proven successful by supermarkets in several cities. A supermarket-owned and -operated passenger van offers a free ride home to passengers who spend $25 or more on a purchase. Customers arrive at the store by their own means. The van operates daily for 11 hours, making trips every 45 minutes, and does not exceed a radius from the supermarket of 5 miles. A breakeven point analysis also was conducted for each zip code to determine the number of months before the shuttle becomes self-supporting.This analysis was conducted for 3 levels of market participation: 5%, 10%, and 15% of transit-dependent households. These cutoff points were based on findings from the formative research, which showed that successful shuttle programs were used by 4% to 16% of
Journal of Nutrition Education and Behavior Volume 36 Number 2
transit-dependent households in the supermarkets’ zip code. The breakeven formula we used is defined here: Annual fixed costs Breakeven point = Annual gross margin/Unit The annual fixed cost of the shuttle is $63,444, which includes the cost of a new 15-passenger van amortized over 3 years, the driver’s salary and benefits, insurance, gas, and maintenance.The gross margin for the supermarket industry is 26.4% and is the difference between the grocer’s cost for merchandise and its retail price.12 The gross margin was calculated at 26.4% of revenue from the shuttle. Shuttle revenue was calculated for each zip code at 5%, 10%, and 15% of the households not owning a car and assumed a weekly expenditure per household of $25. This is less than the $59 spent weekly on food at home by low-income households according to the Consumer Expenditure Survey,13 and so is a conservative estimate of what low-income families would spend each week on groceries.The unit is shuttle trips, which total 5,916 per year.
FINDINGS The study area of 67 zip codes included a total population of over 3 million.The average number of transit-dependent households in these zip codes was 3,611, with a range of 1,163 to 11,064.The prevalence of transit dependence in the study areas was 26.4% compared with 9.5% for California and 10.3% nationwide. The market analysis estimated the number of shuttle passengers at 5%, 10%, and 15% of the transit-dependent households (the target market). These cut points were based on findings from research on existing shuttle programs. The market analysis also estimated revenue from shuttle passengers, assuming a $25 weekly purchase. For instance, if a supermarket was able to persuade 5% of the transit-dependent households in its zip code to use the shuttle, the average number of passengers would be 181 each week, with a range of 58 to 553 passengers weekly. At 5% of the target market, the annual revenue from shuttle passengers would average $234,747, with a range of $75,595 to $719,160. At 10% of the target market, the number of passengers and revenue would double: weekly passengers would average 361, and annual revenue would average $469,494. The breakeven point analysis shows the mean number of months this particular model of supermarket shuttle service would take if 5%, 10%, or 15% of the transit-dependent households in each zip code used the shuttle. Because the formula is based on annual costs and annual revenues, the breakeven point must be 12 months or less.The results from the breakeven analysis show that shuttle programs in 45% of the zip codes would break even within 12 months if only 5% of transit-dependent households used the shuttle (breakeven point average = 15.77 months, SD = 8.33). The shuttle would break even in 85% of the zip codes if 10% of the tar-
March • April 2004
69
get market used the shuttle (breakeven point average = 7.88 months, SD = 4.16).The shuttle would break even in all zip codes if 15% of the target market used the shuttle (breakeven point average = 5.25 months, SD = 2.77). In 72% of those zip codes, the shuttle would break even in 6 months or less, meaning that the last 6 months of the year would produce a profit.
DISCUSSION Almost one quarter of a million households in the study area did not own a car, suggesting that there is a large market for transportation programs to supermarkets in densely populated, low-income urban areas. The breakeven analysis suggests that a shuttle service would not be feasible if only 5% of the transit-dependent households in the zip code used the shuttle. Supermarkets will have to play an active role in promoting the shuttle to secure a sufficient number of passengers. The results from this study show that a shuttle service would break even and, in many cases, earn a profit if it captured 10% or more of the target market.A 10% market share may be a reasonable expectation given the dearth of supermarkets and corresponding lack of competition in many low-income urban areas.6 This breakeven analysis is based on the assumptions that customers will use a new shuttle service and that they will make more healthful food choices if offered free transportation home.The success of ongoing shuttle programs in lowincome urban areas suggests that there is consumer demand for free transportation programs, but this should not be taken for granted.At least one shuttle program has failed owing to a lack of passengers. There is some research suggesting that the availability of supermarkets in the neighborhood14 and the availability of more healthful foods inside the supermarkets15 predict more healthful food choices (ie, more produce, leaner meats and dairy, and whole-grain breads). Customer demand and changes in food choices should be investigated as a next step in the research agenda on shuttle programs. The annual fixed costs for supermarket shuttle programs are not insignificant and may be a barrier for small chains and independent supermarkets. Nevertheless, shuttle service offers the potential for new revenue from transit-dependent customers. One supermarket discovered that per customer sales increased from $8 to $18 dollars after their shuttle began, although the management made other changes that could have accounted for this increase.9 In addition, cost savings from shopping cart loss and retrieval, estimated to be $20,000 to $67,000 annually for inner-city supermarkets, could contribute to the financial viability of a shuttle program.9 Publicly financed supermarket shuttle services are sometimes sponsored by government or nonprofit agencies such as senior centers and public housing complexes. Although valuable, these projects can be cancelled during a budget cri-
70
Cassady and Mohan/SUPERMARKET SHUTTLE FEASIBILITY STUDY
sis or a shift in political priorities; moreover, these shuttles do not run as frequently or provide door-to-door service compared with privately sponsored shuttles. There are several limitations of this study, including the use of a single zip code as the boundary for a supermarket catchment area. Supermarkets may draw on greater areas, and shoppers may not necessarily prefer to shop at the nearest supermarket. In addition, the fixed cost of the shuttle program may be greater because gasoline prices have risen beyond the $1.62 per gallon figure included in the analysis. Because the study area was limited to low-income urban areas in California, the study results may not be generalizable to other urban areas in the United States. Finally, we may have underestimated the number of passengers and amount of revenue by excluding households with only one car from the market analysis. While the family car is being used for transportation to work, other family members may use a shuttle to shop for groceries.
IMPLICATIONS FOR RESEARCH AND PRACTICE The next step in the research process should be to pilot-test a shuttle program to determine its impact on customers and on the supermarket sponsoring the shuttle program. Surveys with shuttle users could track changes in food insecurity, frequency of shopping, and purchases of perishables, including fresh produce. Evaluating the impact of a pilot project should also document changes at the store level, including changes in per customer transactions, changes in overall sales, and savings from shopping cart loss. Contracting out the van service should also be evaluated for feasibility. Preliminary research to determine customer needs and interests would help guarantee the success of a new shuttle program. Because shuttle programs are rare in the supermarket industry, these study results create an opportunity for practitioners to educate supermarket corporate executives and store managers about the business advantages of shuttle programs. Some executives may be persuaded by the potential health benefits to the community. However, the financial impact of the shuttle program will be the deciding factor. The breakeven analysis shows that the shuttle service could be self-supporting under certain conditions, so no outside financing would be required. It also may be possible to secure public funding for a shuttle program operated by a privately owned supermarket, as with the case of a community development corporation contributing toward a shuttle program run by a supermarket in Newark. Placing supermarkets in urban areas is difficult for reasons ranging from identifying a parcel large enough to accommodate a large market to zoning restrictions. Some cities have worked for more than 10 years to persuade a supermarket to locate in a needy area. Whenever supermarkets cannot be brought to customers, a viable alternative may be to bring the customers to the supermarket.
ACKNOWLEDGMENTS This research was funded in part by California Nutrition Network contract number 01-15625. The authors thank Andrew Fisher, Michael Hagerty, Marc Schenker, Amanda Shaffer, and Maria Stoecklin for comments on earlier versions of this article.
REFERENCES 1. McLeroy KR, Bibeau D, Steckler A, Glanz K.An ecological perspective on health promotion programs. Health Education Q. 1988;15:351-377. 2. French SA, Story M, Jeffery RW. Environmental influences on eating and physical activity. Annu Rev Public Health. 2001;22:309-335. 3. Kaufman PR, MacDonald JM, Lutz SM, Smallwood DM. Do the poor pay more for food? item selection and price differences affect lowincome household food costs. US Dept of Agriculture, Economic Research Service, Economic Report No. 759, November 1997. Available at: http://www.ers.usda.gov/publications/aer759/AER759.pdf. 4. Ohls JC, Ponza M, Moreno L, Zambrowski A, Cohen R. Food Stamp
5. 6.
7.
8.
9.
Participants’ Access to Food Retailers. Princeton, NJ: Mathematica Policy Research, Inc.; July 1999. US Census. Summary File 3. Morland K,Wing S, Diez Roux A, Poole C. Neighborhood characteristics associated with the location of food stores and food service places. Am J Prev Med. 2002;22:23-29. Urban Supermarkets. Washington, DC: Communications Department, Food Marketing Institute; 1998. http://www.fmi.org/forms/store/ ProductFormPublic/search?action=1&Product_productNumber= 1075. Numero Uno market shoppers’ shuttle service. In: Crain & Associates, Inc. Using Public Transportation to Reduce the Economic, Social and Human Costs of Personal Immobility. Washington, DC: National Academy Press; December 1998. Transit Cooperative Research Program Web Document 7. Available at: http://books.nap.edu/books/tcr007/html/index. html. Gottlieb R, Fisher A., Dohan M, O’Conner L, Parks V. Homeward Bound: Food-Related Transportation Strategies in Low Income and Transit Dependent Communities.Venice, Calif: Community Food Security Coalition; 1996.
Available at: http://www.foodsecurity.org/homewardbound.pdf. 10. Gould SM,Anderson J. Economic analysis of bilingual interactive multimedia nutrition education. J Nutr Edu Behav. 2002;34:273-278. 11. Shipp M, Conughan-Minihane MS, Petitti DB, Washington AE. Estimation of the break-even point for smoking cessation programs in pregnancy. Am J Public Health. 1992;82:383-390. 12. Marketing Costs. Food Marketing Institute; 1999. Available at: http://fmi.org/facts_figs/MarketingCosts.pdf. 13. US Dept of Labor. Consumer expenditures in 2000. Bureau of Labor Statistics; April 2002. Report No. 958. Available at: http://www.bls. gov/cex/csxann00.pdf. 14. Morland K, Wing S, Diez Roux A. The contextual effect of the local food environment on residents’ diets: the atherosclerosis risk in communities study. Am J Public Health. 2002;92:1761-1767. 15. Cheadle A, Psaty BM, Curry S, et al. Assessing the validity of a survey of the restaurant health promotion environment. Am J Health Promotion. 1994;2:88-91.
Doing Well by Doing Good? A Supermarket Shuttle Feasibility Study D I A N A C A S S A DY, D R PH; V I D H YA M O H A N , MBA Department of Epidemiology and Preventive Medicine, School of Medicine, University of California at Davis, Davis, California
INTRODUCTION
ABSTRACT
The social ecological model posits that the environment is an important influence on individual health behavior, including diet.1,2 However, changing the food environment is often outside the sphere of influence of most nutrition professionals. Instead, they must find innovative ways to persuade decision makers in government and the private sector to alter the ways in which food is processed, marketed, distributed, and sold. Supermarkets are central in creating a supportive neighborhood environment for healthful food choices. Compared with other food retailers, supermarkets offer a wide variety of healthful foods at lower prices.3 Furthermore, the majority of low-income consumers prefer shopping in supermarkets than in specialty stores or farmers’ markets.4 Transportation barriers are another important aspect of the food environment.This is particularly true for inner-city residents, who face the double bind of having lower rates of car ownership5 and fewer supermarkets per capita6 compared with their higher-income suburban counterparts. A portion of a family’s limited food budget may be diverted to taxi fare to acquire lower-priced food at a distant supermarket or be used inefficiently to purchase higher-priced foods sold at nearby smaller markets. A US Department of Agriculture survey revealed that 22% of food stamp recipients reported out-of-pocket expenses for transportation for food shopping and that the average cost per trip was $6.54.4 Organizations as diverse as the Food Marketing Institute,7 the National Academy of Sciences,8 and the Community Food Security Coalition9 have documented the success of supermarket-sponsored shuttle services in transporting “transit-dependent” customers who do not own a car.These agencies describe successful shuttle programs operated by supermarkets in low-income urban areas of New York, Newark, Charleston, Houston, and Los Angeles. The purpose here is to determine whether there is a financial incentive for supermarkets in low-income urban areas to implement a shuttle program.This line of research is an important first step toward influencing decision makers who directly control the neighborhood food environment.
Objective: Creating a more healthful food environment requires a new line of research that examines the impact of healthful changes on business’s bottom line.This study investigates whether supermarket-sponsored shuttles can be selfsupporting or make a profit in low-income urban areas. Design: 2000 Census data were used to identify zip codes in California with low income, low vehicle ownership, and high population density to identify potential markets for shuttle programs. The breakeven point was calculated for a hypothetical shuttle program operating in these zip codes. Main Outcome Measures: Breakeven point in the number of months of shuttle operation. Analysis: Breakeven analysis. Results: Sixty-seven zip codes met the criteria for inclusion in the study. A supermarket shuttle program would break even in most zip codes if 10% of households without a car used the shuttle. If 15% used the shuttle, shuttle programs in all zip codes would make a profit. Conclusions: A shuttle program could be self-supporting in all 67 zip codes. Implications: Those interested in changing the food environment to support a healthful diet could use this information to share with supermarket executives and other key decision makers. KEY WORDS: social ecological model, low income, policy, supermarkets ( J Nutr Educ Behav. 2004;36:67-70.)
This research was funded in part by California Nutrition Network contract number 01-15625.The author has no financial conflict of interest to declare. Address correspondence to: Diana Cassady, DrPH, Department of Epidemiology and Preventive Medicine, One Shields Ave TB-168, University of California, Davis, CA 95616.Tel: (530) 754-5550; Fax: (530) 752-3239; E-mail: [email protected]. ©2004 SOCIETY FOR NUTRITION EDUCATION
67
68
Cassady and Mohan/SUPERMARKET SHUTTLE FEASIBILITY STUDY
Specifically, we examine the feasibility of a sustainable, private sector solution to transportation barriers faced by innercity food shoppers. This article presents the results of a breakeven analysis to determine whether a company policy to provide a free ride home to customers is economically feasible in urban areas with a large number of transit-dependent residents.
STUDY PROCEDURES First, a literature search and qualitative interviews were conducted to determine the model used by existing shuttle programs. Because no relevant information was found in the public health or medical literature, reports by the grocery industry and advocacy organizations were the main source of background information. To augment the literature review, telephone and in-person interviews were conducted with 5 managers who supervised shuttle programs hosted by their supermarket. All of the supermarkets were part of a small chain except one. All of the shuttle programs identified in the literature and in interviews were located in low-income urban areas. It is worth noting that the shuttle program was a policy supported at the corporate level. But shuttle services were offered only at those markets within the chain that were perceived to have a high volume of transit-dependent customers. For instance, a shuttle program was offered in 3 of the 9 supermarkets in 1 chain. Managers perceived their primary customer base as those living near the market; therefore, markets located in low-income areas attempted to meet the needs of a large percentage of their customers who did not own a car. The interviews and literature search revealed that supermarkets organized their shuttle programs similarly. They reduced logistical problems by requiring customers to get to the supermarket on their own, and the supermarket shuttle provided a free ride home. Supermarkets used a passenger van to transport customers, sometimes requiring a minimum purchase and limiting the distance traveled to 5 miles from the store. Shuttle programs were implemented only in stores with a high percentage of walk-in customers and were initiated for a variety of reasons, including improving customer service and reduction of costs from loss of shopping carts. The primary difference in shuttle programs was that small chains operated their own shuttle program, using their own employees and fleet for the van service, whereas the corporate supermarket contracted the shuttle to a transportation firm. Supermarket managers reported that their customers who used the shuttle tended to be senior citizens or families without a car or in which the car was being used for transportation to work. Passenger demographics varied according to the demographics of the neighborhood. One manager reported that the shuttle served a majority of low-income senior citizens, whereas another store shuttle served primarily immigrant families.
The number of passengers who used the shuttle varied from 4% to 16% of transit-dependent households located in the supermarket’s zip code.The supermarket with the lowest percentage of passengers has one of the most successful shuttle programs and costs less than 1% of store revenues to maintain.8 It was not possible to determine whether these shuttle programs generated enough revenue to sustain the program or make a profit, primarily because financial information from private businesses is proprietary, and the grocery industry is highly competitive. Nevertheless, we assumed that the shuttle programs provided some financial benefit to the supermarket chains because all of the shuttle programs were well established. Next, a market analysis was conducted to identify areas in California in which a supermarket shuttle service had the greatest likelihood of success. Based on results from interviews and analysis of demographic data for zip codes surrounding supermarkets with shuttle programs, it became clear that neighborhoods with successful shuttle programs shared the following characteristics: low income, high population density, and high percentage of households without a vehicle. Demographic data from Summary File 3 of the 2000 Census were used to identify zip code tabulation areas (ZCTAs) in California with these characteristics.5 ZCTAs are geographic areas that closely follow borders of zip codes created by the US Postal Service. Low income was defined as a median household income equal to or less than 185% of the federal poverty level for a family of 4 ($33,485). A population of 20,000 or more was used as a proxy for population density. ZCTAs in the 90th percentile or greater for households not owning a vehicle were defined as transit dependent. Sixty-seven ZCTAs or zip codes met all 3 criteria. For each of these zip codes, the number of passengers for the hypothetical shuttle service was estimated at 5%, 10%, and 15% of households not owning a car. Finally, a breakeven analysis was conducted to determine whether a shuttle program would be financially feasible in each of the 67 target zip codes. A breakeven analysis is used in business to determine the point at which a project neither loses nor makes money. It also has been used to evaluate nutrition education and other public health programs.10,11 This breakeven analysis tested a specific type of shuttle program already proven successful by supermarkets in several cities. A supermarket-owned and -operated passenger van offers a free ride home to passengers who spend $25 or more on a purchase. Customers arrive at the store by their own means. The van operates daily for 11 hours, making trips every 45 minutes, and does not exceed a radius from the supermarket of 5 miles. A breakeven point analysis also was conducted for each zip code to determine the number of months before the shuttle becomes self-supporting.This analysis was conducted for 3 levels of market participation: 5%, 10%, and 15% of transit-dependent households. These cutoff points were based on findings from the formative research, which showed that successful shuttle programs were used by 4% to 16% of
Journal of Nutrition Education and Behavior Volume 36 Number 2
transit-dependent households in the supermarkets’ zip code. The breakeven formula we used is defined here: Annual fixed costs Breakeven point = Annual gross margin/Unit The annual fixed cost of the shuttle is $63,444, which includes the cost of a new 15-passenger van amortized over 3 years, the driver’s salary and benefits, insurance, gas, and maintenance.The gross margin for the supermarket industry is 26.4% and is the difference between the grocer’s cost for merchandise and its retail price.12 The gross margin was calculated at 26.4% of revenue from the shuttle. Shuttle revenue was calculated for each zip code at 5%, 10%, and 15% of the households not owning a car and assumed a weekly expenditure per household of $25. This is less than the $59 spent weekly on food at home by low-income households according to the Consumer Expenditure Survey,13 and so is a conservative estimate of what low-income families would spend each week on groceries.The unit is shuttle trips, which total 5,916 per year.
FINDINGS The study area of 67 zip codes included a total population of over 3 million.The average number of transit-dependent households in these zip codes was 3,611, with a range of 1,163 to 11,064.The prevalence of transit dependence in the study areas was 26.4% compared with 9.5% for California and 10.3% nationwide. The market analysis estimated the number of shuttle passengers at 5%, 10%, and 15% of the transit-dependent households (the target market). These cut points were based on findings from research on existing shuttle programs. The market analysis also estimated revenue from shuttle passengers, assuming a $25 weekly purchase. For instance, if a supermarket was able to persuade 5% of the transit-dependent households in its zip code to use the shuttle, the average number of passengers would be 181 each week, with a range of 58 to 553 passengers weekly. At 5% of the target market, the annual revenue from shuttle passengers would average $234,747, with a range of $75,595 to $719,160. At 10% of the target market, the number of passengers and revenue would double: weekly passengers would average 361, and annual revenue would average $469,494. The breakeven point analysis shows the mean number of months this particular model of supermarket shuttle service would take if 5%, 10%, or 15% of the transit-dependent households in each zip code used the shuttle. Because the formula is based on annual costs and annual revenues, the breakeven point must be 12 months or less.The results from the breakeven analysis show that shuttle programs in 45% of the zip codes would break even within 12 months if only 5% of transit-dependent households used the shuttle (breakeven point average = 15.77 months, SD = 8.33). The shuttle would break even in 85% of the zip codes if 10% of the tar-
March • April 2004
69
get market used the shuttle (breakeven point average = 7.88 months, SD = 4.16).The shuttle would break even in all zip codes if 15% of the target market used the shuttle (breakeven point average = 5.25 months, SD = 2.77). In 72% of those zip codes, the shuttle would break even in 6 months or less, meaning that the last 6 months of the year would produce a profit.
DISCUSSION Almost one quarter of a million households in the study area did not own a car, suggesting that there is a large market for transportation programs to supermarkets in densely populated, low-income urban areas. The breakeven analysis suggests that a shuttle service would not be feasible if only 5% of the transit-dependent households in the zip code used the shuttle. Supermarkets will have to play an active role in promoting the shuttle to secure a sufficient number of passengers. The results from this study show that a shuttle service would break even and, in many cases, earn a profit if it captured 10% or more of the target market.A 10% market share may be a reasonable expectation given the dearth of supermarkets and corresponding lack of competition in many low-income urban areas.6 This breakeven analysis is based on the assumptions that customers will use a new shuttle service and that they will make more healthful food choices if offered free transportation home.The success of ongoing shuttle programs in lowincome urban areas suggests that there is consumer demand for free transportation programs, but this should not be taken for granted.At least one shuttle program has failed owing to a lack of passengers. There is some research suggesting that the availability of supermarkets in the neighborhood14 and the availability of more healthful foods inside the supermarkets15 predict more healthful food choices (ie, more produce, leaner meats and dairy, and whole-grain breads). Customer demand and changes in food choices should be investigated as a next step in the research agenda on shuttle programs. The annual fixed costs for supermarket shuttle programs are not insignificant and may be a barrier for small chains and independent supermarkets. Nevertheless, shuttle service offers the potential for new revenue from transit-dependent customers. One supermarket discovered that per customer sales increased from $8 to $18 dollars after their shuttle began, although the management made other changes that could have accounted for this increase.9 In addition, cost savings from shopping cart loss and retrieval, estimated to be $20,000 to $67,000 annually for inner-city supermarkets, could contribute to the financial viability of a shuttle program.9 Publicly financed supermarket shuttle services are sometimes sponsored by government or nonprofit agencies such as senior centers and public housing complexes. Although valuable, these projects can be cancelled during a budget cri-
70
Cassady and Mohan/SUPERMARKET SHUTTLE FEASIBILITY STUDY
sis or a shift in political priorities; moreover, these shuttles do not run as frequently or provide door-to-door service compared with privately sponsored shuttles. There are several limitations of this study, including the use of a single zip code as the boundary for a supermarket catchment area. Supermarkets may draw on greater areas, and shoppers may not necessarily prefer to shop at the nearest supermarket. In addition, the fixed cost of the shuttle program may be greater because gasoline prices have risen beyond the $1.62 per gallon figure included in the analysis. Because the study area was limited to low-income urban areas in California, the study results may not be generalizable to other urban areas in the United States. Finally, we may have underestimated the number of passengers and amount of revenue by excluding households with only one car from the market analysis. While the family car is being used for transportation to work, other family members may use a shuttle to shop for groceries.
IMPLICATIONS FOR RESEARCH AND PRACTICE The next step in the research process should be to pilot-test a shuttle program to determine its impact on customers and on the supermarket sponsoring the shuttle program. Surveys with shuttle users could track changes in food insecurity, frequency of shopping, and purchases of perishables, including fresh produce. Evaluating the impact of a pilot project should also document changes at the store level, including changes in per customer transactions, changes in overall sales, and savings from shopping cart loss. Contracting out the van service should also be evaluated for feasibility. Preliminary research to determine customer needs and interests would help guarantee the success of a new shuttle program. Because shuttle programs are rare in the supermarket industry, these study results create an opportunity for practitioners to educate supermarket corporate executives and store managers about the business advantages of shuttle programs. Some executives may be persuaded by the potential health benefits to the community. However, the financial impact of the shuttle program will be the deciding factor. The breakeven analysis shows that the shuttle service could be self-supporting under certain conditions, so no outside financing would be required. It also may be possible to secure public funding for a shuttle program operated by a privately owned supermarket, as with the case of a community development corporation contributing toward a shuttle program run by a supermarket in Newark. Placing supermarkets in urban areas is difficult for reasons ranging from identifying a parcel large enough to accommodate a large market to zoning restrictions. Some cities have worked for more than 10 years to persuade a supermarket to locate in a needy area. Whenever supermarkets cannot be brought to customers, a viable alternative may be to bring the customers to the supermarket.
ACKNOWLEDGMENTS This research was funded in part by California Nutrition Network contract number 01-15625. The authors thank Andrew Fisher, Michael Hagerty, Marc Schenker, Amanda Shaffer, and Maria Stoecklin for comments on earlier versions of this article.
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