Top Trends in the Supermarket Sector

It’s no secret that retail development has slowed and, according to some experts, this will likely continue over the next few years. However, there’s still movement in the grocery industry, with many companies gaining market share. Here’s a look at some of the top trends among grocery-anchored shopping centers and the advantages of having grocers in the mix.

TREND ONE: Grocers have emerged as a reliable space-filler in shopping centers and are luring in other businesses to fill vacant space. 

Grocery-anchored shopping centers often have a higher occupancy rate and a more stable rent stream compared with typical retail-anchored shopping centers. This is due largely in part to the day-in and day-out traffic that is attracted by grocery stores.

Shoppers on average visit a grocery store about twice a week—one big trip and one smaller trip—and this ultimately brings more consistent traffic to other retail tenants in the shopping center.

That said, it’s been easier for shopping center owners to fill vacated spaces in locations with a grocery anchor, according to John Bessey, president of Cincinnati-based Phillips Edison & Co., an integrated retail real estate company, which owns and manages more than 240 neighborhood and community shopping centers in 35 states.

For example, in January 2010, Phillips Edison acquired Prairie Point, a 93,000-sq.-ft. shopping center located in Aurora, Ill., approximately 30 miles west of Chicago. The center—which was initially developed in 1998—is now anchored by Dominick’s Finer Foods, a Chicago-based supermarket chain that is part of Safeway Inc.

Dominick’s is the No. 2 market-share grocer in the Chicago Metroland area, behind Jewel. When Phillips Edison acquired Prairie Point, there were four tenant spaces vacant but it sought to fill the space quickly.

“Even in the face of the Great Recession, we were able to get two of the spaces filled soon after with letters of intent on the remaining vacancies,” Bessey said. “The anchor tenancy, the growth of the population in the area and the center’s location on a high-traffic corner make it a solid investment and a center that retailers want to be a part of.”

TREND TWO: Many grocers are putting dollars into in-store enhancements, and a number of shopping centers are following suit. 

As the industry shies away from building new developments, a major trend on the rise is that grocery-anchored shopping center owners and the grocery tenants themselves are investing more money back into stores in the form of new features and renovations.

Although this strategy is not entirely new, the rate at which this is occurring is greater than ever before, according to Howard Paster, president of Paster Enterprises, a St. Paul, Minn.-based retail shopping center development and management firm.

Paster noted that some companies such as Lunds & Byerly’s, a Minneapolis-based family-owned grocer, and Target Corp., Minneapolis, have added grab-and-go quick-serve concepts within some of their stores to give shoppers an alternative solution to fast-food options. Positioning pre-packaged and fresh-food stations toward the front of the store allows consumers to get in and out quickly. With that in mind, convenience remains a top priority in the grocery segment—and the same goes with providing value.

“Even the higher income demographics are looking for a good value during the recession,” Paster said. “It’s no surprise that grocers such as Aldi and Trader Joe’s that cater to this value-oriented trend are expanding.”

For example, Moundsview Shopping Center in Mounds View, Minn., is thriving due in part to the strength of its anchor, Aldi. The center is also home to various discount retailers, such as Dollar General, close-out company DealSmart, thrift store chain Penny Pinchers and Cost Cutters hair salon.

Although the shopping center was developed by Paster Enterprises in 1975, it went nearly 20 years without a grocery anchor. About three years ago, however, Aldi filled the vacant space left behind by a big-box retailer.

“We went from a 65% occupancy rate to having the center 100% leased,” Howard said. “The addition of Aldi was the catalyst that sparked an entire renovation of the shopping center and brought it back to life.”

The shopping-center facade—including the outlot; a former Hardee’s, which is now leased to Caribou; H&R Block; and Little Caesars–was completely revamped. Meanwhile, the landscaping was enhanced, a new parking lot was built and exterior lighting throughout the center was installed.

The addition of a value-oriented grocery anchor, store renovations and the presence of bargain-driven retailers ultimately enticed more consumers to Moundsview Shopping Center.

TREND THREE: Instead of looking toward new developments, grocers are entering second-generation spaces or electing to stay on site. 

With ground-up development stalled thanks to a shortage of bank financing, limited capitalization of many developers and reduced shop-space rents, second-generation space just got a lot more attractive, according to Mitchell Rice, CEO of Tampa-based RMC Property Group, a full-service real estate company providing leasing, marketing and management services.

“Up until about three years ago, retailers wanting to upgrade the physical plant of the store would consider moving across the street if business was good and if they didn’t want to sacrifice the quality of the location,” Rice said.

When a retailer felt it already had the best location or there was no other alternative, it would look inward to see how best to upgrade the store.

“This means they would consider either remodeling or tearing the store down and building a new store in its place,” Rice said.

At Dupont Lakes Shopping Center, in Deltona, Fla., an aging Publix elected to stay put in what the grocer deemed a superior location and upgrade its physical plant on site. (RMC developed Dupont Lakes Shopping Center as a joint venture with Redstone Investments and Publix Supermarkets Inc. as co-owners.)

By constructing a new store next to the older existing store—on adjacent vacant land—Publix was able to maintain its excellent real estate while still upgrading to a new prototype and remaining open in the process.

Once the new Publix was built, RMC razed the former Publix and combined that area with other vacant land to accommodate a new Lowe’s Home Improvement store.

“It’s beneficial to the property to retain an anchor tenant that is a big traffic generator,” said Rice. “In this case, it was also good for Publix because new development is not really feasible or viable right now. For a retailer to upgrade, it’s probably in its best interest to stay on site or step into a second-generation space.”