Written by Lena Ferguson and Kim Zeuli
Anchor institutions, or large, place-based organizations such as universities and hospitals, have always played significant economic roles in their communities. They are often the largest employers and real estate developers in their communities.
Anchors also drive economic growth by purchasing goods and services from local businesses. However, most anchors largely procure goods and services from companies located in other areas—other cities, states or even countries. Some anchor organizations have come to realize that increased local purchasing would help to grow local businesses and “buy local” initiatives are gaining in popularity across the country. Unfortunately, in spite of their good intentions, many of these efforts fail to achieve any measurable impact. Shifting purchasing locally seems straightforward but in reality it is difficult to implement.
A significant barrier to local purchasing is identifying specific anchor purchasing categories that are feasible, or addressable, opportunities for local suppliers. Such categories exclude all specialized products and services and represent goods and services that could be reasonably supplied by a local vendor. ICIC recently partnered with the Central Corridor Anchor Partnership (CCAP) in Saint Paul and Minneapolis, Minnesota, with support from the Central Corridor Funders Collaborative, to help the anchors identify specific purchasing opportunities (by industry) that provide the best opportunities for success. This analysis allows the Partnership to refine their local purchasing goals and move from generic to specific local spending strategies.
CCAP is a group of 10 healthcare and higher education institutions located along the new Green Line light rail transit line that bisects major commercial and residential corridors in Minneapolis-Saint Paul. The goal of the Partnership, established in 2012, is to leverage the billion-dollar Central Corridor transit investment to spark public and private sector investment in the people and places along the corridor and to realize mutual benefits for both institutions and communities. The anchors along the corridor realized that by collaborating they could have a significantly greater economic impact than they would have individually.
One of CCAP’s primary initiatives for the past three years has been to increase its anchors’ local purchasing along the transit line by five percent. ICIC helped CCAP drive their strategy forward by quantifying anchor purchasing patterns and identifying industries for shifting purchasing that would have the greatest local impact.
ICIC collected and analyzed 2014 purchasing data from 10 CCAP anchors, including seven educational and three healthcare institutions: Augsburg College, Bethel University, Fairview Health Services, Regions Hospital/HealthPartners, Hennepin County Medical Center, Metropolitan State University, Minneapolis Community & Technical College, St. Paul College, the University of Minnesota, and the University of St. Thomas.
In aggregate, the 10 anchors spent $3 billion in 2014. For their addressable purchases, the CCAP anchors already purchase a remarkably high percentage (57 percent) of their goods and services from businesses in CCAP’s three target geographies – the Central Corridor, the Minneapolis-Saint Paul MSA, and the state of Minnesota. Nearly 10 percent of addressable purchases are already made in the Central Corridor.
These statistics reflect the vibrant economy in Minneapolis-Saint Paul as well as a strong Minnesota pride and “buy local” culture. The Minneapolis-Saint Paul region is the primary hub for economic activity in Minnesota, so it is not very surprising that most of the addressable anchor purchasing happens within the MSA (46.5 percent). Clearly, the CCAP anchors have a lot to already be proud of in terms of local purchasing. ICIC’s analysis allows the anchors to quantify that impact.
That said, the ICIC study also found opportunities for the anchors to purchase more goods and services locally. Based on our analysis, CCAP has the potential to shift an additional $328.7 million of addressable purchases from businesses outside of Minnesota to businesses within the Central Corridor. If the 10 anchors collectively shifted an additional five percent of their addressable purchasing locally, it would result in an additional $16.4 million flowing into these businesses annually.
Our analysis also identified 36 purchasing industries that represent feasible opportunities for CCAP’s local purchasing strategy. These include six “quick win” industries, such as dry cleaning and laundry services and design services, where the anchors already buy a relatively high percentage of their goods and services from businesses within the Central Corridor. Given the existing relationships anchors have with Central Corridor vendors in these industries, and the achievable size of the gap or opportunity, anchors should find opportunities to expand purchasing within these industries.
The remaining 30 industries, including nonresidential building construction and special food services, represent local purchasing opportunities where current spending is far below the potential maximum or there is very minimal current purchasing from businesses within the Central Corridor. Because of this, CCAP anchors may have to invest more time and effort to identify local businesses or attract new businesses with sufficient capacity to handle anchor contracts in these industries. However, they also represent some “big bets,” and by focusing on just one of these industries, CCAP could achieve significant additional local purchasing. For example, CCAP has the opportunity to shift a portion of $37.2 million to local businesses in special food services, which would far exceed CCAP’s goal to increase local purchasing by five percent.
Armed with this new analysis and information, CCAP is working to refine their local purchasing strategy, recommitting to shift five percent of purchasing annually and prioritizing at least two industries for focus this year. CCAP is selecting the target industries, assessing vendor capacity, and determining opportunities to pursue joint contracting. “ICIC’s in-depth demand analysis provides an excellent opportunity for CCAP to increase the impact of our purchasing efforts,” says Ellen Watters, who manages and counsels CCAP.
Anchor purchasing strategies are often subject to declarations of support that are met with little action because the strategies are undefined and hard to implement. CCAP can now overcome this hurdle because the ICIC analysis allows them to set data-driven goals and focus their strategy on industries that have the greatest opportunities for success and local impact. With this purposeful approach, CCAP is a model for how to effectively execute on an anchor purchasing strategy and transform lofty ideas into action.