An editorial by the Tallahassee Democrat on May 17 shrugged at a recent viral post by local restaurateur Mike Ferrara of Cabo's Island Grill -- suggesting that the only difference between chains and independent businesses was where the profits go, so do whatever you want -- and included only the paper's opinion that was factually unsupported. This letter to the editor was submitted the next day:
Fact: Chains and Independents are actually very different
Regarding The Democrat’s recent editorial on the difference between chains and independent local businesses (“Our Opinion: Chain Reaction”, May 17, 2016), I’m sorry to say that you got this one wrong. Statistically speaking, more than 300% wrong.
But from the outset, let me clarify that this is not about any one business or whether chains are evil. I agree that people should spend their money how and where they wish. And there are both local stinkers and chain champions. But where money is spent does, in fact, matter.
The editorial read, as its first point, that “The only economic difference between a chain and a locally owned restaurant is that the profits go into the pockets of someone who either lives in this community or is based here.” And therein lies the problem.
It is not just about profits. It is about how much money overall stays in the local economy, and how it recirculates.
There exists now a substantial body of both quantitative and qualitative data on the impact of independent businesses on local economies. It is readily available, peer-reviewed, and incorporated in policy decisions from the federal level down.
One economic research firm that studies this exact issue is called Civic Economics, and they are generally regarded as a pioneering expert, with scores of studies that have included Austin, TX and Boulder, CO, to name a few. Their figures are also the middle of the statistical field, so they will be our reference.
Accounting for all retail spending, the studies have shown that when a dollar is spent at a chain retail store, a mere 13.6 cents stays in the local economy. That is a statistical average, no matter where you are. 86% of each dollar leaves.
But by a stark contrast, when a dollar is spent at an independent local business, 44 cents stays local and spurs much more economic activity ... more than three times as much. (And that return is much higher in the restaurant industry.)
This difference is because of what has been deemed the “the multiplier effect”, and it consists of three elements.
The first is direct impact – which is the money a business spends to operate, for things such as labor, inventory, etc.
When this direct spending is shared with other local businesses – as happens a substantially larger portion of the time with independents – it creates the second element: indirect impact.
Local restaurants buy more from local farmers, for example and on average, and those local farmers then recirculate the money into their business … perhaps to hire more help for the higher demand.
And this leads to the third element, induced impact. That farmer’s hired hand, now more gainfully employed, might then hire a local plumber to fix some leaky pipes at home. And around and around it goes.
Chains, generally speaking, put much less money back into a local economy from the beginning of the process, and as such, there is much less to recirculate.
Further, independent business owners donate more to charities as a percentage of revenue. And, on average, pay their employees more, and offer better benefits, when compared to their industry equivalents.
And finally, independents are also incubators of organic local culture, as they are the ones that hire local performers and artists, among others – creating economic opportunity for the creative class while helping to make Tallahassee more like Tallahassee (and attract more visitors!)
Under this premise, you find that where you spend your money does matter. And when you spend a dollar with your neighbor, you are supporting yourself and your neighborhood more as well. Three times more.
Joe Berg is a marketing consultant and an advocate for stronger organic culture and a stronger local economy in Tallahassee. He is also the President of the All Saints District Community Association, and serves on the boards of several community organizations.