LOS Angeles entrepreneur Darioush Khaledi is proudly bucking conventional business wisdom: He is making a profit in the inner city.
Mr. Khaledi's company, KV Markets, is Southern California's largest independent grocery chain, with 13 inner-city stores averaging $17 million in annual sales per store, a profitable level of business. "We love the communities and we work with them very well," Khaledi says, "But we went into business to make a profit."
Khaledi may soon have competition other than the higher-priced "mom and pop" stores that typically dot low-income neighborhoods. Saturation of suburban markets and new opportunities for profit are enticing many regional chains and some national giants to consider a move to urban centers.
The Local Initiatives Support Corporation, a New York-based nonprofit group, last month announced it raised $24 million from "bottom-line oriented" institutional investors, including G.E. Capital, J.P. Morgan, and Bank of America. The agency and its investor group say they are committed to this project, "The Retail Initiative" (TRI), and plan to finance 12 to 14 new stores.
Most grocery chains left inner cities in the 1970s and '80s, joining "white flight" to the suburbs. And until recently, many have been unwilling to return to those areas because of crime and a perception of low-income residents' weak buying power.
But South Central Los Angeles - an emblem of urban decay - is "a multibillion-dollar community in terms of spending power," says Ted Berkowitz, manager of industrial development for the Los Angeles mayor's office. Inner-city pioneers
A number of stores are already in the inner cities. In Washington, there is a Safeway grocery store in Ward 7, one of the city's poorest areas. A successful Jewel store sits in the depressed Chicago Lawn area, and there is a Winn-Dixie on a site vandalized during Miami's Liberty City riots in 1980.
For blighted areas, a new supermarket can mean hundreds of new jobs, an economic center around which local merchants can cluster new stores, a much-needed influx of capital, and increased tax revenues for the city government.
"Although a supermarket can't turn a neighborhood around, it can provide a sense of place, like the old-fashioned town hall," says Greg Longhini in Chicago's mayoral development office.
Inner-city grocers are reaping profits by providing convenience - something residents have long done without. Denise McCoy, who lives in one of the poorest neighborhoods in Newark, N. J., used to travel 45 minutes to the nearest grocery store. Before opening a store in Newark, Pathmark Foods Inc. found that 90 percent of residents shopped outside the city.
McCoy, who works two jobs and has little time for shopping, now walks five blocks to the Pathmark store. "The convenience is great," she says. …