Food Feeds Retail

Visitors to the RECon show in May found themselves questioning whether they were at a retail real estate show or a food show. The booths of quick-service, fast-casual, and new-concept food chains were mobbed, and an executive from a REIT with a national portfolio told Chain Store Age that he continued to have substantive conversations with grocery and restaurant chain representatives on the closing day of the show, when most attendees had already left.

Food is the lifeblood of humanity, and so it also is now with the brick-and-mortar retail industry. As growth in new square footage of retail centers continues to slow, grocery-anchored centers continue to flourish and explore new regions and new concepts. New grocery players were a hot topic of conversation at RECon — Lidl’s vow to open 100 stores in the coming year, Whole Foods’ scaled-down “360” concept, and Kroger’s continued expansion.

Lidl, the German value grocer that, along with Aldi, set the all-powerful Tesco back on its heels in the U.K., has been openly aggressive in moving into the states. Its first major incursion into the market will be on the East Coast, where it is hunting for freestanding space on which to erect 36,000-sq.-ft. stores. Where it has failed to find suitable property to buy, it is leasing space.

Kroger is in the middle of a $4 billion expansion and renovation plan. Wegmans is branching out geographically with its 130,000-sq.-ft. grocery and takeout powerhouses. And tried-and-true grocery banners are extending their visions to unheard-of locations. Both Wegmans and Kroger are beginning to move into emptied department store spaces in enclosed malls, and Aldi — long a fixture of lower-income neighborhoods — is opening a store in the Buckhead suburb of Atlanta.

“Grocers are proving themselves to be adaptive. It’s either that or they die,” said Jeff Edison, CEO of Phillips Edison & Company, Chain Store Age’s Fastest-Growing Acquirer of 2016 and a significant owner of grocery-anchored centers.

“There’s going to continue to be a shakeout in the grocery business,” Edison said. “People like Marsh’s go out and others come in and take up their space, so our focus doesn’t change. We continue to concentrate on acquiring and growing.”

Disruption

As enclosed malls decline by attrition, new grocery-anchored centers continue to be built in the U.S., especially in high-job-growth regions where housing starts have picked up. More than a quarter of new grocery square footage in 2016 was erected in two states: Texas and California, which accounted for 3 and 2 million sq. ft., respectively.

Margaret Caldwell, managing director of Jones Lang LaSalle’s retail investment sales practice, said investors remain keen on grocery-anchored centers. “There are lots of institutional investors who, if they had a preference, would take grocery-anchored centers all day long,” she said.

Just as mall and shopping center developers reinvent themselves during a period of social and behavioral disruption, traditional supermarket chains find themselves equally challenged to present new business models, Caldwell said.

“There’s some concern about there being too many grocery players out there, but it’s really a question of which existing supermarkets will survive,” she said. “There will be consolidation.”

According to JLL’s “Grocer Tracker 2017” report, among the challenges traditional grocers will need to address are becoming “grocerants” that dispense prepared as well as packaged foods, developing urban formats, and incorporating online-style convenience into the supermarket shopping experience through technology.

Owners, managers, and developers of grocery-anchored centers, too, must adapt to demographic changes in individual markets. Cole Credit Property Trust IV lost its traditional-format Big Y supermarket at Boston Commons in Springfield, Mass., which was then backfilled by Kohl’s, leaving the center without a grocery anchor. VEREIT, the center’s operator for property management and leasing, employed a broker in Hartford, Conn., with an idea to expand one of its grocery clients to Springfield to serve the local Asian population.

5 Star Supermarket moved into the 104,000-sq.-ft. center recently in a much a smaller footprint than Big Y had maintained, but immediately began doing profitable business and drawing a new clientele to Boston Commons. “They focus on fresh and prepared foods for the Asian market, with bakery, meat, fish, and prepared foods — which is a huge revenue driver for them,” said VEREIT’s VP of leasing Sarah Nelson.

Regional adaptation is bound to play a huge role in the success of supermarkets in the coming years, Jeff Edison observed. “What the grocer business is trying to figure out is how is the customer going to define convenience — and how is it going to define convenience outside of the top six markets?” he asked.

The Gainesville enigma

A fascinating supermarket scenario is currently playing out in Butler Enterprise’s 2 million-sq.-ft. retail complex in Gainesville, Fla. Seventy different boxes sell food within Butler’s three retail “neighborhoods,” and all appear to be doing well at it. “Sales productivity is fantastic on a square-foot basis,” Butler VP of finance Cory Presnick said.

Over the past half-decade, Walmart closed a standard-sized store and opened a Supercenter at Butler, which serves some 2 million visitors a year, including University of Florida students, as well as employees of 10 regional hospitals in Gainesville. Two full-size Publix supermarkets, Target, and Trader Joe’s operate in Butler Plaza, and Walmart is joined by Sam’s Club and Aldi in Butler North.

Ground will soon break on a sixth supermarket at Butler Town Center, a mixed-use development combining street-level boutiques and a Regal Cinema. A Whole Foods was the first building to begin construction there and is set to open next winter. Rounding out the food frenzy at the town center will be a freestanding food hall, a P.F. Chang’s, and a Bonefish Grill. Complex-wide, Butler already offers more than 40 dining options.

“We’re able to hit all the demographic cross-sections because we pull regionally,” Presnick said. “We get doctors, and students, and farmers.”

What’s going on in Gainesville would have been difficult to fathom a decade ago, but so would a food-oriented RECon show. It becomes clearer with each passing year that a retailer’s way to the consumer’s heart is through his or her stomach. Butler’s grocery theme park, unusual as it may seem, may well serve as a laboratory for today’s increasingly alimentary retail experience.