While adapting to changing trends and the move to online retail, physical grocery stores remain strong. The grocery industry made $10 billion in profits in the US in 2015, and while online retail has grown, 97% of grocery sales are still made in store. But there’s never been more choice as to where to buy it from – the expanding discount supermarkets, the high-end grocery chains, the online operations and even grocery options in the local drug stores.
This adds up to an extremely competitive market in which grocers and supermarkets compete to provide the lowest price, highest convenience and best shopping experience.
The competition has fueled a steady demand for new and existing retail real estate opportunities. Of the 81 million square feet of retail space built in 2015, more than two-thirds of new construction was allocated to grocery retailers. When conducting a property search you will discover that the ‘grocery’ arc contains everything from supercenters to neighborhood convenience stores.
Groceries are adapting to smaller stores
Most consumers still like to shop in person. Traditional grocers are fighting for dominance at key intersections in burgeoning residential areas.
Texas-based H-E-B represents a grocery chain succeeding in the current market. With over 340 stores in Texas and Mexico, H-E-B is opening about one new store a month across the Houston region. But they do face tough competition.
Texas has Kroger and several other big-box retailers that have fresh grocery offerings, not to mention the home base for Whole Foods. Many grocers are expanding a smaller market footprint. There aren’t always 10 or 20 acres available for retailers to come in and do their typical large store prototype.
Grocers are also taking advantage of the millennial preference for mixed-use urban living, dining, work and play. With the population density increase in urban areas, there is more desire than ever for mixed-use environments. Millennials are often attracted to the new apartment complex with a high-end grocer in the building, making shopping convenient and available.
Whole Foods, for example, will soon take over the first floor of a multi-family apartment tower in downtown Charlotte complete with a bar and full-service rooftop dining.
Other urban centers have taken to opening limited-assortment groceries with smaller footprints. Two examples: Trader Joe’s will soon open a 12,000 square foot store in downtown L.A. in 2017.
What goes on inside the store is also important. There is a large shift, in all of retail, for more experience-driven shopping. Starbucks, for example, is adding beer and wine to their menu. Grocers are catching on to the trend. Target is going to allow their customers to have an open glass of beer or wine while they’re shopping. Grocers that use cultural trends find more ways to prosper in the post-recession economy.
Convenience: make it easy to buy and they will come
It’s not all about physical stories. Online grocery shopping is a growing preference, especially in high-density areas. According to a Nielson report, twenty-five percent of global respondents say they’re already ordering some of their grocery products for home delivery and fifty-five percent are willing to do so in the future. The convenience of shopping for groceries on a laptop or smartphone and having them delivered at home has strong appeal.
While traditional grocers offer home delivery from a store, new startups are running home delivery from a company warehouse or third-party home delivery of purchases from multiple retailers. Major players include FreshDirect, which has been delivering web-ordered groceries in the New York area since 1999; and Peapod since 1996. Peapod now delivers exclusively for Stop and Shop and Giant Food.
But delivery could evolve further. Grocers may begin to offer pick-up windows or some sort of drive-thru station where you can order online and pick up your groceries.
And while there’s a lot to be said for convenience, price can be even more of a driver. Limited-selection German grocery chain Aldi, for example, is attracting throngs of young parents, children and elderly couples who come to take advantage of affordable prices. It has 1,300 stores in 32 Eastern U.S. states with around 29 Southern California locations to open soon.
While competition seems to be ever growing and market share may see a fluctuation between grocery chains, commercial real estate emerges as a clear winner.
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