Breitbart Business Digest: The Fatal Economics of Mamdani’s Government Grocery Stores

The Mamdega Economy: Thirty Percent Off, While Supplies Last

Come for the Discount, Stay for the Bread Line at Mamdani’s Grocery Stores

New York City Mayor Zohran Mamdani’s plan to open a slate of government-owned grocery stores has begun to take shape.

The mayor said on Monday that the Mamdegas would sell produce, meat, and a host of other kitchen staples at a 30 percent discount to what privately owned grocers offer in the city.

The stores will not be run by the city directly. Instead, private operators are being invited to bid for contracts to run five city-owned stores, one in each borough. The city will pay for the construction of the stores and waive property taxes. It will also subsidize their operations to help pay for the discount.

This has private sector owners up in arms. They see the arrival of a tax-advantaged competitor subsidized by the very taxes they pay on their income and sales as an unfair threat to their businesses. They obviously have a point about fairness here, although the small number of stores is unlikely to present that much of a threat to most private grocers.

The Mamdegas—as we’re calling them here at Breitbart, combining the New York City term bodega and the name of the mayor—will discount a “core basket” of government-approved, allegedly healthy groceries. These will include produce, meat, seafood, pasta, bread, yogurt, butter, nuts, rice, and beans. The stores will not be offering hot food in an effort to avoid competing with local businesses offering those products.

They also will not sell beer or cigarettes, also allegedly to avoid competing with the corner shops that often advertise those on their awnings. But one suspects that a combination of moralism, health-state nannyism, the influence of anti-alcohol faiths such as Islam, and a desire to preserve the tax revenues from those sales also plays a role.

“We are not looking to compete with bodegas or grocery stores when it comes to their ability to survive. What we’re looking to do is to provide affordability that is guaranteed to New Yorkers,” Mamdani said Monday.

Perhaps the greatest challenge for these stores will be avoiding shortages. The private sector’s pricing creates a natural distribution system by balancing supply and demand. When prices are so low that stores run out of products and cannot restock fast enough, store owners raise the price because this is a reflection that demand is outstripping supply. When prices are so high that produce withers on the shelves, store owners lower prices to clear the inventory.

Mamdegas will not have the advantage of flexible prices.

“No weekly fluctuations, nor sticker shock at the checkout line,” Mamdani said.

This will likely mean that the stores will experience shortages when they have under-estimated demand.  So there will be empty shelves and low-income New Yorkers—including seniors on fixed incomes and parents hoping to buy some apples to slice for their kids—will have to do without or return to the higher-priced private sector alternatives. It’s likely that there will be regular runs on the stores when new inventory arrives, awarding those with schedules flexible enough to line up early in the morning when the trucks arrive. So it will help to be jobless or a part-time worker and hurt to be working full-time. There are likely, in other words, to be literal bread lines outside of the Mamdegas.

Setting the prices will be a challenge. The city’s agents will have to survey local grocery prices in order to establish the baseline for the discount. But that will mean the prices will be stale since the collection of price data takes time. As a result, sometimes the discounts will be more than 30 percent—because private grocers have raised their prices as a result of a supply shortage or demand surge— and sometimes less.

Food prices are notoriously volatile, so this will have to be an ongoing part of city business. And it’s hard to see how the 30 percent discount can be maintained alongside the promise for no price fluctuations. What’s more, there will be a strong incentive for merchants to game this system by raising prices during survey weeks, so that the Mamdego discount doesn’t take as much market share. Will Mamdani attempt to implement price controls to stop merchants from adjusting prices to control the prices offered at the Mamdegas?

The Road From Mamdegas to Ration Cards

The city will also have to decide how to deal with the risk of hoarding and reselling. Entrepreneurial New Yorkers will realize that they can buy out the inventory of the city stores and then resell it, still undercutting the private sector stores while making a handsome profit. This may be technically illegal, but you only have to stroll through almost any neighborhood in New York City outside of midtown and a few high-end areas to observe private sector merchants creatively ignoring licensing requirements for food, marijuana, or even prescription drugs. Go visit Washington Square Park’s open air drug market if you have any doubts. And there are immigrant entrepreneurs in all the heavily tourist-trafficked neighborhoods in New York illegally selling knock-off designer handbags. Whenever it rains, guys appear to sell umbrellas on street corners.

What about the small grocers? To them a 30 percent discount on produce will look like an invitation to treat the city stores like a wholesaler. That will be particularly true when market wholesale prices rise so that the city’s prices are below the cost of buying wholesale.

Is Mamdani going to start raiding grocery resellers? Jailing folks—many of whom will be poor immigrants—who set up stalls to sell produce and food staples that the Mamdegas have run short of?

Far more likely, Mamdani will have to start rationing the food sold in the city stores if he wants to keep the shelves from being emptied. This will present a challenge because of the resistance from progressives from requiring any proof of identity for fear of excluding illegal immigrants and members of other “marginalized communities.” So the most likely result will be a strict cap on purchases: one head of lettuce, five apples, a single loaf of bread per customer. When you cannot use prices to organize the distribution of goods, you have to use government mandates.

But this will limit the usefulness of the stores for families. With only one store per borough, going to the Mamdega will be a long shopping trip for many New Yorkers. The rational response would be to stock up with several weeks worth of food, the way families often do when shopping at Costco or Sam’s Club. But that will have to be barred in order to prevent hoarding and reselling. And there’s a fairness problem, as well. Should a mother of five have the same limit as a single man? How do you decide who deserves which quota of food?

The Problem of Strategic Pricing from Farmers and Wholesalers

There’s also the problem of price discrimination. Wholesalers and farmers who know they are selling to subsidized, price-insensistive city agents will inevitably attempt to charge the city more for their products. The city could respond by attempting to use price gouging laws or similar measures to prevent this, but then this will just push price discrimination out even further. The traditional response of socialists—collectivize the farms—is unavailable to the mayor of New York City because his authority will not stretch to farmers in New Jersey, Pennsylvania, or upstate New York.

Prices not only serve as distribution mechanisms but also as produce information and incentives. Rising prices tell a merchant to order more of a good, and falling prices say demand has declined. Mamdegas are by design blinded to the informational content of prices. The rationing will double down on this blindness because the stores will not be able to track underlying demand based on whether shelves are emptying faster than anticipated, except in cases of extreme shortages or oversupply. They’ll know how many customers bought their allotted limit but not how much those customers would have bought if they had the freedom to buy more.

It’s possible—perhaps likely—that the Mamdani administration will react to shortages by describing them as a success. Look how popular our stores are! But stores with empty shelves will not be meeting the needs of the city’s poorest. But this will be presented as a reason to expand the program rather than scrap it.

The city grocery stores will not necessarily fail in the traditional sense. It’s hard for a government-subsidized enterprise to fail outright. But they are likely to be more costly to the city than anticipated and to require far more controls on customers than anyone imagines. Shopping at them will perhaps be such an inconvenience for most families, especially financially strained households with little time to stand on Mamdega breadlines, that people will end up preferring the convenience of private sector shops that will sell them as much as they want and can be reliably counted on to have shelves full of food.