Analysis: Grocery still puts the ‘grow’ in centers
Expansions were not on the menu for grocery stores in 2017, as openings dropped by 28.8%, according to JLL’s “2018 Grocery Tracker” report.
While this appears to be an abrupt drop-off for one of the hottest categories in retail, it’s rather unsurprising given the surge in openings that occurred in 2016.
For instance, square footage rose 16% in Texas in 2016 (detailed in chart below), so its 9% increase in 2017 counts as a decrease in growth.
Neither has the slowdown in openings decreased investors’ appetites for this asset class. In 2017, investment in grocery-anchored shopping centers increased 5.3% — one of the few retail property sectors to see growth in a year of low transaction volumes.
More than 38,000 supermarkets populate the United States. The ones that saw the greatest success participated in one or more of these trends:
Fresh foods at a slimmer price
Gluten free, vegan, paleo, and other diets are as popular as ever, but adherents are less willing to pay top dollar to maintain them. Grocers like Aldi, Lidl, and Grocery Outlet have been placing a greater emphasis on quality foods that don’t carry the typical high price tag. Aldi, which plans to invest $3.4 billion in store expansion over the next four years, recently launched a vegan line of foods called Earth Grown to tap into consumer’s renewed interest. The increased competition from these European giants and others is creating better options at reasonable prices for consumers.
Private labels stand out
Own brands allow grocery retailers to respond quickly to market changes while eliminating third-party costs. They help solve the age-old issue of razor-thin margins on center-store groceries and have the ability to build greater consumer loyalty. Albertsons’ private label, O Organics, recently eclipsed $1 billion in sales. The line experienced a 15% sales rise after adding 200 SKUs in 2017. Albertsons plans on adding as many as 500 more this year.
Let’s get “phygital”
Amazon’s acquisition of Whole Foods Market gives it the ability to test new ideas and concepts at greater frequency and speed, forcing innovation in an industry that has seen very little. Kroger introduced the digital shopping app Kroger Edge, opened its 1,000th ClickList curbside pickup operation, and saw digital sales more than double since the program’s inception.
Here’s what we envision for grocery in 2018:
Smaller stores
These more nimbly fit into urban locations and in mixed-use projects that are pacing retail real estate growth. Some brands will continue expanding footprints, but traditional and legacy grocers may begin focusing on existing inventory and investing in improving the shopper experience.
Blockchain
This digital technology has been discussed at length in the media, but it’s tough to easily explain. For the grocery industry, blockchain has the capability of improving food safety, allowing products to be recalled more quickly, and improving inventory management. With blockchain’s ability to improve data management between stakeholders in the supply chain, the grocery industry is prime for integration.
Partnerships and consolidations
Supermarkets draw steady traffic — just the right environment for partnerships with other retail formats. Kroger’s proposed partnership with Ace Hardware could focus on innovation and technology that build upon digital networks, logistics, delivery, and customer engagement.
Rapid checkout
Expect more grocers to join the ranks of Kroger and Walmart in experimenting with checkout-free concepts. Walmart is expanding Scan & Go mobile checkout to 100 more stores, and Kroger’s Scan, Bag, Go will be in 400 stores in 2018. That said, only 5% of people are interested in shopping for groceries online, so no matter how far technology may go in determining the competitive set among supermarket chains, grocery stores will always require a strong physical presence.