Convenience, proximity, and resilience. Those are the three great reasons why grocery-anchored centers lift neighborhoods and co-tenants, according to Jeff Edison.
The CEO of Phillips Edison & Company, one of the nation’s leading owner-operators of grocery-anchored centers, thinks supermarkets’ super showing during the pandemic shined a light on them as e-commerce fulfillment centers and suburban oases. Chain Store Age spoke with him about it as he prepared for the ICSC Las Vegas show.
Grocery-anchored retail continues to perform in the face of significant disruption. What makes these centers so resistant to disruption? It comes down to the necessity base of the retailers and the strength of the grocers. Customers make 1.6 visits per week to their local grocer, driving traffic to these centers which are close to people’s homes. Furthermore, many of the in-line neighbors at our shopping centers provide goods and services that are harder or impossible to acquire online. We still see tremendous demand for in-person fitness options, quick-service restaurants, and medical tenants.
In addition, we’re seeing macro-economic tailwinds that support strong growth of these centers which are located within the communities, including increased work-from-home, suburbanization and a desire to buy local.
What core macro trends are impacting grocery-anchored retail? We have seen a rising urgency among retailers to get as close to their end consumers as possible to advance last-mile delivery strategies, and this leads them to grocery-anchored shopping centers like ours. Our brick-and-mortar real estate plays a key role in the retailers’ omnichannel strategy and is complimentary to e-commerce, including buy online, pick-up-in-store and last-mile delivery. In addition, people have moved – and are still moving - into the suburbs and they are working more from home. This puts customers in close proximity to grocery-anchored neighborhood centers more often and drives traffic not just during the drive home, but all day long.
We’re also really compelled by the trend of QSRs like Scooters, Dutch Bros., PF Changs, Salad & Go, Krispy Kreme, Jimmy John’s and others introducing no-dine-in and drive-thru-only. It’s a trend that was a necessity at the height of the pandemic, but as consumers have acclimated to this style of service, it’s becoming more of a preference than a workaround.
During the pandemic, we saw large numbers of people fleeing city centers for the suburbs, but we’re seeing cities come back to life. Does this concern you that the trend of suburbanization is starting to reverse and how might that impact PECO’s business? Not at all. We do not see the trend of suburbanization reversing. There were strong macro tailwinds supporting a push towards the suburbs before the pandemic, and COVID just accelerated the timeline. With rising remote and hybrid working models, people are not as chained to cities as they once were, and they’re starting to look at outer-ring suburbs as a new opportunity to gain the quality of life and perhaps lower cost of living they desire. In fact, we’re seeing an uptick in foot traffic and sales during workdays, suggesting people are taking more opportunities to pop out to grab lunch or run errands while working from home.
Which types of retailers is PECO seeing the most activity from, and how does that correspond with what consumers in your local communities are looking for? Healthcare providers – which had traditionally been located in medical office buildings– are among the most active within PECO’s portfolio, reflecting their desire to be more conveniently accessible for patients. Further, providers such as One Medical, Pacific Dental, Humana, and Carbon Health have also recognized the opportunity to leverage open-air retail storefronts to create an even more comforting, welcoming environment and experience. The “medtail” trend demonstrates the appeal of community shopping centers owing to strong visibility, high foot traffic and the ability to open quickly and efficiently.
How are retailer demands evolving, and how is PECO working to address these needs? There are two themes we’re seeing across our portfolio - proximity and convenience. Consumers want the easiest access to goods and services, and large regional indoor malls are no longer local enough. There isn’t enough land for retailers or developers to build closer to their end-users, so the answer truly lies in neighborhood shopping centers. This is why you see some stores switching up their formats to get into these centers, and we’re seeing record foot traffic across our portfolio.
PECO sees significant growth opportunity ahead. We’ve had robust leasing activity and finished the first quarter at 96.2% occupied, up 140 basis points year-over-year. In addition, we’ve identified 5,800 shopping centers across the country that meet our strict investment criteria. With an investment-grade balance sheet and strong cash flow-generating portfolio, we are well positioned to execute on our growth plans.
Click here to view Phillip Edison’s nationwide portfolio of grocery-anchored shopping centers