Not Your Father’s Supermarket
As supermarket tenants are challenged to meet the needs of an increasingly diversified and sophisticated consumer base, and given the significant trend toward consolidation, landlords are tasked with delivering top-notch grocery-anchored centers — with a diminishing number of anchors from which to choose.
Add in growing pressure on the grocery segment from competitors in the mass merchandise, discount and even dollar store verticals, plus small — but real — grocery inroads from the Internet, and today’s shopping center operators looking for a strong grocery anchor have a lot to contend with.
Fortunately, shopping center operators who do their market research can still find a winning anchor to help ensure long-term success of their developments. Here are a few examples of how some leading players are designing their grocery-anchored shopping center strategies around the latest trends in supermarket retailing.
Experiential grocery retail
Grocery may seem like a pretty straightforward retail channel, but grocery operators are starting to look for ways to differentiate themselves from both brick-and-mortar and online competitors. As Don Casto, partner of Columbus, Ohio-based fully integrated real estate firm CASTO, explains, the days of the staid neighborhood food market are over.
“Grocers are trying to present unique and different offerings,” Casto said. “That includes gourmet food. There is also a movement toward food as entertainment. Grocers want to provide an entertaining, fun experience more like going to a restaurant or movie theater. While grocery stores are generally immune to disintermediation from Internet retailers in the way that book and electronics retailers were affected, there is a little bit of a threat.”
CASTO operates 100-plus shopping centers in the states of Ohio, Florida, North and South Carolina, Illinois and Alabama, with about three-quarters anchored by a grocery store. Casto said his firm likes to have a grocery retailer as an anchor because grocery offers higher daily traffic rates than any other retail vertical and also offers a high degree of stability, with grocers often staying 10 to 15 years in a center. CASTO partners with a variety of chains as anchors, including Giant Eagle and Harris Teeter in the Carolinas; Publix in Florida; and 90% of the Walmart super-centers in Columbus, Ohio. CASTO also partners with gourmet grocers such as Whole Foods and Earth Fare, and has a long-standing relationship with Kroger.
“Our relationship with Kroger goes back to the 1920s, when my grandfather built 8,000-sq.-ft. stores for Barney Kroger,” Casto said.
One classic Kroger-anchored CASTO shopping center is the Avery Square center in Dublin, Ohio. The 216,000-sq.-ft. center includes an 89,000-sq.-ft. Kroger, and is tenanted by Bath & Body Works, Hallmark and Wendy’s.
In addition, CASTO is constructing the final phases of a 750,000-sq.-ft. mixed-use development in Morrisville, North Carolina, called Park West Village, that represents its efforts to make shopping centers into entertainment destinations. A 24,000-sq.-ft. Earth Fare anchor is under construction with a scheduled spring 2015 opening, and current tenants include Stone Theatres, GameStop and YoLo Frozen Yogurt.
The daily-ness of life
Donahue Schriber specializes in necessity-based retail — and no retail segment is more necessary than the supermarket. The Costa Mesa, California-based private REIT’s portfolio is dominated by grocery- anchored centers; in fact, of its 71 properties — which include such distinctive destinations as Del Mar Highlands Town Center in San Diego and Fig Garden Village in Fresno — more than 75% are grocery-anchored.
“Grocery stores fulfill a daily need, especially when complemented with strong restaurant and retail service providers,” said Henry Avila, senior VP operations for Donahue Schriber. “People still want to touch and select their own food, making shopping for groceries mostly Internet-resistant.”
Donahue Schriber, which represents 11 million sq. ft. of space in the western United States, partners with grocery stalwarts, such as Whole Foods and Kroger, to create vibrant, amenity-rich centers that draw customers on a regular basis. In fact, today it is not uncommon for a family to make two or three trips a week, or even daily trips, to a grocery store. The sector itself has grown by leaps and bounds to include specialty grocers, ethnic grocers, health food grocers and bulk warehouse grocers. And, in California, the full menu of grocery offerings is readily available.
“It is important to have an in-depth understanding of the trade area so that you can offer what the consumer is looking for,” Avila said. “We seek real estate deals with the best grocer in each given category.”
At Donahue Schriber’s Orchard Walk East project in Visalia, California, the company partnered with Vallarta Supermarket, a Hispanic grocer with 40-plus stores located throughout the state. The 48,000-sq.-ft. Vallarta is a complement to the center’s anchor Target, as well as Ross Dress for Less and maurices.
Grocery as part of a master plan
Living near a shopping center is a convenience many consumers take for granted, but someone has to plan that center and take the needs of local residents into account. The Irvine Company, owner of a 93,000-acre former family ranch prop erty known as the Irvine Ranch in Orange County, California, places a retail component in all the planned communities it has developed there. And of the 41 shopping centers it owns and manages, 40 feature a grocery component and 30 are grocery-anchored.
Fred Collings, senior VP leasing of Irvine Company Retail Properties, explained how grocery-anchored shopping centers are vital to his company’s master-planning efforts.
“Our grocery-anchored centers are designed to serve as amenities to our residential villages,” Collings said. “We’ve had some shopping centers for 45 to 50 years, and the bulk are grocery-anchored.”
Irvine Company Retail Properties partners with big-box players like Walmart and Costco to large chains like Ralphs, Vons and Albertsons, to specialty players Trader Joe’s and Whole Foods. Whatever grocery chain might be anchoring a center, Collings is seeing changes in the sector.
“Stores are getting bigger,” Collings said. “It’s driven by the need to create prepared food areas. The outer ring of a grocery store is becoming more occupied by the already prepared concept. There are also larger wine store components and even full bars and gastropubs included now.”
The Orchard Hills Village Center, which Irvine Company Retail Properties opened in the North Irvine section of Irvine Ranch, illustrates the company’s approach to developing planned communities with grocery-anchored shopping centers as a key component. Opened in 2007, the center measures 126,000-sq.-ft. and is anchored by a 49,000-sq.-ft. Vons Pavilions as well as CVS Pharmacy. The center, whose tenancy fell off a bit during the 2008-2010 recession, is now 100% leased and includes a Montessori school, two different design firms for home builders in the community, and a residential real estate office.
Doing the grocery math
Having a grocery store as an anchor can serve as a powerful financial advantage for a shopping center. Retail real estate owne