Small town in Kentucky did a similar thing with a municipally ran gas station.
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Main streets with Mom and Pop stores are really nice. It seems like you'd get more soul from than a government store. But I don't know how you would incentive then sufficiently, as it's really tough to run a small storefront when competing with online.
The real problem is that we fucked over main streets 75 years ago with deliberately car-dependent zoning policies and massive subsidies for car infrastructure. Now all we're allowed by law to build are shitty stroads with big-box stores.