The Basket Runneth Over
Aug 1, 2007 12:00 PM, By Jennifer Popovec
Rewarding Remodels
Remodels like Pathmark's are much more complex and expensive than the renovations of the past. Ifshin estimates that a total redo that includes new technology, casework, lighting, flooring and signage costs $2.5 million to $3 million.
“We've learned that if you spend anything less than $1 million for a 45,000- to 50,000-square-foot store, the return starts to drop off significantly,” Peterson says. “At that level, the difference is indistinct to customers. If you go above that amount, you start to get traction with the customer.”
Experts contend that most grocery chains don't expect their remodels to attract many new customers. Instead, they're hoping to increase the basket size — the amount of money existing customers spend in the store — and to increase the frequency of shopping trips.
“The addition of new customers might be a goal, but I'm not sure it's happened too much,” Ander says. “But if you've got more merchandise and goods that the customer likes, they'll spend more with you and visit more often.”
Experts estimate that grocery chains can achieve sales increases of 10 to 40 percent depending on the type of remodel. Safeway's “Lifestyle” remodels are rumored to post sales increases in excess of 25 percent.
And it seems that remodeling programs have had a positive impact across the industry. Supermarket industry sales increased 5.3 percent in 2006, and same-store sales rose an average of 4 percent, the biggest gain in more than a decade, according to the Food Marketing Institute.
In July, Safeway said its market share had grown for the 10th consecutive quarter, with five consecutive quarters of same-store sales growth of more than 3.5 percent. “With less than half of our store system converted to the highly successful ‘Lifestyle’ format, we expect our aggressive remodeling program to generate strong same store sales gains for several years,” Burd said.
It's not just the grocery stores that benefit from the remodels, either. Regency Centers, for example, was able to improve the small shop occupancy in Baker Hill Shopping Center in Glen Ellyn, Ill. after Safeway renovated the center's 72,000-square-foot Dominick's supermarket.
“Baker Hill had always been a slow center for us. It's in a very nice area but it's always been outflanked by other centers because the Dominick's was very tired and people had stopped shopping there,” Fiala recalls. “Now that the grocery store has been renovated, customers are coming back and we have letters of intent on the vacant space.”
That's one reason why DLC Management encourages its grocery anchors to remodel their stores.
“We know that we'll end up with a product that will make us more competitive,” Ifshin explains, adding that the company generally sees a bit of an uptick in the center after a renovation and is able to achieve rental increases of 15 to 30 percent on the small shop space.
All signs point to continued renovation activity. “For the most part, grocers have found that their best returns on capital come from reinventing and renovating their existing stores in markets where they are dominant,” says Terry Brown, CEO of Edens & Avant, a shopping center owner and developer based in Columbia, S.C.
Safeway's Burd adds: “From a pure return on investment standpoint — plus the fact that we consider the lifestyle stores to be every bit a good defense as they are an offense — we're going to continue to focus on remodels.”
