After this post, I promise to stop continually plugging the work and writing of Aziz Sunderji — at least for a few days. Over the weekend, I wrote about his recent post on happiness in America. Today, his latest post is about what happens to home prices after a particular grocery store opens. And for this, he looked at 32,000 store openings dating back to the mid-1970s and then compared them to ZIP-code-level home price data.
Here's what he found:
The average Walmart neighbourhood in this study has a median household income of $49,000, a college degree attainment rate of 23%, and a median home price of $144,000. And when a new Walmart opens, home prices have tended to underperform the national average by about 4% in the three years that follow.
On the flip side, the average Trader Joe's neighbourhood has a median household income of $82,000, a college degree attainment rate of 52%, and a median home value of $425,000.
Importantly, though, Trader Joe's isn't just picking neighbourhoods with obviously favourable demographics (retail is a lagging indicator — it generally comes once the demand is already there). It seems to be picking neighbourhoods that, in the words of Aziz, have "room to keep running." In the three years that follow a new Trader Joe's opening, homes in those ZIP codes have tended to outperform the national average by 6%!
One of the fascinating things about this finding is that it seems to perfectly support the company's target market. It has been said that Joe Coulombe (founder of the company) used to describe his target customer as "overeducated and underpaid." In other words, he actively targeted university graduates.
But being underpaid only lasts so long. We know that educational attainment is typically the single best predictor of household income. So, if you target this group, chances are that they'll eventually become fairly paid or maybe even overpaid. And when this happens, I guess it shows up in area home prices.
Cover photo by Karolina Bobek on Unsplash
Chart from Home Economics