The Failed Economics Of Mamdani’s Socialist Government Grocery Stores

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ew York City Mayor Zohran Mamdani’s plan to open a slate of government-owned grocery stores has finally begun to take shape. The mayor said on Monday his “Mamdegas” would sell produce, meat and a host of other kitchen staples at a 30 percent discount compared to what other 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 of the boroughs. 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 development has private, local sector grocery store owners up in arms. They view 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 Mamdani’s stores are unlikely to present that much of a threat to most private grocers.

The “Mamdegas;” as they are now being called, a conjunction of the New York City term bodega and Mayor’s name—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 offer hot food in an effort to avoid competion with local businesses offering those products.

✪ Local Grocery Store Owners Move To Sue NYC

A New York City business coalition representing immigrant-owned shops voted this week to sue the city over Mayor Zohran Mamdani’s taxpayer-funded grocery stores, alleging the plan will crush nearby competitors, according to a report.

The planned lawsuit comes as Mamdani pushes to open one store in each borough by 2029, starting with the Bronx. Nearly four dozen grocery stores already operate within a 35-minute walk of the La Marqueta site, which Mamdani has said will cost $30 million and take three years to build.

The Multicultural Business Coalition’s board approved the lawsuit as the far-left mayor rolled out fresh details of the $70 million project, the New York Post reported. The group plans to file in the coming weeks to block five city-run supermarkets that would sell produce, meat, milk, cheese, and bread at a 30 percent discount.

MBC chairman Frank Garcia said the mayor has refused to meet with the coalition. “The mayor doesn’t seem to want to sit down with us,” Garcia told the outlet, adding that Mamdani “won’t be able to bully these lawyers we are going to bring in.”

The coalition was formed earlier this year to fight the grocery policy. It includes 50 chambers of commerce representing Asian, African, Caribbean, Hispanic, Middle Eastern, and Jewish-owned businesses. Garcia said the nonprofit plans to raise $1 million to challenge the mayor’s initiatives and called the suit a “non-partisan initiative.” The group intends to send a letter notifying Mamdani’s office of the legal action.

Store owners near the planned East Harlem location, in the space known as La Marqueta, have raised alarm. Five bodegas sit within a few blocks of the site. The city stores will pay no rent because they will be built on municipal property, according to the mayor’s office.

They also will not sell beer or cigarettes, allegedly to avoid competing with the corner shops that often advertise those on their awnings. However, one suspects 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 has also influenced that decision.

“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.

✪ Thirty Percent Off, While Supplies Last

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 languishes on 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 also likely 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 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 collecting 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 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.

However this will completely 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?

✪ Strategic Pricing From Farmers & 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, the Mamdani Administration will react to shortages by describing them as a success. Look how popular our stores are! However, stores with empty shelves do not meet the needs of the city’s poorest. This will instead 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 which will sell them as much as they want and can be reliably counted on to have shelves full of food. ✪