Retail’s Transformed Consumer Changing Grocery-Anchored CRE Investment Strategies

Sources: RetailTrafficMag.orgColliers International | white paper: Dollar Days, CoStar

Call it convenience or say its selection, consumers are purchasing their consumables in establishments other than traditional grocery stores. General merchandising chains, warehouse clubs, dollar stores and drugstores are catering to a transformed consumer who is trending toward the one-stop shopping experience. Retailtrafficmag.org  reports as multiple retail operators add grocery products to their shelves, traditional supermarket chains have found themselves squeezed in their own market segment. At the same time, the ever-widening pool of upscale and organic supermarkets are providing more choices to well-to-do shoppers unswayed by Wal-Mart’s prices.

Ann T. Natunewicz,Manager of Retail Research | USA at Colliers International, reports in the white paper Dollar Days, that the recession paired with the rapid evaporation of wealth, both real and perceived, has profoundly changed the way Americans shop, how they think about the buying experience, and how they define value. As dollars migrate away from some discretionary spending, retailers’ mission to provide value has intensified competition in need-based product categories. Food is one of them. Traditional grocers, drive-up grocers, supercenters, organic markets, warehouse clubs, drugstores, and dollar stores now jostle each other in an extremely crowded food-at-home marketplace.

The white paper Dollar Days  states that developers, owners, and investors have taken notice, realigning their startegies to embrace the lower risk prospects of either retailers or properties that derive significant profits from food sales.  And, while well-located, grocery-anchored retail remains the most sought-after asset class, investors have expressed more interest in regional malls and mixed-use properties, but not ground-up development. 

While Western PA has experienced activity in the grocery-anchored sector, including three new Bottom Dollar grocery locations of 22,000 SF, 19,000 SF and 18,000 SF as Bottom Dollar enters our market, supermarket chains nationwide are declining, through either bankruptcy or store closings. “The Pittsburgh market is a great example of overcrowding in the supermarket industry,” said Brad Kelly, Director of Retail Services at Colliers International | Pittsburgh. “It remains to be seen if Bottom Dollar, Save A Lot, Aldi’s, WalMart and Valu King can all survive in the discount grocery category. I would expect there to be closings in the next few years as competition weeds a few locations out. We will be watching it closely.”

Retailtrafficmag.org reports in 2010, A&P, once the largest supermarket chain in the country, filed for bankruptcy; in late 2011, Winn-Dixie, a regional grocer with a focus on Southeastern U.S., was sold to BI-LO; Supervalu Inc., which operates more than 2,500 stores around the country, is on “death watch, ” according to David J. Livingston, head of supermarket consulting firm DJL Reasearch.  Earlier this year, Delhaize announced that it would close 113 underprforming Food Lion stores and Safeway sold off or closed stores in its Northeast-based Genuardi’s division.  Plus, Supervali will likely close more stores as it attempts a turnaround.

Traditional mid-market grocers as a group have all but stopped growing, notes Ryan McCullough, real estate economist with the research firm the CoStar Group. According to an index McCullough put together, since 2007, the amount of new leasing traditional supermarkets have done by square footage has declined approximately 60 percent. During the same period, high-end grocers expanded their square footage by 72 percent. In fact, Whole Foods executives talked about growing to as many as 1,000 stores in the U.S. including smaller markets.

The anemic growth among mid-market supermarket chains has been reflected in the vacancy rates for neighborhood shopping centers. In the second quarter of 2012, the vacancy rate at neighborhood shopping centers nationwide averaged 11.3 percent, according to CoStar statistics. The figure reflected the highest vacancy rate for any property type in the retail universe and was also just 20 basis points below the vacancy peak reached in mid-2001 at 11.5 percent.

Posted on August 13, 2012, in Retail and tagged , , . Bookmark the permalink. Comments Off on Retail’s Transformed Consumer Changing Grocery-Anchored CRE Investment Strategies.

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