Supermarkets increasing their presence in power centers

Shopping Centers Today, an ICSC publication, recently published an article explaining that U.S. developers are changing the traditional shopping center retail mix by moving neighborhood stores - namely grocery retailers - into power and lifestyle centers. The article says that the ground was broken about a decade ago by stores like Costco, Target and Walmart, all of which offer supermarket shopping in a warehouse style or as a supplement to discount retail.

Several trends were cited for the changing retail mix, including the significant drop off in neighborhood shopping center development as well as the recent expansion of smaller-format, natural and organic grocers. More grocers and less neighborhood shopping centers being built means that these new formats have to go somewhere other than neighborhood centers.

The trend may be troubling for traditional supermarkets like Kroger, ShopRite, Giant and others. It's much easier for a 15,000 - 25,000 square foot small format grocer to find a spot in an existing power center than it is for a 50,000 - 100,000 square foot store.

In addition, power center owners have realized that customers typically visit grocery stores at least twice per week, and the increased visits benefit all tenants. An added benefit to landlords has been the resulting cap rate compression brought on by the addition of grocery retail. 

Traditional supermarkets continue to lose market share

An article in the February issue of Shopping Centers Today reported on the affect grocery discounters are having on the supermarket industry, stating that traditional supermarkets are losing market share "thanks to a rapidly advancing horde of competitors seeking to outdo them on price, convenience and quality."

The article quoted an analyst from JLL who said that "consumers are now splitting their grocery shopping across multiple channels - as many as five," and that "by 2018, traditional supermarkets' share of grocery dollars in the U.S. will have shrunk 300 basis points to 37.2 percent."

As we all know by now, the list of traditional supermarket competitors includes large wholesale clubs, supercenters, fresh grocers, and small-format, dollar, drug, convenience and online stores.

And, of course, the Germans are coming. Aldi plans to expand from 1,300 to 2,000 American stores in the next three years, and Lidl is planning to open stores here in 2018.

According to an analyst from PerishablePundit.com, "A box of laundry detergent or Kellog's Corn Flakes is the same no matter where it is sold. That makes it easy for price-conscious shoppers to hunt for bargains on commoditized goods by website, in dollar stores, at Walmart, or in a multiplicity of other food selling outlets. Even if traditional supermarkets can continue to sell center-store items, they have to do so at such deep discounts that they're just not able to generate profitability."

To combat this issue, major chains are focusing more on fresh and prepared foods, and creating "foodie-friendly cheese caves, wine bars, mini-restaurants and more." They are also trying to alter their product mix to include the types of products found at warehouse clubs. Ultimately, traditional supermarkets are trying to make their stores appeal to everyone (like they used to) - discount-oriented consumers, aspirational consumers and affluent consumers.

Meanwhile, online grocery sales continue to grow. The online grocery spend in 2014 was $23 billion, and it is expected to be nearly $100 billion by 2019, or 12 percent of total grocery spending.

Supermarkets selling less than half the nation's groceries

I read an article in the March issue of Shopping Centers Today this morning about food shopping. It had a number of interesting tidbits:

• Low-income shoppers typically buy 45% of household groceries at a traditional supermarket, 38% at a mass merchandiser (ex. Walmart), and the rest elsewhere (dollar store, drug store, etc.).
• Shoppers with incomes of $100,000 or more spend 56% of their food budget at a traditional supermarket and 17% at a club store.
• Supermarkets used to have 80% of the grocery market; now it's under 50%.
• Walmart accounts for about 33% of the U.S. grocery market; Kroger, Safeway and Supervalu each hold between 4% and 9%. Target holds about 3%.
• Half the respondents to a survey said they would spend more on groceries this year as compared to last year, and nearly 40% said they would spend about the same.
• Seven of 10 respondents to the survey mentioned above said they make at least one trip to the grocery store per week.

You can find the complete story here: Shopping Centers Today