Ndtyhij

Recently I have heard movements from the local stores (say clothes, electronics, foods, etc) and some politicians (of a particular wing) that argue that you should buy in local, small stores. Appealing to a feeling of nostalgia, they say those stores have been there for a long time and now running away from them is not the best thing to do.

A quick search for the keywords compra en la tienda de barrio which roughly means "buy in local stores" cite some reasons like helping the local and familiar economy, less contamination, customized attention (taken from here, in Spanish). Beside the fact that these reasons are at best questionable, the purpose of every buyer is to maximize savings, one way or another.

Say for example, Amazon usually offers you a better deal on a home appliance or a phone, way better technical support and extended warranty than a local store, or a supermarket chain that can deliver your fresh meat and groceries within two hours or in an allocated time slot, instead of going all the way to the local store to buy the goods. These, amongst other reasons, are crucial for buyers. Then, my question arises: from a buyer's economic point of view, what would be a good reason to keep buying local?

If location is needed, I'm in Spain but the answer could be related to other locations.

When I spend $1.00 at a local store, some of that money goes as salary to a local person, and some as taxes (property, income, sales etc) to my local government. When I buy the same item for 10% less online, none of the 90 cents goes to those things. For some people, the total benefit (keeping local people employed, providing revenue to the government that would otherwise come from higher personal income or property taxes on me) of the local purchase exceeds its cost, more than the same arithmetic on the online purchase.

Some people may also add a sort of "insurance" value to the local purchase of knowing the local store will continue to be there on the sorts of occasions when online purchases are not a good solution, or to serve as a return/repair point. For example, I make a point of buying whatever I can at my local pharmacy in my very small village, even though they may charge $3.50 for something that is only $3.00 in a city an hour away. I do this because I need that pharmacy to be there when I have a prescription to fill and I don't want to go all the way to the city when I am sick. I also buy gas in the village from time to time to be sure there will continue to be a gas station in the village, especially when I am filling jerry cans for outdoor equipment: I am only buying 5 or 10 litres, so I don't care if it's even 10 cents a litre more than on the highway, and I don't want a long drive with gas fumes in the car as I take them home, so I value the gas station being close to home more than when I'm just filling my car's gas tank.

On the particular matter of food, only by being hyperlocal (eg joining a Community Supported Agriculture program, or buying at the farm gate) can you be completely sure of provenance.

These three reasons along with habit and a sort of neighbourly attachment explain most of it. BTW, where I live, the prescriptions in the village pharmacy are cheaper than in the big city (he waives the dispensing fee) and the eggs on the farm are cheaper than in the supermarket. But the logic holds even for things that are more expensive.

There are several reasons, but in my view they all basically boil down to this: the "purpose" of each buyer is not, as you say, "to maximize savings". Rather, each person's goal is to have a good life. When viewed narrowly, buying from large stores offers the best savings on the individual purchase; however, when viewed more broadly, the lower price may have hidden costs, or the higher price may have hidden benefits, which are not directly tied to the immediate transaction. In many cases, these benefits are diffuse, and often they are uncertain because they involve potential repercussions in the future. Thus, buying local is in some sense a hedge.

Here are two examples:

1. The large store offers lower prices in order to compete with other stores, large and small. However, if everyone always buys from the same large company, and all other stores go out of business, the large company will have a monopoly. It may then raise prices with impunity. Thus, by buying local you pay a small premium in the present as a sort of insurance against monopolistic price-gouging in the future.




2. Often, local businesses are supporters of local charitable causes and civic organizations. For instance, in my area, local businesses buy ads to support things like local theater companies, concert series, and festivals. Although large companies may do this to some extent, they are typically less likely to do so because they are not as in tune with the calendar of such events in the local community. This kind of community support does not appear on the bill when you buy a toaster or an onion, so its importance and its relationship to local business may not be immediately obvious, but you might well miss it if it were to disappear.

The overall idea of small, "non-local" effects of individual buying choices is well analyzed in an old paper by economist Alfred Kahn called The Tyranny of Small Decisions. (I've linked to the Wikipedia article about it, but you can find the paper itself online if you poke around.) Kahn's primary example involves people choosing whether to travel a certain route by train, bus, or plane. The train was the only option which provided reliable, timely service regardless of weather conditions or time of year, but people tended to use bus or plane when possible, and only use the train when the other services were not available (e.g., due to bad weather). The result was that the train service was stopped, leaving people with no transportation option during the difficult conditions that the train used to handle.

The basic idea there is the same: by focusing solely on the direct costs of a single purchase, you are making a very small decision. In so doing, you may gradually and unwittingly make a large decision (e.g., "this local store goes out of business") which you don't want to make. In particular, you may not realize the consequences of making that large decision until it's already happened (e.g., you may not think you would care if the local store went out of business, but it might have negative effects that you're not foreseeing).

One aspect of a buyer's concern is knowing what they are buying.

Eggs are a pain point for me. I can afford a premium egg price to satiate my morality. I don't like the idea of chickens in battery cages; I don't want to eat eggs from chickens in battery cages. I don't want to eat eggs from chickens in "furnished/enhanced housing" (large battery cages). I can tolerate eating eggs from chickens who only ever lived in barns. As long as the barns weren’t crowded. My preference is fenced-in, open-air uncrowded chickens.

Let's go back to your question. "What would be a good reason to keep buying local?" When I go to a supermarket, I see "free run", "free range", "enhanced housing", "cage free", "'organic'" and more labels on the eggs. Few of these tell me anything. The few that do require a special understanding of the vernacular. This is only for eggs, every other food has its own tricky marketing buzzwords. When I go to the producers' sites, the information is as vague and unspecific as the packaging. Some eggs carry a hefty premium because they have the right buzzword but are simply battery cage eggs.

At the local store or farmer's market, I can ask the person "how are the chickens raised?" I can go to the farmer's Facebook page or their farm. For local stores that carry smaller brands, the producers' sites are informative.

(This is out of necessity; they need to differentiate since the supermarket is often cheaper, quicker, and has a wider selection. The farmer's markets compete by claiming quality and transparency. My local grocer is actually 50% cheaper than the supermarket. They do this by being a building with four walls, fruits & vegatables, a cashier, and no backroom inventory. They carry two dozen different items. Little selection, albeit the selection changes each week.)

"Use them or lose them". I will happily pay a premium to get something now, all other factors not considered. It comforts me to know they are there. If I do not support the deli, or the convenience store, and enough other people shun them, they do not remain viable. Not having to get into the car, or be available at a set time for delivery.

Now, on the other side of the coin is delayed gratification. I live in Australia. Australia has recently decided to tax mail order purchases from outside our borders. It's a small tax for now, 10%.

I also pay the same consumption tax if I buy locally.

I can buy "item A" for $1 from Shenzen, and have it shipped free in about a week. Depending upon how I was introduced to the seller, and how I pay, I will likely be charged $0.10 in GST. It will cost the Australian Government a dollar or two to collect it, and it will likely cost an aggregator such as eBay or Amazon a dollar or two to collect it as well. No biggie for me, it is still $1.10.

If I buy "item A", retail locally. It costs $20.00 - the same item. That is before I pay $15 in petrol to drive there, $8 to park, and take a hour out of my day only to find out it is not in stock.

So my need would have to be pretty urgent to buy locally, as it is going to cost me.

But, in a large city with serious infrastructure issues, there are so many things I cannot buy locally. Fresh flavoured milk is rare in Sydney (all UHT), as it goes bad when turnover is low. Fresh food can be fresher from interstate. Outside of fast food, iceberg lettuce is not used, arugula (rocket) keeps up to a week and is now a cancer on the face of Australian cuisine.

In summary, these factors appeal to me.

1. Products available on demand.


2. Can pay cash (of diverse origin) which can be hard to get rid of.


3. Can see what is on offer, hold it in the hand.


4. Need not expend effort traveling, receiving goods, dealing with damage.


5. Supporting the proprietor, a neighbour.


6. Minimising storage space used, and wastage due to spoiling.

First of all, let me say that for me "local store" is no value in itself.
That is, I've met local vegetable stores that had lower quality produce than the LIDL around the corner and then the decision is clear for me.

Summary: while I can name a number of situations where I prefer the local store (which btw. then often isn't that local), I'd also like to question the implicit premise that local stores are overall dying. I do think they have better chances now with online markets than, say, 20 years ago when they had to compete offline against big chains/stores.

Say for example, Amazon usually offers you a better deal in a home appliance or a phone, way better technical support and extended warranty than a local store,

Better Amazon support is not my experience.

• Particularly with foreign Amazon sellers, I've had considerable trouble getting proper bills (I'm freelancer, so I need formal bills for tax reasons).




• I've bought (and would go on to do so) expensive electronics in local stores that did give very good advise (questions that were not answered about reading up online).




• I could handle, test, try out a variety of devices there in order to arrive at a decision.
  
  Sure, I could buy the same range of devices online and send back all but the one I decide. In the case I'm thinking about, I did compare devices for > 10 k€ in the store.
  
  (BTW: for that order of magnitude, the "local" store may mean me taking half a day or a day and going to a specialized store in the big city - although one of the fun facts about Germany is that many specialized businesses are actually located outside the big cities).




• As for the better deal: in my experience that depends very much. With the local store, I can say "If I place this (large) order with you today and pay cash to take the stuff with me right now, what price can you give me?" - the resulting discount for the example above was a better deal than online price plus (insured) shipping back any tested devices I'd not buy in the end.




• If anything goes wrong with the device (warranty), I know where to physically find the dealer. Depending on what is wrong and whether I'm still in the warranty period, they may have the possibility to do some repairs in their workshop or immediately give/sell me a replacement.
  
  There are lots of foreign Amazon (or ebay) sellers (even with domestic VAT registration) - if anything goes wrong, that can mean a whole lot more hassle.




• So: if the local store has what I need, I can get it there faster (think e.g. bike repair parts).

or a supermarket chain that can deliver your fresh meat and groceries within two hours or in an allocated time slot, instead of going all the way to the local store to buy the goods.

• That possibility I do not yet have here (rural Germany): such delivery services so far operate only in the big cities. I do find this somewhat ironic, as that's where a supermarket or at least a smaller local store is available usually within a km or so, and where there are traffic jams all the time.




• For groceries that are either highly standardized (e.g. UHT milk 3,5 %) where I don't really expect any difference that I cannot read on the package/online description or that I anyways cannot try them previous to a buyng decision I don't see much of a difference in offline vs. online buying.




• But groceries like fresh vegetables and fruits or meat I'd like to see (or even smell or taste) before buying. Also, the buying decision is going to be faster for a piece of "loose" meat where a look and a quick question/description with the butcher gives a much faster overview of what they currently offer than reading this online. (See also @Lan's egg discussion.) And it's not unheard off to get a tiny piece of sausage to taste before buying at the butcher's or at the cheese counter if you are after something special.

• I'd expect a larger variation with small independent stores compared to bigger chains. I don't propose to artificially keep bad (quality) stores alive. But good quality stores: of course.




• Chains are good at standardizing, i.e. making sure the store brand bread will taste the same whether you buy it in Munich or Hamburg. So they help avoiding what many/almost all people agree is bad quality.




• But there are types of variation that are equally high quality. E.g. local butchers may use different spices for their sausages, or bakeries for their bread. They can be equally good, but I still may prefer one flavor over the other - and someone else may prefer the other flavor.
  
  In that case, everyone should buy where they like it best, and delivering that variety of tastes is not what big chains are very good at.




• Small local stores that too few people think deliver good value: IMHO it's totally fine if they close. The other ones, btw, may become local/regional chains. Which IMHO is fine: there's nothing inherently good or bad with chain stores as long as we're not ending up with an oligopoly.




• Oligopolies become a problem where you have large effects of scale (i.e. 10 small bakeries are per bread much less profitable than one bakery of the 10-fold size) and where you have big market entrance hurdles.
  
  I don't know that much about the perishable groceries market, but for things like cosmetics production costs are very much in favor of large producers because product safety testing/certificates cost about the same whether you produce hand-made soap as a tiny ebay side business or as a big factory making soap for half of Germany - and those costs are non-negligible for a tiny side business.

Some further thoughts:

I do see that the structure of local/small stores changes, but I'm not so sure about them dying in general.

• When I was a kid, my village had 2 grocery stores and there was a supermarket and further stores in the next town (few minutes by car, 1/2 - 1 h by foot or bus). Both of them closed when the owners retired. The larger/later one did try to rent out the store, but several attempts failed after a while.
  
  This is what people refer to as local stores dying. I'd like to add a few more observations, though.




• As I recall those stores, they neither distinguished themselves in the variety of goods they had (less than supermarket), nor in the quality (same or older). Their only point was that if you had forgotten something you didn't have to go all the way to the supermarket in town. (And selling sweets to school kids who were too small to go to town)




• My guesstimate is that those small stores probably always were economic only under their peculiar circumstances: they were run by their owners who also lived above the store. When there were no customers, they'd do some other work (e.g. gardening for vegetables, go upstairs to do some housework or repairs etc.). But they are not economic if you have to pay someone for standing around idle when no customers are there (same concept btw. for small bakeries or butchers).



• 
  

  On the other hand,

  
  
  
  
  
  • we now have a fish store's van coming along I think once per week (something that hasn't ever been available before - we're 500 km from the sea)
    
    Other villages also have baker/butcher/cheese store/egg & chicken farm vans calling, or the butcher selling eggs or cheese now in addition to meat.
  
  
  • A local medium-sized supermarket some 10 km away has a pilot project where they have a minibus collecting (old) people from the surrounding villages, get them to the store and take them together with their groceries back home.
    
    I put this in because I don't see that much of a difference between carrying people to the goods vs. carrying the goods to the people for offline sales.
  
  
  • Many organic farms (or organic farm cooperatives) sell "veggie boxes" that are delivered e.g. weekly or twice a week.
  
  
  • One organic farmer has a farm sale and half ways to the next village you get organic eggs, then comes the next organic veggie farm
  
  
  • At least one conventional farmer has a "potato box": this is a sales form we have quite a lot now. Something between wooden box and garden house with shelves and sometimes even fridge/freezer where the currently available produce are together with a price list, a drawer with some change and a piggy-bank style cash box into which you put the bigger money. While there is noone to directly keep you honest, everyone knows that this super-convenient form of "store" is stopped immediately if there's too few money there at the end of the day.
    Egg and milk automats are a recent addition in this line.
  
  

  • We do see a slowly increasing number of stores doing deliveries. The first one I was aware of is the pharmacy next village.

  
  

  • While they don't have online shops, I'd expect all of them take orders/"reservations" by phone or email - the self-service ones probably by putting what you want into a bag or box with a paper with your name on it.

  
  
  
  

If you ask yourself why I list all those more-or-less new economy type sales:
Note that all these (at least over here) including the ones doing deliveries of online or off-line orders are small stores.

• In general, many local/small stores here actually do sell online as well - so there isn't that much of a distinction. Without having checked, I expect that the spice and herbs store coming by van to the town market once a week will take online orders juse as they take "offline" orders for stuff they don't currently have with them. All either to be picked up at a given town market or sent by post.




• Actually, many of the stores where I buy, say, small electronic or bike parts online are local stores somewhere (and I think many of them use the same type of flexibility the old village store used - but they are working other niches than flour and pasta).
  
  I think what see here is at least partially that even big stores (supermarket or electronic) can have only a selection and even for big supermarkets that selection isn't that wide. But having many (big or small) stores across the country that do sell on online marketplaces each having some specialty allows in total a much wider selection. And my personal impression is that in this actually small stores can do better compared to big ones than they did before: the local small store really didn't have a point above a larger supermarket in the last so many decades. But with the online sales, a small store can specialize on a narrow field or even a few products (and be located somewhere where rent is low - which is good for rural economics) and does have a chance in competing in that narrow selection with big stores that have a wider selection.