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St. John, Kansas, replaced its rural grocery store. Is it a food desert model?

Residents of St. John took a punch in the gut when Dillons announced in 2016 that it was closing the rural grocery store it had long operated in the community. The town of 1,200 people not only lost its only grocery but also a key to the town’s survival. Thus more than 100 residents of the community began a rocky route to secure nearly $4 million to fill a void in a sustainable way.

The story of St. John’s renaissance begins with scrubbing toilets.

The Stafford County Economic Development crew – executive director Carolyn Dunn and program director Ashlee Bevan – were cleaning a rental house in Hudson, population 125. And really, this moment before the chaos, before the learning-on-the-fly and doing-what-we-can of developing a rural grocery store to save the town of St. John – this moment encapsulates the story. Cleaning the handful of rental properties they run in the name of economic development shows that they will try just about anything to boost their rural western Kansas home.

“If only you knew how unglamorous that was,” Dunn says.

Her phone rang. Had they heard? A sign on the Dillons Market entrance announced the store would close in February 2016 after 88 years in business. The doors would be locked in two weeks.

Neither the caller nor Dunn articulated it at the time, but the implication of being a food desert was clear. Without a grocery store, home values would plummet. The school district would struggle to recruit teachers. Enrollment would suffer.

“Immediately she started making phone calls,” Bevan says.

Dunn mined her network, trying anyone who might have connections to rural grocery store owners. Before long someone put her in touch with Pat White, president and CEO of White’s Foodliner, a tidy chain based in Kingman.

White told Dunn he wasn’t interested in operating in St. John. “We’ll give advice,” he recalls saying. “If you want to talk more, let us know.”

To buy a gallon of milk, St. John’s 1,200 residents now had to drive at least 15 minutes to Stafford, home of a small market. For a bigger selection, they could motor to Great Bend or Pratt, 30-minute jaunts in opposite directions.

Then-City Council member Mark Bryant saw the hardship for people without transportation, and he happened to be certified as a bus driver. So Bryant collected donations for gas money and borrowed a city-owned bus for grocery runs several times a month. The bus’s 13 seats filled frequently – sometimes with former Dillons employees.

Standing-room-only town hall meetings filled with mourners of the store, the 11th location of the Hutchinson-based Dillons chain. In the period it anchored downtown St. John, Dillons had sprouted 64 Kansas locations before being acquired by The Kroger Co. in 1983. In those initial meetings, residents tended to vent rather than work toward solutions, Dunn says.

“We spent a lot of time in that mode,” she says.

Residents began to fan out in the name of research, making phone calls to experts and visits to out-of-town grocery stores. Two months after the closure, the City Council saw an opportunity for a recruiting chip: The city was collecting zero local sales tax, unlike neighboring communities where residents already shopped. Based on recent St. John buying history, Dunn and other city leaders estimated that a 1% sales tax would generate $100,000 annually, even without Dillons. That August, voters approved the 10-year tax for “economic development purposes and infrastructure projects.”

But the project needed guidance. The council appointed six local leaders to helm the recruitment effort. Josh Meyer, superintendent of St. John-Hudson schools and a member of the Stafford County Economic Development board, agreed to join the Grocery Task Force, he says, because he felt betrayed and blindsided by Dillons’ closure. Having a grocery store is critical to recruiting teachers, he says.

Another member of the task force, Chad Fisher, agrees.

“Think of yourself as a young person getting out of college,” says Fisher, president and CEO of the St. John-based SJN Bank of Kansas. “You could live anywhere. Would you live somewhere you can’t even go shopping for food?”

 

During her pursuit of White’s Foodliner, Carolyn Dunn, the executive director of Stafford County Economic Development, overcame obstacles, quieted naysayers and stitched together a financial package of about $4 million.

Numbers, Not Emotions

In an attempt to attract another tenant for the former Dillons building, the city paid $48,000 for the property, now stripped of its grocery equipment, in September 2016. The task force began interviewing prospective grocers, some with experience, some without. But none emerged as a perfect fit.

“You don’t just go in and convince people to open a business because you’re nice people with a good heart,” Dunn says. “Fundamentally, it’s a business proposition.”

The community spun its wheels for months with no progress. Dunn knew that as a nonprofit, Stafford County Economic Development could legally own land. Although she had no experience developing a rural grocery store and wasn’t a member of the Grocery Task Force, her instincts told her to stay involved.

She remembered White’s offer of advice and keyed in his number again. What would it take to make a rural grocery store in St. John viable? she asked.

Numbers, not emotions, he said. A feasibility study. He pointed her to Perkins Marketing, a Minnesota consulting group that could research various aspects of a potential retail business.

The City Council agreed to split Perkins’ $7,500 fee with Stafford County Economic Development, giving both parties buy-in on the results. With that move, Dunn became the project’s de facto leader.

The Perkins study confirmed Dunn’s fear that the 3,800-square-foot space the city now owned would not be viable. However, a store positioned on the edge of town could catch traffic on U.S. Highway 281 and sell 40 percent more, the study projected.

“If we had started in the place of gathering marketing data, we wouldn’t have even talked about that old store,” Dunn says.

Beyond location, a new store would need space to match the variety offered by its big-box competitors. Dillons knew this firsthand, the proof collected on its store-issued shopper cards.

“Many customers shopped at Dillons stores in Great Bend or Hutchinson since they could find what they needed,” Sheila Lowrie, a Dillons spokeswoman, told the St. John News in 2016. Closing the St. John location, she said, “was really only the decision we could make.”

Dunn and Bevan chewed on the options. The Grocery Task Force interviews hadn’t produced an obvious fit with strong experience. The city needed an established enterprise with a succession plan to anchor St. John long-term.

White’s Foodliner was starting to look like the holy grail. Established in 1953 by Pat White’s parents, the rural-focused business now employed Pat’s children. The chain worked to satisfy food trends, from kale to alternative milks. And Dunn marveled at their professionalism, evidenced by detailed cash-flow projections that included benchmarks for labor, utilities and cost of goods sold.

“They weren’t amateur,” Dunn says.

She dialed White again. What would it take to bring his business to St. John?

“This is not economically an investable endeavor,” White recalls telling Dunn.

Investment Starts in the Community

White’s Foodliner stores may have found a niche in small towns, but their sweet spot is strict. White says that his ideal location:

Has between 2,500 and 4,000 residents. (St. John has 1,200.)

Is a county seat. (St. John is the seat of Stafford County.)

Sits an hour or more away from Walmart or Dillons. (St. John is a half-hour drive from both.)

“We know we can’t outprice a Walmart,” White says. “Why beat our head against a wall?”

Starting from scratch, the St. John project would require $3.8 million in principal – too much for White. He says he aims for his stores to pay off debts within seven years, but that kind of investment could take 30 years.

Dunn wasn’t ready to give up. Couldn’t Stafford County do something to help make a White’s Foodliner feasible in St. John?

“It’s crazy for you to do this,” Pat White recalls telling her. “But this is how you’d do it.” 

First, someone other than the Whites would have to buy the land and build the store, he said. White’s Foodliner would need the freedom to design it, with new energy efficient coolers. A store of 15,000 square feet could afford to pay about $55,000 a year for rent, he told them. And the building should include space for a companion business to drive traffic.

“You guys have got to do it all,” White emphasized.

To the leaders in St. John, these conditions meant White hadn’t said no. They faced a decision. Should they continue recruiting efforts in hopes that a ninth-inning savior would invest in building along the highway? Or should they take a build-it-and-they-will-come approach?

“If we aren’t willing to invest in ourselves, nobody else is going to invest in us,” Dunn says.

Going for It

The Stafford County Economic Development board decided to sail into uncharted waters. They voted to become developers.

“Everyone was nervous,” says Fisher, a member of the economic development board as well as the Grocery Task Force. “Everyone just had to agree that we’re going to go for it as a community.”

The bank Fisher leads, SJN Bank of Kansas, made one of the project’s first donations: $50,000 toward the purchase of land. Later, the bank’s board committed to a $2.2 million loan at a 4% fixed interest rate – better than any subsidized public program that Dunn and Bevan found.

The next step was buying land without a loan.

“You don’t take out a loan in the beginning without a business to pay it back,” Dunn says.

So she and Bevan sought more funds. They received a $15,000 Sunflower Foundation planning grant. An anonymous private donor gave $80,000. At that point, they had enough to make an offer to buy a local auto parts and repair shop on U.S. 281 that could be demolished.

Fisher personally owned land adjacent to that tract and agreed to donate a sliver of it.

Dunn called White again to say they could meet all his requests. They’d even lined up a pharmacy.

White remained hesitant. Given the size of St. John, he believed the rural grocery store would need to offer more than food to survive. A 2016 study by Sageworks named groceries as one of the country’s least profitable industries, with a net profit margin of 2.5% nationally. Volume is the only way to profit, and with Dollar General about a block away, customers would need an incentive. White wanted to try gas pumps and a convenience store.

But the land that would host the future Stafford County Marketplace faced the Kanza Co-op gas station, the only fuel seller in St. John. By that time, more than a year had passed since Dillons had closed. St. John resident Audra Trosper, a Great Bend Walmart employee with three kids who she says “eat like locusts,” began planning to move.

Dunn needed numbers and arranged for a fuel study, which found that St. John residents were buying fuel out-of-county 60% of the time. With gas pumps, a new rural grocery store would see a projected increase of 16% in grocery sales each time a customer bought fuel.

“It’s not about fuel profit, it’s about getting people in the door,” Dunn says.

Dunn called White again to inform him they’d add the gas component. Now would he sign? 

“I just about fell out of my chair,” White says.

But he signed, agreeing to operate in the future Stafford County Marketplace for at least a decade.

“If you’re willing to put up that money, I guess we’re willing to try it, too,” he recalls telling Dunn.

 

  • Exterior of closed St. John Dillons
    This former Dillons is now used as a warehouse by the City of St. John.

 

Hanging Together

Most of the money was yet to come. Nearly $4 million is tough to amass in a place like Stafford County, where the poverty rate of 13% exceeds both the state and national averages and where the biggest employers are the school, county government and the Stafford County Hospital, 15 minutes away.

Still, “you can’t borrow it all,” Dunn says. “We needed to raise equity.”

With more research, Dunn found a potential jackpot: a grant from the U.S. Department of Health & Human Services’ Community Economic Development program, which focuses on job creation for low-income individuals. Past grants generally ranged from $150,000 to $800,000 or more each, and encouragingly, Kansas appeared on a roster of awardees. In 2013, the Argentine Neighborhood Development Association had gotten more than $600,000 to bring a Save A Lot grocery to an underserved area of Kansas City, Kansas.

Like every step in the grocery-development process, completing the 200-page federal grant application was daunting for Dunn and Bevan. Dunn picked up her phone and asked for help, this time from a mentor who had advised on the Argentine neighborhood’s application, and from a Kansas City legal firm that could coach them on creating supporting documents they would need to attach to the grant, such as a development agreement with the city of St. John.

The Sunday before the grant deadline, Dunn toiled until 3 a.m., the glow of her office computer illuminating her 8-year-old, who slept on the floor. Just in time, she hit send on a request for the maximum grant amount, $800,000.

“She doesn’t let challenges overcome her,” says David Procter of Kansas State University’s Rural Grocery Initiative. “She kept moving forward, moving forward, moving forward, talking to different stakeholders, funders, policymakers. It’s really a real credit to her.”

Dunn, an Ottawa native, leaned on experience she’d gained working on Capitol Hill for the U.S. Department of Agriculture. After she moved back to Kansas to marry a farmer, she joined the local community foundation board in the early 2000s and began to think beyond what small donations could do for the county.

“Let’s not talk about $250, let’s talk about what Stafford County needs most – good leaders,” she says.

Through the Golden Belt Community Foundation, she spent six years convening gatherings of young adults from a four-county area. But while she trained young people to lead, she absorbed the training, too. So when the Stafford County Commission created Stafford County Economic Development in 2010, Dunn was a natural fit to lead it.

Dunn and Bevan knew the project would fizzle without that grant. And the clock was ticking as residents flocked out of town for food. While they waited for news on the grant, they proceeded to the next phase: construction bids and tax-increment financing.

“No one around here has been through that,” Dunn says.

But with $70,000 in potential annual sales and property taxes from a rural grocery store – money that could go toward paying down debt – the City Council was on board. The Kansas City legal firm advised them on the details, such as when to issue public notice of a hearing. The summer of 2017 was a blur for Dunn, who found herself negotiating details of the TIF district in a Nebraska hotel room while her child competed in a cattle show.

Dunn and Bevan were cleaning the Hudson house again that October when the phone rang with good news about the grant.

The $780,800 award was a game-changer, “but it wasn’t enough to hit the mark,” Dunn says. By that point, they had cobbled together a smorgasbord of financing, including a no-interest, $1 million U.S. Department of Agriculture loan, which the SJN Bank of Kansas agreed to guarantee.

The city of St. John had kicked in sales-tax proceeds of $50,000 a year for a decade, plus money from the TIF district. Several other grants flowed in from around the state.

Eventually, the Stafford County Marketplace got financing from 12 sources, a mix of public, private and nonprofit money. That’s common for groups opening grocery stores in food deserts, Procter says.

“Carolyn’s situation is a little unique,” he says. “I don’t know of any others that have taken 12. But almost always there are multiple financing partners.”

Procter’s project, the Rural Grocery Initiative, kicked in $75,000 as part of the Kansas Health Foundation’s Kansas Healthy Food Initiative to draw grocery stores to rural and urban “food deserts,” where grocery stores are absent within a mile of urban neighborhoods or 10 miles of rural towns. With Dollar General providing only limited food, St. John met that qualification.

A $200,000 funding gap remained, but Dunn thought of a loophole that could erase it: a sales-tax exemption for construction costs from the Kansas Legislature. But despite their lobbying efforts, neither the House nor the Senate moved bills allowing for that to the floor. Federal legislation that could help remained similarly frozen.

In the absence of help from the Legislature, the community turned to industrial revenue bonds for the $200,000. The nonprofit Stafford County Economic Development could not issue them and secure the right to exempt sales taxes. But the City Council could and agreed to do so.

“It did take another element of hanging together,” Dunn says.

  • A Dollar General store in St. John is both a resource and a threat.
    Dollar General has become ubiquitous in small-town America. It has represented both a lifeline for residents and a threat to St. John's new homegrown grocery.

Dollar General: Barrier, Savior or a Little of Both?

When White’s Foodliner opened in October 2018, Audra Trosper walked in with her mother, Judy Shafer. Gleaming, packed aisles spread before them, laid out as two-thirds rural grocery, one-third convenience store.

Rows of energy-efficient coolers included produce, prolonging shelf life, saving labor costs and whittling away waste. One cooler offered six different cuts of roasts, butchered on site. Another boasted a variety of yogurt brands such as Greek Gods, Chobani, Fage and Noosa. An array of oils, from avocado oil to grapeseed to walnut, fanned down one shelf. Alternative milks, such as almond milk and oat milk, took up five shelves.

Trosper turned to Shafer. “Oh yeah,” she said, “we can work with this.” They canceled their moving plans.

She says she shops for food in St. John because of the quality selection, including the potatoes, produce and deli offerings – especially the rotisserie chicken.

“I try to do everything that the big boys do,” says Jordan White, son of Pat White and operations manager for the White’s Foodliner chain. “There’s nothing different between small town people and big town people, there’s just less of them.”

The big question is revenues. As of late spring – seven months into the operation – they were promising, the Whites said, if not quite on target with the $3.5 million a year in grocery sales Dunn had projected.

“We know it takes time,” Pat White says. “We’re patient and in this for the long haul.”

Small, independent stores, Dunn says, “fight the perception that it’s more expensive to do business with them.”

 

Dollar General, with a reputation as a formidable competitor, opened in St. John in 2010, six years before Dillons closed. Most Dollar General stores don’t sell meat or produce, although that market is expanding. But their sales of packaged goods and paper products take “all the cream off the crop,” Jordan White says.

A small, independent grocery needs an average of 15 to 17 employees, says Procter of the Rural Grocery Initiative, while a Dollar General typically employs five to seven people. White’s Foodliner in St. John employs 30, Jordan White says.

“Dollar General is the biggest threat to small-town America,” Jordan White says. “If they didn’t exist, we could do this in every town.”

Dollar General’s business model has flourished in small towns. Three-quarters of Dollar General’s more than 15,370 stores nationwide serve towns of fewer than 20,000 people. Another 975 stores are slated for construction in 2019.

“That’s three a day,” White says.

Dollar General opened its first store in Kansas in 1982, and now operates in about 230 locations statewide, according to spokeswoman Crystal Ghassemi. The company plans to add five more stores by February 2020.

But that lineup could have been larger. In February 2018, the Buhler City Council denied Dollar General’s request to open in their city of 1,300 northeast of Hutchinson. The council’s unanimous decision to protect Buhler’s grocery, Hometown Food Stores, came just after a similar-sized sister community 20 minutes south announced its grocery store would close. In Haven, the owners of the Haven Foodliner, Doug and Cindy Nech, said revenues dropped at least 35% after Dollar General opened in Haven in 2015, according to The Hutchinson News.

Since 2008, the Rural Grocery Initiative has tallied the number of grocery stores in Kansas towns of 3,000 people or fewer. As of 2017, 193 such stores remain – a net 22 fewer than in 2008, Procter says. Almost a third of Kansas counties were classified that year as food deserts, according to the Kansas Health Foundation. More than 100 communities with 3,000 or fewer people have Dollar General stores.

Rural grocery owners used to identify chains such as Dillons, Walmart, and Sam’s Club as their biggest competitors, Procter says. More and more, they name Dollar General.

“If a grocery store and a Dollar General are in town, there are real benefits to supporting the local grocery store,” he says. In the absence of a local grocer, Dollar General’s limited offerings can be seen as a lifeline.

St. John’s Dollar General filled that role after Dillons’ closure, says Mark Bryant, who now serves as St. John’s mayor. He stopped his regular bus runs to out-of-town grocery stores after a couple of months because Dollar General added coolers for milk and eggs and cleared shelf space for bread and other staples. Bryant says that in the early days after Dillons left, customers would empty Dollar General’s food shelves almost as fast as the employees could stock them.

Shuttle riders told Bryant they wanted to shop Dollar General so they wouldn’t lose it, too.

“They took care of the community and I, for one, will always be grateful to them,” says Bryant, who also leads a community-based job training program for St. John High School students.

If a town does decide to embark on a project like the Stafford County Marketplace, Procter says, a dedicated leadership team like Dunn and Bevan is crucial. (Read about four leadership lessons from St. John’s efforts here.)

“Now that I know the process, it’s not brain surgery,” Dunn says. “It’s not a grocery problem; it’s a population-decline and economic development problem.”

Part of the White’s Foodliner marketing strategy is connecting with the community. Social media commercials featuring the lilting tenor of employee Rankin Fisher have gone viral. In a St. Patrick’s Day scene, Fisher wore a kilt and sang, “Buy one … and you’ll get one free” to the tune of “Memory” from the musical “Cats.

“Way to go all of St. John!” a commenter wrote of one of Rankin Fisher’s videos.

That’s exactly the attitude that’s needed, Procter says. And it must translate into measurable action. Will residents buy the bulk of their groceries there? Tell their friends to shop there? Show up to community events sponsored by the store?

“Really small towns can sustain a grocery store if the community is supportive of that grocery store,” Procter says.

The outlook is promising in St. John, where more than 100 residents helped in some way to bring White’s Foodliner to town.

Dunn says the process has given locals confidence that “Hey, we can do things that help change the future.”

Journal Fall edition cover

A version of this article appears in the Fall 2019 issue of The Journal, a publication of the Kansas Leadership Center. To learn more about KLC, visit http://kansasleadershipcenter.org. Order your copy of the magazine at the KLC Store. For a subscription to the printed edition of The Journal, visit  https://kansasleadershipcenter.org/store/one-year-subscription-to-the-journal-4-upcoming-issues/.

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