Philly’s biggest employers spend billions outside the city. Inside a new effort to bring that money home.
Advocates are pushing the city’s universities, hospitals, and large companies to buy from local Black and brown-owned businesses to boost the economy.
SUPRA EMSCO, a Black-owned office and lab equipment supplier, has been a bright spot for Philadelphia’s pandemic-battered economy.
The company is building a new headquarters in the city’s West Parkside section, a sign of prosperity that defies the economic turmoil that has shuttered so many other businesses. Unemployment still hovers above pre-pandemic levels, yet SUPRA EMSCO plans to hire 50 to 70 West Philadelphia residents, including construction, sales, and warehouse workers.
The headquarters deal and hiring spree are possible because of a 2018 contract that the company received from the University of Pennsylvania. As part of Penn’s efforts to buy more goods from local Black-owned firms, SUPRA EMSCO split a $20 million-per-year deal to provide Petri dishes, glassware, and other lab supplies. The steady revenue not only helped the firm build its headquarters but attracted other big clients. SUPRA EMSCO has since won contracts from Temple University, Thomas Jefferson University, and the Children’s Hospital of Philadelphia.
“A customer like [Penn] gives you credibility,” said CEO Lin Thomas.
SUPRA’s success is cited by advocates pushing the city’s universities, hospitals, and large companies to buy from local Black- and brown-owned businesses to boost the economy. Although the concept is not new, the economic downturn and police killing of George Floyd in May have catalyzed efforts to close racial disparities in business and ensure the economic recovery is equitable. And research suggests such spending can have a multiplier effect on the local economy, as dollars course through the city and create jobs.
Much of the attention is on Philadelphia’s “anchor institutions.” The term is usually applied to universities and hospitals, or large nonprofits that are unlikely to leave the community. But municipal governments, large corporations, or professional sports teams can also act like anchors, which play huge roles in local economies through their employment, real estate, and purchasing power, according to the Initiative for a Competitive Inner City, a research group. Anchors such as Penn, Temple, Jefferson, and Drexel may have an even larger impact in a place like Philly, a hub for universities and medical facilities.
Their purchasing power is what Jeff Hornstein, executive director of the Economy League of Greater Philadelphia, has tried to tap into in recent years. In 2018, he helped launch Philadelphia Anchors for Growth and Equity (PAGE), a partnership including more than a dozen city institutions that aims to increase local purchasing.
“That’s where the money is,” Hornstein said. “You can look at the City of Philadelphia. It spends [several] hundred million dollars a year on stuff. But if you look at the institutions, the universities and hospitals, they use the same suppliers and they spend billions.”
Recent research from PAGE found that anchors are spending a lot of that money outside the city. Seven of the city’s anchors, including Aramark, Independence Health Group, and Penn Medicine, spent $2 billion in 2019 across 19 categories of goods and services, including construction, security, and information technology. Of that $2 billion, just 22.5% was spent locally and 11.4% on firms owned by underrepresented groups, PAGE found.
Proponents say shifting more dollars to local and diverse firms is one way to ignite equitable economic growth in the nation’s poorest big city, which has gaping racial disparities in business ownership. Although Black residents make up nearly 41% of the city population, they accounted for 6% of business owners with employees in 2017, according to the latest figures from the Pew Charitable Trusts. Hispanic or Latino residents represent about 15% of the population but own 4% of employer firms.
By contrast, white residents represent 34% of the population but three-quarters of business owners with workers. Asians make up nearly 8% of the city population and owned 18% of employer firms, according to Pew.
There are a host of challenges in making such deals a reality. Local businesses may lack the personnel, experience, and equipment to take on hefty contracts from institutional clients. Risk-averse procurement officials often feel more comfortable working with existing vendors with established track records. Then there are more systematic roadblocks, from how long it takes to pay small vendors to a complicated proposal process that benefits big businesses.
Race plays a role, too, as business owners say companies can be hesitant to work with vendors who don’t look like them, while others dismiss diversity efforts as more concerned with quotas and not quality work.
Craig Williams said some clients of his Norristown construction company, Pride Enterprises Inc., have pigeonholed him as a Black contractor instead of viewing him as a qualified one. They could be reluctant to award him large contracts, he said, or offer mismatched opportunities that don’t align with his capabilities.
“What you’re offered is a reflection of somebody’s notion of what a company led by a person of color can handle,” Williams said. “But you take it because you don’t have a lot of alternatives.”
‘Life-changing” for small businesses
Anchor institutions are typically influential and deep-pocketed, able to impact the civic landscape with their spending. But they are also, almost by definition, large enterprises that can get tangled up in internal bureaucracy and institutional inertia.
Penn officials have long worked to reshape their spending practices to hire more firms owned by underrepresented groups. But that’s no easy task at a sprawling university with 1,000 officials who can buy goods and services on behalf of departments and sports teams.
With such decentralized procurement, Penn executive vice president Craig Carnaroli said the university grades departments on their success in buying from businesses owned by underrepresented groups. Although the scorecards don’t have teeth, they encourage buyers to make diversity a priority. Penn’s top procurement officials also suggest specific diverse suppliers to university buyers.
Penn is considered a leader in local procurement, spending $535 million on vendors within a 25-mile radius in fiscal 2020, up from $418 million five years ago. Penn spent $139 million on diverse suppliers last year, up from $114 million in fiscal 2015.
There’s still room to grow, though. The local and diverse spend figures amount to 45% and 13%, respectively, of Penn’s overall “addressable spend,” which excludes products or services where there is no local or diverse alternative.
The university uses existing relationships to encourage vendors to subcontract with local or diverse firms. In some cases, Penn gives them an escalating share of a contract as they grow, until they’re ready to be a primary vendor. The Ivy League school has also changed payment terms with small vendors so they get paid faster and avoid cash-flow problems.
“As we’ve grown, there is a sense that we can do more to leverage our buying clout to basically engage and bring in and help other firms grow,” Carnaroli said.
Winning contracts from institutional clients is one of the fastest ways to grow a business, said Jennifer Rodriguez, the president and CEO of the Greater Philadelphia Hispanic Chamber of Commerce. When dealing with individual consumers, firms must serve a higher volume of customers to turn a profit. But with an institution as a client, a single contract can provide a steady, predictable income stream, Rodriguez said. Those contracts can grow over time, making it an effective way to scale up.
“The value of a contract from Penn, Temple, or Drexel, for a small business, could be life-changing,” said J’nelle Lawrence, the director of the Economy League’s PAGE.
SUPRA EMSCO has seen rapid growth since securing a contract with Penn. SUPRA Office Solutions Inc. was founded in 2011 by Thomas and three other Black partners (COO Charles “Ken” Carter, CFO Derrick Suswell, and Ismail Shahid, executive vice president of sales and government affairs). The company provides paper, furniture, and other office supplies and expanded into lab supplies with the purchase of EMSCO Scientific Inc. in 2015.
Penn had an existing lab supply contract with giant Thermo Fisher Scientific but decided to seek bids as it expired, emphasizing diversity. That ultimately joined Thermo Fisher and EMSCO, and the firms split a $20 million-per-year deal that allows the local lab supplier to play a bigger role in the future.
Without Penn making diversity a priority, “I’m not sure Fisher would have done it,” Carnaroli said. “The margins on these things are thin, and so all of this takes extra work.”
After landing Penn as a customer, SUPRA EMSCO scored other contracts with anchors like Temple, Jefferson, and CHOP, the last of which pays the company to store pandemic supplies such as face masks. Thomas credits PAGE with connecting his business to those clients.
“The anchor institutions have to understand that the benefit of supporting small and local businesses ultimately will benefit them and the local economy,” Thomas said. “The dollars that are earned by the local businesses are more likely to stay in Philadelphia than the dollars that are made by the major corporations.”
Local businesses that win big contracts may hire other vendors or workers, who in turn spend their wages in the city. Every $1 million spent by anchors with local vendors actually amounts to $1.5 million in expenditures within Philadelphia, supporting 10 additional jobs, according to estimates from a 2014 report from the city’s Controller’s Office.
Universities and hospitals aren’t alone in trying to buy more from local Black- and brown-owned businesses. The Chamber of Commerce for Greater Philadelphia has encouraged its members to do so as part of its strategy to recover from the economic downturn, which has especially harmed Black-owned businesses.
The Philadelphia 76ers recently launched a “Buy Black” program to support Black-owned businesses and started to examine its procurement practices. “We don’t want to write a check and say, ‘OK, we’re done with it,’” said David Gould, the team’s chief diversity and impact officer. “We want something that’s more sustainable and more authentic.”
Similar efforts are underway in other cities. In Newark, N.J., anchors including Amazon’s Audible and Prudential Financial have collectively increased local spending from 3% in 2017 to about 14% last year, said Kevin Lyons, a Rutgers Business School professor who heads the city’s “Buy Newark” initiative. Lyons said he’s still working on an analysis of the impact of the local spending, but anecdotally he has seen suppliers boost revenues.
“In a handful of the situations, they’ve had to hire additional staff because this is probably one of the largest contracts that they’ve gotten,” Lyons said. “They want to make sure that they keep it.”
Anchor and company officials added that backing equity efforts and minding the bottom line are, for the most part, not in conflict. There are few instances where buyers need to spend more on local vendors, but those occasional extra costs are marginal.
“We have generally found that the diverse suppliers that we work with are competitive,” said Greg Deavens, CEO of Independence. “We’re not putting the organization at a disadvantage from a price standpoint.”
The Philly-based insurer spent about $64 million last year with businesses owned by underrepresented groups in the region. Independence would not say how that compares with its overall procurement spend, but Deavens said he expects that number to continue to grow.
While added cost is not an obstacle, the biggest barrier to jump-starting an economic recovery with this strategy is a lack of local businesses with the capacity and capital to handle large contracts, procurement officials and experts said.
The Economy League’s PAGE has worked to address this issue, acting as a consultancy to scale up small businesses. PAGE helps firms with their back office, information technology, capability statements, and marketing pitches, among other things, Lawrence said.
Deeply ingrained discriminatory practices in awarding contracts, however, remain among the most stubborn of obstacles for diverse firms, business owners said.
Williams, the construction business owner, said that over the years, he has encountered what he calls the “conflicted” client, whose bosses say they want to embrace diversity but then offer only limited opportunities.
“What is still rare, but is becoming less rare, is that bold, courageous client, who has a vested interest in your growth and your prosperity,” Williams said. “It’s becoming more popular, but still a rare quantity in the marketplace.”
The Future of Work is produced with support from the William Penn Foundation and the Lenfest Institute for Journalism. Editorial content is created independently of the project’s donors.