Healthy food access: The role of flexible funding

This is a blog series focused on how the Michael & Susan Dell Foundation approaches food access work. You will hear from our partners who work each day to remove barriers for low-income families who do not have easy access to healthy and nutritious foods in their neighborhoods. You can read the whole series here.

For residents of Jackson, Mississippi, 3520 Terry Road is a familiar address. It was the site of a Kroger full-service supermarket for over 20 years. But in 2015, the retail operator closed its doors. Suddenly, the 10,000 residents who frequented the Kroger store had an extra 15-minute commute to the nearest supermarket.

Two brothers in Jackson saw their opportunity. Greg and Chester Price operated a wholesale store, Jackson Cash & Carry, about five miles from the old Kroger site. The Price brothers had their eyes on the building from the time it closed – they knew that the store could address a significant need for healthy food for an underserved population. But it was difficult to make the numbers work: with a relatively small, mostly low-income population, revenues would be challenging; yet the costs would not be any lower than operating a supermarket in any neighborhood.

This scenario is one example of an issue that exists in many communities around the country. Quality grocery retail operators struggle to make the numbers work to operate healthy food outlets in low-income areas, and so these areas become ‘food deserts’. And traditional lenders feel there aren’t enough opportunities to justify devoting resources to build a healthy food financing loan program.

Quality grocery retail operators struggle to make the numbers work to operate healthy food outlets in low-income areas, and so these areas become ‘food deserts’.

Enter Hope Enterprise Corporation (HEC) – a Jackson-based Community Development Financing Institution (CDFI). HEC knew the community need for a healthy food retailer, and they knew who the high-quality retailers were. However, building and maintaining a loan program for a nuanced sector like healthy food financing can be expensive in the initial years. Despite HEC’s strongest desire to build such a program, they did not have the surplus financial resources to do so.

So how do we close the gap between a community in need of healthy food options, a quality grocery retailer, and a willing funder?

Building on Success

In 2010, the federal government launched the Healthy Food Financing Initiative (HFFI) which was designed to catalyze private investment in food deserts through forgivable and interest-bearing loans, and tax incentives. The program was modeled off a state program, the Pennsylvania Fresh Food Financing Initiative, that was launched in 2004 and improved healthy food access for more than 400,000 people.

Since then, more than 10 HFFI initiatives have emerged around the country, catalyzing over $1 billion in private investment and tax credits, while supporting almost 1,000 grocery stores and other healthy food access projects in food deserts. Several low-income areas and previously designated food deserts around the country have benefited from the HFFI.

However, the mid-south region of the United States – including Louisiana, Mississippi, Arkansas and Tennessee – have been largely overlooked by funders. At the same time, these states have the highest concentration of food deserts in the country: across the state of Mississippi alone, more than 800,000 residents – 27% of the population – live in lower-income communities underserved by supermarkets.

The Mid-South Healthy Food Initiative (MSHFI) was formed to address this problem. Created by HEC and The Food Trust, with funding from the Michael & Susan Dell Foundation, MSHFI launched in 2016.

As the foundation built a funding model for the MSHFI, we realized that traditional grants alone would not be sufficient. Retailers would need financing to develop, renovate and maintain grocery outlets. They would also need to purchase necessary equipment and fund working capital such as inventory. The amount of financing that retailers needed for these purposes would far exceed the amount of grant funding that was available.

To close this financing gap, we added a combination of low interest-bearing loans and forgivable loans to traditional grants. A low-interest loan would ensure that retail outlets prioritized financial sustainability through loan repayment. These loans also enabled retail outlets to access bigger pools of capital from commercial sources. Forgivable loans are only repaid if the borrower does not comply with pre-agreed eligibility criteria. As margins are typically thin for retail operators in the initial years, a forgivable loan provides extra buffer to help a retailer grow their business.

The grant funding provided to HEC covered its initial costs of identifying and supporting potential retail operators in the identified geographies. Finally, we provided a grant to The Food Trust, an organization with national experience and expertise in identifying and vetting potential food retailers.

From Funding to Reality: What’s Next?

Our work is based on finding the right funding strategies and the right partners on the ground. In this case, our goal was to ensure that retailers would serve the needs of the Jackson community and contribute significantly to improving healthy food access.

The Price Brothers relocated Jackson Cash & Carry to the old Kroger site on May 5, 2017. But what happened between funding and ribbon-cutting? And what does healthy food access look like now in Jackson? Stay tuned for the next blog in this series!

Other blogs in this series:

Healthy food access: Defining the problem