Taking the pulse of independent businesses

A new study finds that independent businesses in Hennepin County have lost market share to chains during the past two decades, with Uptown and Lyn-Lake standing out as bastions of independent business strength. 

The study — conducted by Civic Economics and funded by American Express — looked at how the market shares of independent retailers and restaurants changed year-to-year from 1990 through 2009. Fifteen metro counties throughout the country were pre-selected for close scrutiny, including Hennepin.

In 1990, independent retailers in Hennepin County had the seventh largest market share relative to chains out of the 15 metro counties examined. But that market share steadily declined during the early ’90s, and by 2009 it had fallen to 13th overall.

Dan Houston, partner at Civic Economics and one of the study’s co-authors, hypothesized that the opening of the Mall of America in Bloomington in 1992 was a primary reason for the ascendancy chains in Hennepin County.

The Mall of America “added just an extraordinary amount of space that is very heavily chain-driven,” Houston said. “That almost by itself would change the market shares.”

The relative market share of Hennepin County’s local restaurants and bars was more consistently mediocre compared to other major metro counties, holding steady at eleventh overall in 1990, 2000 and 2009.

In addition to looking at countywide market share, Civic Economics also selected zip codes with reputations for independent business vitality and compared them with their encompassing counties. In Minneapolis, Civic Economics looked at the 55408 zip code, which includes both Lyn-Lake and Uptown.

As might be expected, independent businesses in Lyn-Lake and Uptown held a much larger market share than independents in other parts of Hennepin County.

In 2009, independent retailers in the 55408 zip code did more than $40 million in sales, compared to slightly more than $20 million for chains. That same year, independent restaurants in 55408 also did about $40 million in sales, compared to just $2 million for chains.

On the other hand, for Hennepin County as a whole, retail chains did more in sales than independents (in 2009, a little over $4 billion compared to a little over $3 billion, respectively), and chain restaurants closed ground on independent restaurants during the 20-year study period (in 2009, Hennepin County’s independent restaurants did over $700 million in sales, compared to slightly under $500 million for chains).

Mike Finkelstein, vice president of Ackerberg Properties, cautioned against taking the distinction between independents and chains at face value.

Finkelstein cited the example of Punch Pizza, a locally owned chain that, in his opinion, has done a remarkable job adapting to the different Twin Cities communities its various locations call home.

Because the restaurant does such a good job adapting, neighbors don’t view Punch as a chain despite the fact there are seven metro locations, Finkelstein suggested.

“I think the problem people have is when you have something that is so standard it doesn’t feel right in a certain neighborhood,” he said, mentioning Starbucks as the type of corporately owned chain that doesn’t invest much effort into adapting.

Matt Perry, president of the Nicollet-East Harriet Business Association (NEHBA) and owner of Twin Cities PC MD, said the study results shouldn’t be interpreted as indicating that local independents have lost momentum over the past two decades, particularly in Southwest.

Anecdotally, he said that when he and his wife first moved to Southwest in 1992, they would often drive to St. Paul for dinner.

“Now I can walk half a block and go to Piccolo’s, a nationally acclaimed eatery,” Perry said. “And I have dozens of independent restaurants within a walk or short drive.”

Beyond anecdotes, Perry cited a recent NEBHA study as further proof that Southwest independents remain strong.

Conducted this summer, the study asked businesses in NEHBA’s service area — which covers eight neighborhoods, 420 city blocks and 400 storefronts — whether they are in better financial shape than they were in 2009 and whether they added workers during that same period.

While the study was unscientific, most NEHBA-area businesses reported that weren’t doing worse than in 2009. Forty-two percent said they were in the similar financial shape, 26 said they were better off and 32 percent said their financial situation had deteriorated.

Only 19 percent of NEHBA-area businesses reported that they had downsized staffing since two years ago, 45 percent maintained staffing levels while 35 percent hired additional workers.

Perry pointed out that the commercial vacancy rate within NEHBA’s service area is currently less than 5 percent, lower than it was two years ago. Ninety-five percent of NEHBA’s due-paying members are locally owned.

Perry suggested, regardless of what’s going on in Hennepin County more broadly, the independent business community in Southwest is as strong as ever, if not stronger.

The decline of independents “is not something we are seeing in the NEHBA service area, nor, I’d be so bold to say, in Southwest either,” Perry said.

Reach Aaron Rupar at arupar@mnpubs.com on Twitter @atruparJournals.