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Food Fight:


How the competitive, shifting grocery industry

is affecting real estate and consumer decisions

 

By Peter Madrid

MadridMedia


The August 18, 2017 Valley Partnership Friday Morning Breakfast event focused on the shifting grocery industry and how it is affecting real estate and consumer decisions.  A panel representing all segments from developer, grocer, and city decision-maker made this topic relevant to the Valley area.

 

The grocery store has long reigned as more than just a place to buy food. It serves as a gathering place. It provides an experience to those who shop there. In some cases, it’s what defines a neighborhood.

 

In the past five years, the grocery industry has undergone dramatic shifts. Behind these changes are consumer needs, competition, and most recently technology. As this industry evolves, so do the demands and impacts on the commercial real estate industry.

 

Why have grocery stores been the best anchor tenants in retail centers, asked panelist Gordon Kieg, Principal, Pennant Development?

 

“Because they provide gravity,” Kieg said. “Everyone knows where the closet grocery store is. These stores get between 20,000 and 25,000 shoppers a week. On a pure economic level, after paying the mortgage and the car loan, the third largest expenditure for a family is going to the grocery store.”

 

As competition for the grocery dollar has increased, a food fight of sorts has broken out. The food business is big business. It’s evident on every street corner. It’s also evident when consumers fire up their laptops, home computers, and smart phones to order their groceries online.

 

“There are so many different venues where you can buy groceries or food of any kind,” said Jan Martin, Senior Vice President of Real Estate, Safeway/Albertson’s Southwest Division. “There are dollar stores and drug stores. Online you have services like Blue Apron and Amazon.”

 

Online shopping is where Greg Laing, Principal, Phoenix Commercial Advisors, sees the biggest impact. He related that his daughter, who has small children, orders groceries online, opens the back of her SUV, and her groceries are loaded up.

“Some consumers aren’t making those two visits a week to the grocery store,” Laing said. “That means they’re not stopping next door to pick up a sandwich at Subway. That’s not doing well for sales (at other retailers in the center). They’re losing that little bit extra that people used to buy.”

 

While some neighborhood centers are losing customers, a new trend in grocery stores is evolving in Downtown Phoenix. For decades, it has been considered a food desert, an urban area in which it is difficult to buy affordable or good-quality fresh food.

 

Block 23, a mixed-use development scheduled to open in 2019, will feature the area’s first grocery store by Fry’s Food Stores. The project will include multi-family and office components. And it will be on the Metro light rail.

 

Councilman Daniel Valenzuela represents a great number of constituents in one of the Valley’s most diverse areas, District 5. More than 30 languages are spoken in his diverse and densely populated district. While he’s optimistic the city is working with the private sector on easing some building codes – Block 23 is being developed by RED Development – there are still some challenges.

 

“Some of the things we’re doing right now is mapping the city looking at where food deserts exist,” Valenzuela said, “and where our transportation corridors are. Light rail is crucial. If you’re going to a grocery store and not in a transportation corridor you might as well be in California.”

 

What does the future hold for the grocery industry? Plenty of changes, the panelists agreed. Will online grocery ordering replace stepping foot into the store? Do consumers want someone else to pick their bananas?

 

“Grocery shopping is a reasonably intimate experience,” said moderator Barry Shannahan, Executive Vice President, Acquisitions & Development, RED Development. “When it comes to picking produce, personally I want to touch and feel my own food.”

 

Competition will increase as well. Aldi, a sister company of Trader Joe’s, is entering the Arizona market. Online sales continue to increase. Amazon recently purchased Whole Foods. More than 50 percent of Costco’s sales are for food products. Then there’s Walmart, which isn’t going away.

 

Kieg predicts consumers will also see more remodeling of their favorite grocery stores.

“You will see novelty concepts like a bar, a sushi place,” he said. “Consumers want to go somewhere cool. It’s a real opportunity for brick and mortar stores that Amazon will not be able to provide.

“There is so much talk about disruption in every industry. In our economy in the 90s there was an enormous disruption in the grocery industry.”

 

 

 

 

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