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Feature Fri Jan 22 2010

The Tough Business of Being Open

By Jill Jaracz

What would happen if you decided to sink all your money into opening a grocery store--yet you had no grocery (or even retail) experience? The team behind Open Produce is finding out that it might very well be a way to revolutionize business.

Tucked between a barbershop and a dollar store on East 55th Street, Open Produce is a tiny grocery store trying to make a big impact in the community. It's the brainchild of Steven Lucy and Andrew Cone, University of Chicago alumni who, after feeling not incredibly fulfilled by their real-world jobs, decided to go into business for themselves.

At first they thought of reselling leftover fruit from farms and farmers markets. They quickly found out this wouldn't be a sustainable business. After further research, they discovered the produce distribution chain was very efficient in terms of loss. This led them to the idea of opening up a produce market in their neighborhood of East Hyde Park.

Although large swaths of the South Side can be considered food deserts, Hyde Park is not one of them. In fact, Treasure Island has a much bigger store just a couple of blocks away, and Hyde Park Produce, a stalwart in the community, is also not that far away. So how does a small store compete?

One factor in Open Produce's favor is the Metra tracks. "Between here and the lake, there are no stores," explains Lucy. "The train tracks are a huge psychological barrier." Add in a large number of high rises, heavy traffic between the Metra station and a nearby bus stop, and the store has a decent-sized customer base.

Another factor is that Open Produce is open much later than their competition. While Hyde Park Produce closes by 8pm, and Treasure Island closes by 10pm, Open Produce stays open until midnight, making it a haven for late-night snackers.

Also, Open Produce sells a variety of foods not found elsewhere in the neighborhood. "We sell these ready-to-eat Indian meals for $2.50, and you can't get them for another twelve miles," says Lucy.

The product variety is impressive for a store its size. According to the Food Marketing Institute, the median average grocery store is 46,755 square feet and carries 46,852 SKUs, or Stock Keeping Units. Iterations of size, scent, and flavor are considered different SKUs. Open Produce is 672 square feet--including their back storeroom--and carries 1,000 SKUs.

Lucy and his team have focused on growing and refining their inventory. "Ready-to-eat meals work. Ramen works. We carry refrigerated meals from local restaurants," he says. "We carry a lot of ethnic stuff. Hyde Park is a mixed international community, yet all the Chinese shop in Chinatown, and the Indians shop on Devon Street."

The store tries to carry ethnic foods that ethnic people want and that others want to try. Not every item is a hit with the customers. "Some are too weird, some are things we thought people ate but don't," explains Lucy, holding up a can of stuffed zucchini. "This is not selling. Coconut milk sells."

"We've done lots to differentiate ourselves from the convenience stores," continues Lucy. "The only Coke we carry is Mexican Coke. We have specialty sodas. We don't have Frito-Lay, only Kettle Chips. We have ethnic candy or chocolate. We don't do just small sizes. For example, we sell rice in a 20-pound bag, a five-pound bag, and a one-pound box. We want to get people to do their staple shopping here."

Open Produce sells local products like baked goods from Medici, and coffee from Metropolis and Bridgeport Coffee. "Sometimes people will grow stuff [in their gardens] and sell it here," says Lucy.

Variety also extends itself to the produce selection, where, on my visit, the displays included staples such as bananas, apples, peppers, and garlic, as well as pummelos, pomegranates, avocados, mangoes, and chestnuts. "We have six types of apples," Lucy says proudly.

"They have a pretty amazing selection for being such a small little store," says April, a regular customer who declined to give her last name. "It's the only game in town on this side of East Hyde Park that fills the niche of providing fresh produce."

The store's tiny refrigerated and frozen section is packed with an assortment of vegan items, milk, and eggs. The small selection of leafy green vegetables is also refrigerated. Lucy explains that even though the store is kept at 60 degrees (they tore out the radiators in order to regulate the heat), leafy greens wilt quickly when displayed in the open.

Another category Lucy discovered didn't hold up well is organic produce. "The loss in organic is huge. There's not as much volume, so it's older by the time it gets to the retailer. Our customers say they want it, but when we price it at what we have to, nobody buys it. We try to have organic options, but we focus on non-organic."

Lucy's candidness about its organic produce issues is why the store is called Open Produce. They do their best to keep their business practices transparent, a tough ideal for any business, but especially difficult in the highly competitive grocery business. According to the Food Marketing Institute, food retailers run their business on 2% profit margins (compare that to the newspaper industry, which for all its bellowing about dying, still commands a hefty 10-15% annual profit, according to the Newspaper Association of America).

One reason for tight margins is inventory. Most of the store's capital is tied up in inventory, and if products don't sell, Lucy doesn't have the cash flow to buy what they need. Figuring out pricing has been a lot of trial and error, Lucy admits. Open Produce publishes its inventory and prices on its website. It hopes to add wholesale prices within the next two months.

This openness stems from a desire to change how businesses work. "I thought a business would do fewer bad things if they told people [what they were doing]," says Lucy. Indeed, the store's blog goes into great detail about the inner workings of the store.

This way of thinking has affected how they do business. For instance, Lucy could hire employees and pay them under the table, a popular business practice. "If it's the norm, maybe we should do it, but would we put it on our blog? No. That's why we pay employee [taxes]."

Even though the first year has been a juggling act in learning the ropes, Lucy is pleased with the store. "I think it makes East Hyde Park better. I get a lot of positive feedback from people in the community. I wish there were more small stores, like in Pilsen, on Devon, or in New York City. That's the kind of neighborhood I want to live in, so I've made my neighborhood like it."

Lucy adds, "The way to make positive social change is through entrepreneurship. A lot of people in college want to help out [and go abroad to do so], and that's great. I want to fix where I live. It's what I know, and I have the right to muck around in it. I'd rather make practical changes in a place where I live instead of make some far reaching effort to fix something else."

This feature is supported in part by a Community News Matters grant from The Chicago Community Trust and the John S. and James L. Knight Foundation.