Grocery store openings increased 30 percent in 2018

New grocery store openings were up 30% in 2018 as compared to the prior year, according to a report by JLL. More than one-quarter of the new stores were in Florida, California and Texas as a result of expansion by Publix, Sprouts Farmers Market, Aldi, Kroger and H-E-B.

"Grocery is one of the strongest retail sectors, with nearly twice as many new stores opening than closing last year," according to JLL Director of Research James Cook.

Cook also pointed out that shopper habits have shifted to more frequent, shorter trips, and as a result, food retailers are focusing on developing smaller format stores.

"In 2019 we expect to see even more grocery stores rolling out their smaller-format stores as they battle razor-thin margins in prime locations, while still serving evolving consumer needs," said Cook.

Aldi, which accounted for 16% of total new stores by square footage, continues to expand at a rapid pace. And new formats, like Giant's 9,500 square foot Heirloom Market in Philadelphia, were recently introduced.

Grocery store openings fell sharply in 2017

According to an annual "Grocery Tracker" report from JLL, grocery store openings dropped 28.8% in 2017 compared to the previous year. The report states that the decline reflects chains' efforts to reexamine their current footprints and rethink strategies to deal with new online and brick-and-mortar competition.

JLL said that California led the way in 2017 with 1.6 million square feet of new grocery store space. Virginia and North Carolina combined for 2.7 million square feet of new space, and Texas was described as "still one of the hottest states for grocery expansion."

Sprouts, Grocery Outlet, Aldi and Lidl were mentioned as notable chains that are expanding.

JLL's report said that investment in grocery-anchored centers grew 5.3% in 2017, and the company expects supermarkets to retain high interest as anchor tenants for shopping centers.

"It (grocery-anchored centers) was one of the only retail sectors to see growth in a year of low transaction volume," the study said. "Grocery-anchored centers remain a safe bet for investors, as overall transaction volume for retail has been down, indicating the asset remains a stable sector."

The study mentioned that the increase in smaller footprint stores is a clear trend - for more compact formats like Aldi and Trader Joe's, as well as for traditional supermarket chains and mass merchants like Walmart and Target.

"The grocers that can deliver the right in-store experience, combined with the right online pickup or fulfillment plan... are the ones that will thrive, whether their stores are 15,000 square feet with limited products or take up a footprint four times as large," said James Cook, JLL director of retail research.

Walmart reacting to Lidl with aggressive pricing

Reports state that Walmart is reacting "quickly and aggressively" to Lidl's entry into the U.S. market. According to its website, Lidl now has 21 stores open in three states - North Carolina, South Carolina and Virginia - with plans in the next year for as many as 100 more in states from New Jersey to Georgia.

Since its first U.S. stores opened in June, Lidl has been hailed as the low price leader along with rival Aldi. But according to Rupesh Parikh, an analyst at Oppenheimer & Co., "Walmart is being really aggressive in terms of watching what Lidl, and presumably Aldi, are doing, and you can tell they are in a fight and not willing to give up customers."

"We found Walmart prices on like-for-like items were very compettive with both Lidl and Aldi," Parikh said.

Parikh also reported that several other retailers in current Lidl markets were reacting with lower prices, including Food Lion, Family Dollar, Dollar General and Target. The most aggressive pricing by all the food retailers has been in the private label category, which Parikh believes could lead to higher margins on other products in order to keep overall profits from falling.

Lidl's next U.S. market is likely to be Texas, where the German company recently opened a number of offices.

7-Eleven buys over 1,000 units, beefs up East Coast presence

The parent company of 7-Eleven announced last month that it had agreed to acquire 1,108 Sunoco-operated gas stations and convenience stores for $3.3 billion (nearly $3 million per store). The deal, which does not include Sunoco's A-Plus stores operated by franchisees, would provide 7-Eleven with heavy concentrations of stores in Texas and the East Coast. 

At about the same time as the announcement, the National Association of Convenience Stores said that non-gasoline sales at U.S. units increased 3.2% in fiscal 2016, led by robust sales in the foodservice category. In addition, C-stores saw significant increases in sales of packaged beverages and center store offerings like salty snacks and sweets.

As part of the agreement, 7-Eleven said it would buy gas for these sites from Sunoco for the next 15 years. 

Lidl's next US target is Texas

German discount grocer Lidl, which is well on its way to opening about 100 stores on the East Coast in 2018, confirmed last Friday to Supermarket News that it also plans to expand into Texas. The move is seen as confirmation that the company is targeting competitive grocery markets, as Houston and Dallas are among the most crowded and price competitive in the country, and already include the three largest U.S. grocers - Walmart, Kroger and Albertsons.

Lidl isn't the first discount grocer to move into Texas, as Aldi has opened nearly 100 stores there since 2010, and says it plans to open hundreds more.  Both Lidl and Aldi prefer to locate close to leading traditional supermarkets where they can enjoy a price advantage.

The two companies are anything but strangers, as they compete worldwide for discount grocery market share.

Save-A-Lot's plans include growth and flexibility

A Supermarket News article earlier this week detailed Save-A-Lot's widely publicized plans to double their store count to 2,400 by 2015.

According to Save-A-Lot President and CEO Bill Shaner, the hard discount format is underdeveloped in the U.S., especially as compared to Europe and South America. Now is the opportunity to build market share, he says. Their stores, which average 15,000 square feet, currently have sales of about $80,000 per week.

Some interesting tidbits from the story provide good insight into Save-A-Lot's strategy:

• Save-A-Lot, a division of Supervalu (Acme), is experimenting with new opportunities to drive its expansion, including co-branded stores (with Rite Aid stores in South Carolina and a Hispanic-oriented operator in Texas) and new offerings, such as deli departments.
• The company has regionalized its real estate and development team by spreading them across the country rather than housing them entirely in St. Louis, as they had done previously. According to Shaner, this new structure provides Save-A-Lot with in-market expertise.
• According to a map of expansion opportunities on their website, Pennsylvania can expect 50-100 new Save-A-Lot stores in the next couple years, while New Jersey can expect 25-50 new stores. The biggest growth areas are California, Texas and Florida. Larger urban markets will see more corporate store openings, while smaller markets will see more licensed independent operators.

Incentives and Flexibility

• The company is supporting all licensees who open a Save-A-Lot by providing them with at least $200,000 in financing per store. They say it costs an average of $822,500 to open a new store.
• Executives have decided to be more flexible in the store's building requirements by "letting the building be the building," rather than imposing a proscribed design. General construction standards as they pertain to lighting, flooring and walls have been relaxed as well.
• A more localized product offering, including about 15% of the merchandise that can be customized to the market, has been introduced in an attempt to improve sales performance.

Here's the Supermarket News article: Thinking Outside the Small Box