Despite a wave of brick-and-mortar retail closures, grocery stores are faring well and do not seem to be as impacted by the economic pressures and new types of competitors affecting other sellers. In fact, new grocery store openings increased by 30% in 2018, a surge that is largely driven by the expansion of well-known retailers such as Trader Joe’s, Sprout, and Whole Foods. Trending smaller brands and superstores are beginning to stomp out more traditional, mid-sized stores.
What is influencing this stability in grocery stores and how can you be certain of their continued success? There are several factors keeping these grocery-grounded shopping centers profitable.
Groceries are a Necessity
People have to eat. As such, there will never be less demand for viable food options. While there may be changes in the types of foods people choose to consume, such as with recent trends toward organic and “whole” foods, the availability of these consumables cannot and will not simply go out of style. Additionally, only 3% of consumers routinely buy groceries online. Most people don’t want to buy food blind. They want to see the meats and feel the produce they are buying. Some shoppers also balk at online grocery purchases because they do not trust that the food will be kept at safe temperatures during transit.
Grocery Stores Make Better Anchors
Shopping centers rely on grocery stores to draw traffic and increase overall business. Grocery stores fare well as anchor tenants because they have a built-in customer base of weekly shoppers. People tend to grocery shop habitually, demonstrating brand loyalty, which keeps them returning to the same store again and again. Previous retail anchors such as large department stores have gone through a wave of closures, but grocery-anchored shopping centers are better insulated from lost traffic. In fact, 48% of retail investors cite grocery as their preferred retail investment. Grocery-anchored shopping centers can also vary wildly in size requirements, which allows for more diverse demand.
Keep Your Grocery Development Ahead of the Crowd
In an ever-evolving world, grocery development may involve considerations that were not standard in decades past. Keep a look out for these key features to integrate into your build or redevelopment project.
Whether fulfilling online orders through a third party or providing this service themselves, grocery tenants face increasing demand to offer this convenient, time-saving option to their customers. How does a grocery pick-up service operate? Some stores have an express lane for picking up online orders. Others have designated parking spaces. Consider how to integrate flexible pick-up options into your build and how they would impact traffic flow and other infrastructure such as cart returns.
The Supermarket Experience
Experience-based retail is spreading like grassfire as brick-and-mortar retailers innovate to compete with e-commerce options. Many grocers are providing artisanal shops within their store, offering perks such as wine and juice bars, and creating an overall improved consumer experience. Providing spaces that accommodate these demands may involve building kiosks or small miniature shops and restaurants that are fully integrated with the rest of the store. For example, a space near the front entrance that can serve as a coffee shop allows for additional tenancy and revenue, and a bakery or deli area with seating may be more desirable to a grocery tenant than one without.
With such variation in the modern grocery offering, consider your market demographics when deciding what square footage is optimal. Mid-sized grocery stores are on the decline, as supercenters and specialty grocers gain popularity. Small, specialty grocery stores tend to do well in more affluent regions or areas that are culturally diverse. These smaller buildings can be used to house locally sourced or organic wellness type stores or to offer ethnic and international foods to populations of specific nationalities. Conversely, an area that is populated by middle-class suburban families may require a superstore, where residents can easily shop for anything they may need at lower prices.
Whatever your niche, grocery stores are faring well compared to other brick-and-mortar retailers and have served as successful anchors where department stores have failed. There will always be a need for food, so CRE professionals who leverage consumer trends and local demographics have ample opportunity to secure stable ROI.
For more information on brick-and-mortar retail dynamics, check out CRE Adaptive Reuse in Action: From Retail Storefronts to Distribution Centers