I think to a degree there's some equalization happening that small towns can't handle. I can't buy a gallon of milk for under 4$ anywhere in the urban area I live. Even if I drive up to walmart on the edge of the city. When I travel to smaller towns (which is a lot - I'm gone almost every weekend camping, exploring, biking, what have you) I'm often shocked at how places so far from transportation hubs can have goods so cheap.

I don't believe it's sustainable, and the more the economy becomes de-localized, the less it can be realistically sustained. I think small towns like this are in for further decline the more centralized commerce becomes. It saddens me to say this, but many of these small towns don't provide much for the current big company driven economy, so why should the big companies care?

I don't think I'd really know until I broke down costs for overhead like rent, utilities, labor, etc. Most of those would be much higher in a urban setting than a rural. Then there's theft, spoilage, etc. Transportation is only one of those items. I think we would be shocked at how much the cost of an off the shelf physical item, isn't the item.

A lot of that, in the specific case of milk, is that farther out from cities you can sell it fast enough to make sense. Milk is, legally speaking, "good" for about 2 weeks from the time it comes out of the cow. If you're in a city where everyone eats out at all meals, you might not sell enough out of one store to avoid spoilage. This means that costs to the store go up since they either have to pass on high trucking fees per gallon for buying few gallons, or they amortize those costs and end up charging more per gallon because they throw a lot of it out. Conversely, out in farming country where I grew up, the closest restaurant was 20 minutes drive away, so we didn't eat out much and bought a lot more groceries than the people I lived with in NYC. This means that the Meijer in town rarely has to throw out milk for being passed the sell by date, and is large enough, with people coming in from a 50 mile radius, to move the volume to get volume discounts. Doesn't hurt that a reasonable quantity of their milk is bottled in town and comes from cows about a mile from my house... "Far from transportation hubs" is relative to what you're transporting...

I'm sorry but that sounds ridiculous, do you have actual experience with this sort of thing? I don't, but I'd be pretty blown away if a supply chain logistics expert came in here and said that groceries cost less in rural locations because people don't eat out as much. Why would they be unable to account for that? Do you really think urban consumers have random and unknowable patterns of grocery consumption that would lead to more spoilage?

I'm gonna need to see some sources to back up this claim.

Yeah, I'm going to go with low rent, low wages and low willingness to pay.

US government stats report the national average cost for a gallon of milk is over $3 so any large retailer selling it for a buck a gallon is using it as a loss leader to draw folks into the store. And for more anecdata, our local DG runs $1 and $2 gallon milk sales frequently for the same reason.

I've not been making much lately, and at my last place I actually drew up a spreadsheet of a couple dozen staple groceries that I buy regularly and noted their standard prices at the four stores nearest to me. It was quite useful in deciding when to shop nearby and when it was worth making a longer trip.

If your two options are overpriced, what is stopping a newcomer from opening up shop?

You need more volume than a small town can provide to turn a profit at such low margins.

Which means that the available options aren't overpriced

Well where I'm from all the local businesses are either competitive on price or politically connected.

If you can't/wont be competitive on price well the selectman better be your friend. When the selectman is your friend you need not fear competitors. Their site plans will be bogged down in red tape and bureaucracy.

Economies of scale.

I don’t understand what economies of scale would have to do with being a middleman merchant. It doesn’t take a lot of capital to open a store, and there aren’t many legal barriers, and the workers don’t need to be trained. If there are only two stores, and no one is opening a third, then that must mean there’s not enough profit to make up for the risk of failing and continual operation of the business.

  > It doesn’t take a lot of capital to open a store

I think you underestimate the cost. AFAIU it takes significant capital to open a store, and there are far fewer people in rural areas both capable and willing.

Real estate and labor is still a significant expense. Outside of unionized grocery stores, it's not like store clerks in New York City or San Francisco are making $25/hr.

But to even open a small convenience store you need to purchase tens of thousands of dollars in stock, plus have enough reserves to keep your store operating, able to turnover product, for at least 6 months of negative cash flow. This applies even if you're not franchising.

Basically, even in a rural area your startup costs are easily in the $100,000 to $200,000 range for a small store--at least for anything bigger than a bait shop. Plenty of people in rural areas could secure that kind of financing using mortgages, but once you factor in risk of failure and opportunity costs, you need a pretty significant pool of potential investors before you can expect one of them to take the plunge, and in rural areas the available pools are just too small.

Opportunity cost is a huge deal. Somebody with enough assets to secure a $200,000 loan _and_ who is prepared to lose it all, is probably going to see a significant cut to their earnings compared to what they could be making elsewhere. This is why you see so many immigrants as shop owners--their opportunity costs are effectively lower, by dint of them being first-time players in the local economy, than a native with equivalent assets.

Similarly, outside corporations have to answer to shareholders. Even though well-financed corporations could easily open more stores while still making a profit, such capital has more earning potential elsewhere.

The upshot of all of this is that 1) rural consumers pay significant rents for living in comparatively uncompetitive markets, and 2) theoretically there's ample opportunity for a philanthropic entrepreneur to improve the quality of life of a rural town by strategically opening small stores with more competitive prices. Indeed, professionals who retire to a small town and open a small store are often effectively doing exactly this. (Similar to how well-heeled spouses in large cities burn money on boutique shops, except compared to the retired couple they have less need to actually be profitable, or care about whether they'll put someone else out of business.)

A few hundred thousand is expensive, but not so expensive as to create a barrier to entry restricting the supply of stores in the market. My point is that the risk and possibility of return is so low that it's not worth opening a store, and if that is the case then the existing stores are not "overpriced". They're priced exactly where they should be in order for the business to operate.

Which would imply that they are not, in fact, overpriced.