The Basket Runneth Over
Aug 1, 2007 12:00 PM, By Jennifer Popovec
“Many grocery chains that might have looked around for sites in the past are now more likely to stay in place and renovate their stores,” says Adam Ifshin, president of DLC Management, a Tarrytown, N.Y.-based company with a portfolio of 70 shopping centers. “Investing in existing stores is less risky because the location has already been validated. And it's less expensive and usually doesn't take as long.”
In addition to development challenges, grocers are upgrading their existing stores in an effort to distinguish themselves from all the competition.
“Traditional grocery stores are caught between the guys on the price end of the spectrum and the guys on the quality and prepared foods end,” says Lee Peterson, a vice president with WD Partners. The firm is working on Albertson's remodeling strategy. “They've spent 10 years trying to hold off Wal-Mart on the price side and have realized that the best way to compete is to focus on the shopping experience.”
Chris Weilminster, senior vice president of leasing of Federal Realty Investment Trust, agrees: “We've really seen the traditional grocers focus on those types of services and products to further differentiate themselves.” Currently, he's working on five grocery store renovation and expansion deals.
Moreover, renovations are a strong defensive tactic. Ifshin contends that DLC Management routinely sees its grocery anchors rushing to renovate stores in advance of new market competition. In Lawrenceville, Ga., for example, Kroger renovated its store before a new Wal-Mart Supercenter could open in the market, adding new floors, casings and lighting and new departments. DLC Management changed the center's exterior and added a two-story façade to Kroger.
When the Supercenter opened, it had a “brief impact” but Kroger rebounded, Ifshin says. The Publix across the street, which was not renovated, wasn't so lucky. It closed soon after the Wal-Mart Supercenter opened.
Customer Experience
Will Ander, senior partner of McMillan|Doolittle, a Chicago-based retail consultancy, says traditional grocery chains are remodeling their stores to focus on things that low-cost operators like Wal-Mart and Target don't do well. “Convenience, service and quality are the things that discounters can't or don't offer,” Ander says. “It's the prepared and organic foods where the supermarkets can do a better job, so that's where they're spending their money.”
In fact, nearly all food retailers (98.8 percent) are addressing competition issues by emphasizing perishable products such as meat, produce, prepared foods and deli and bakery items, according to a report issued by the Food Marketing Institute. The report, Food Retailing Speaks: the Annual State of the Industry Review 2007, found that retailers rate this strategy as one of the best.
“The Whole Foods of the world established the benchmark for consumers. The experience and environment that Whole Foods provides has taught the industry that in order to be competitive they just can't have rows and rows of metal shelving and expect to succeed,” Bona says.
As a result, grocers are focusing on customer experience, something they ignored in the past.
