Independent Businesses Deliver Bigger Economic Benefit, Study Finds

October 2, 2012

By Stacy Mitchell

Choosing a locally owned store generates almost four times as much economic benefit for the surrounding region as shopping at a chain, a new study has concluded.  The analysis also found that eating at a local restaurant produces more than twice the local economic impact of dining at a chain restaurant.

The research firm Civic Economics analyzed data from fifteen independent retailers and seven independent restaurants, all located in Salt Lake City, and compared their impact on the local economy with four chain retail stores (Barnes & Noble, Home Depot, Office Max, and Target) and three national restaurant chains (Darden, McDonald’s, and P.F. Chang’s).

The study found that the local retailers return an average of 52 percent of their revenue to the local economy, compared with just 14 percent for the chain retailers.  Similarly, the local restaurants re-circulate an average of 79 percent of their revenue locally, compared to 30 percent for the chain eateries.

What accounts for the difference? In a handy graphic, Civic Economics shows the breakdown. Independent businesses spend much more on local labor.  They also procure more goods for resale locally and rely much more heavily on local providers for services like accounting and printing.  This means that much of the money a customer spends at a local store or restaurant is re-spent within the local economy, supporting other businesses and jobs.

Chains have little need for local goods and services, and keep local labor costs to a minimum.  Most of the revenue that these stores and restaurants capture leaves the community.

This study was sponsored by Local First Utah.  “Most of us have a natural sense that local businesses are good for communities,” said Betsy Burton, who co-chairs the organization’s board and owns the King’s English Bookstore. “And studies in other parts of the country have borne this out… Now we have hard evidence right here in our own city that consumers can have a huge impact on the local economy, just by shifting some of their purchases to local businesses.”

The study is part of a nationwide research project being conducted by Civic Economics in partnership with the American Booksellers Association.  Other communities where a similar data analysis is underway include Bainbridge Island, Washington; Chicago, Illinois; Las Vegas, New Mexico; Louisville, Kentucky; Milwaukee, Wisconsin; Pleasanton, California; and Raleigh, North Carolina.

Stacy Mitchell is a senior researcher with the Institute for Local Self-Reliance, where she directs initiatives on independent business and community banking. She is the author of Big-Box Swindle and also produces a popular monthly newsletter, the Hometown Advantage Bulletin. She lives in Portland, Maine, and has lately joined Twitter.