The Supermarket Evolves

Recent press has likened today’s grocery store to a restaurant, a bistro, and an inviting gathering place.

Not exactly the store where we did our grocery shopping a decade, or even five years, ago.

As Wegmans rolls out its “Pub at Wegmans” concept that features high-end pub fare and imported ales inside the existing Market Cafe in-store sit-down area, and as Kroger matches Wegmans with its “Bistro” offering, and Whole Foods joins in with Waldorf salads and in-store wine service, the supermarket shopper has been lifted to a whole new level of food shopping.

And today’s shopping center developer has been paying close attention.

“The grocery space has clearly been altered based on new consumer behaviors and increased grocery offerings,” said Joseph Coradino, president of Philadelphia-based PREIT Services and PREIT-Rubin Inc. “From our perspective, we have had to rethink how to lay out our shopping centers to accommodate a grocer.”

PREIT set out to find a high-end grocer to fill a gap in its Plymouth Meeting Mall property, a newly redeveloped, 940,000-sq.-ft. traditional and lifestyle hybrid in Plymouth Meeting, Pa.

“In Plymouth Meeting, we realized that we hadn’t really attracted the middle to upper-middle shopper in the market, and our anchors and inline tenants weren’t accomplishing that to the degree necessary. We set out to find a high-end grocer to fill that gap,” Coradino said.

Last November, a 65,000-sq.-ft. Whole Foods Market & Cafe became the project’s cornerstone.

“It ignited the entire property,” Coradino said. “The addition of Whole Foods solidified our Plymouth Meeting Mall as the area’s top shopping, dining and entertainment destination.”

Adding the upscale grocer along with new destination restaurant and retail offerings have combined to push sales at the mall up from about $250 per foot to about $310 per foot, Coradino said. “Who would have thought Whole Foods and Jos. A. Bank would be co-tenants? Or that Ann Taylor Loft and Chico’s and Whole Foods would be co-tenants? We see Whole Foods as something we’d like to continue to build on in some of our other properties,” said Coradino.

Key leasing considerations: Grocers draw traffic to shopping centers, but they also create leasing challenges that must be dealt with. According to Mike Longmore, VP business development and open-air director for Jones Lang LaSalle, Atlanta, the fact that grocers have upped the amenity ante has had an impact on leasing strategies.

“As grocers have expanded their in-store services to include bakeries and delis and dry cleaning, they have limited the co-tenant possibilities,” said Longmore. Competition in the center is significantly restricted when a service-rich grocer enters the tenant mix, as “bakeries and delis, even dollar stores and some health-and-beauty retail are prevented from opening in some grocery-anchored centers,” he added.

For that reason, shopping centers with an abundance of small-shop space to fill aren’t faring as well in this economy as those properties with fewer inline offerings.

A powerful grocer that occupies the dominant position in a market can make any challenge for a shopping center owner worthwhile. In the case of Suncrest Village, a 93,000-sq.-ft. Publix-anchored center in Orlando, owner TIAA-CREF invested significant dollars in rehabbing the center, then worked with Publix on a remodel to ensure the grocer maintained its market position. “What is significant here is that, despite the downturn, the owner invested in substantial upgrades to keep both the shopping center and the grocer competitive,” Longmore said. “When you have a powerful grocery anchor, you need to keep that store and that center fresh—and you need to make sure the grocer remains open during the rehab so that it doesn’t lose one bit of market share.”

The right model: To fully capitalize on the success a supermarket anchor can drive for a grocery-anchored shopping center, a developer needs to find—and build—the right model. For Cedar Shopping Centers, based in Port Washington, N.Y., that model is two-pronged.

“One prong is our joint-venture model with RioCan (RioCan Real Estate Investment Trust, Canada’s largest REIT),” said Leo Ullman, president and CEO of Cedar. “We have an 80/20 joint-venture with RioCan, and we intend to programmatically acquire properties through that partnership.”

In the JV model with RioCan, the pair will focus its efforts on acquiring recently completed, big-box, credit-worthy, highly leased grocery-anchored properties, rather than on ground-up development. In Cedar’s other grocery growth prong, however, the company will focus on building smaller projects in its traditional model—“grocery-anchored centers with some ancillary retail,” Ullman said.

In Kutztown, Pa., Cedar has announced a deal with Giant in which the grocer will put up a 55,000-sq.-ft. store and Cedar will build 15,000 sq. ft. to 20,000 sq. ft. of ancillary retail to include retail, restaurant and services. “That kind of model—ground-up, preleased and mostly entitled—is what we look for,” Ullman said. Cedar will be rolling out that model with Giant in three additional properties in eastern Pennsylvania, then potentially with different grocers at two properties in the lower New York Hudson Valley area.

The Kutztown center—called Maxatawny Marketplace—is slated to be built on 31 acres at the corner of Kutztown and Sharadin Roads.