New grocery store openings were up 30% in 2018, with more than 17 million square feet of space added in the United States, according to the “Grocery Tracker 2019 report,” published by JLL, Chicago. And, more than one-quarter of the new stores were in Florida, California and Texas.
“Grocery is one of the strongest retail sectors, with nearly twice as many new stores opening than closing last year,” says James Cook, director of retail research. “The grocery sector has seen shopper habits shift to more frequent, shorter trips vs. large weekly hauls. As a result, grocers are focusing on developing smaller-format stores, those under 10,000 square feet, with more local offerings to appeal to the surrounding community.”
Aldi, Batavia, Ill., opened 82 stores last year, accounting for nearly 16% of the total new stores by square footage. Meanwhile, Sprouts Farmers Market, Phoenix, Ariz., continued at a fast pace adding 30 stores with another 30 planned this year.
“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,” adds Cook. “Disruption in the grocery sector proved that even a needs-based retailer needs to evolve with consumers changing shopping habits. Major chains such as Walmart, Kroger and Giant Foods are all making investments in areas that aim to provide their customers with a flexible and reliable shopping experience that best suits their individual preferences.”
By focusing their tech advancements around flexibility and convenience, grocers are positioned to have a strong 2019 in both physical and digital retail.
1. Robots delivering groceries may be a thing of the present. Grocers are putting a large amount of investment behind autonomous delivery systems in 2019. Kroger, Cincinnati, and Walmart, Bentonville, Ark., are currently experimenting with the technology in smaller markets. In fact, Kroger and its partner Nuro, Mountain View, Calif., began making deliveries to Scottsdale, Ariz., residents, as part of the chain’s continued focus on digital innovation.
2. New distribution centers and systems put the focus on speed. 2018 saw an increase of grocers building new fulfillment centers in order to meet the rapidly growing demand created by grocery delivery and click-and-collect programs. In fact, Giant Foods, Landover, Md., opened its first e-commerce pick-up and fulfillment hub in Lancaster, Pa., with dedicated click-and-collect lanes for drivers visiting the hub.
Beyond store openings in 2018, investment in grocery real estate totaled $9.9 billion – grocery cap rates saw some softening at the end of 2018, increasing 11 basis points from 2017. While single-asset grocery transactions declined 5.8% since 2016, the average price per square foot increased by 7.8% across the United States. In primary markets, the average price for square foot increased by 9.5% over the past two years.
“While grocery investment saw a decrease in 2018, that may be due in part to stricter underwriting standards and lack of Trophy and Class A grocery-anchored deals on the market last year,” adds Chris Angelone, retail capital markets lead. “However, we expect an uptick in premium grocery locations like the Safeway-anchored Diamond Heights Shopping Center, which achieved cap rates near 4% to go on the market in 2019, as REITs continue to dispose some of their smaller neighborhood and community centers.”