Look at “more bang for the buck” from a new angle.
Buying local is a powerful way to make your dollar work harder — creating jobs, increasing wealth, helping the environment and strengthening the community.
“There’s no argument. When you spend locally, more of it stays in the local economy,” said Nathan Landry, Colorado Springs Regional Business Alliance communications manager. “That alone helps create wealth and helps the folks who are living here.”
Money spent with independent local businesses circulates in the community differently than money spent at retail chains, big box stores or online, said Tom Binnings, senior partner at Summit Economics.
Independent local businesses are most likely to hire staff locally, and spend profits on payroll, goods and services locally, he said. These subsequent rounds of spending increase the local impact of that money far beyond the dollar value of the original purchase.
This effect is called the economic multiplier. It is seen when an increase in spending creates a ripple effect that ultimately generates increases in employment, income and consumption greater than the initial amount spent.
The economic multiplier includes the direct impact, indirect impact and induced impact stemming from every increase in spending, Binnings said.
“The direct impact is the first round of spending. Let’s say the dollars come in to the local community from wages paid to military personnel,” he said. “… That’s the direct impact. The military facility, say Fort Carson, then buys from local contractors based in Colorado Springs. The more they buy locally to support the facility, the more indirect impact is generated.
“All the wages paid directly to the military personnel and to the local contractors to support the installation, those …generate the induced impact, which is when everybody who’s got either a direct or indirect paycheck then goes and buys groceries at King Soopers. That in turn helps to employ a certain number of people at King Soopers.”
In 2014, the Colorado State Demography Office recorded a 1.84 percent multiplier for El Paso County, Binnings said. Every dollar spent ultimately generated $1.84.
“When you spend locally, more of it stays in the local economy.”
— Nathan Landry
All local purchases help, but consumers generate the greatest impact by spending at independent local businesses. By contrast, franchises immediately lose a percentage of profits to franchise fees, and retail chains make more national and international purchases, “so the money flows out of the community much quicker,” Binnings said.
Summit Economics senior partner Paul Rochette said buying from local farmers, for example, ensured the money was “used at least one more time in the region than it would’ve been otherwise — so money leaks out of the economy more slowly.”
Wendy White, marketing specialist for the Colorado Department of Agriculture, manages the Colorado Proud program, which promotes the benefits of food and agricultural products that are grown, raised or processed in the state.
“Agribusinesses in Colorado contribute $40 billion to the state economy on an annual basis and provide more than 170,000 jobs. It’s one of the top industries in the state — when people buy locally, they’re supporting that.”
White said buying local also helped “bridge the gap between farm and plate,” building relationships between farmers and consumers.
“Customers really want to know where their food comes from and to have a relationship with the producer,” she said. “Many families are generations removed from having a connection with a family farm or ranch. So we’re seeing this resurgence in families who want to have that connection.”
Buying local also generates important cultural benefits to the community, Rochette said.
“When we look at other communities we’re in competition with, in many cases it comes down to these intangibles: How desirable is the community? And the considerations, especially for young professionals … are the art scene, the restaurant scene, the sustainability attitude of the community — and ‘buy local’ contributes to that,” he said. “It helps a community to be more attractive to younger people who generally are concerned with sustainability.”
Landry said many “buy local” campaigns drew from the 2004 Andersonville Study of Retail Economics, which found local businesses generated greater economic benefits for the local economy than chain businesses. It also found changes in consumer spending habits could generate substantial local economic impacts.
The study of a Chicago neighborhood found that for every $100 spent at a local business, $68 remained in the city’s economy, while for every $100 spent at a retail chain, only $43 remained in the city’s economy. A 2012 follow-up Andersonville study supported the 2004 conclusions.
“If you pick any one individual who changes their [buying] behavior, it might make a $5 difference a month,” Binnings said.
“But when you add that up, it can become pretty significant.”