CREJ

Page 18

— Retail Properties Quarterly — February 2015

t the Rocky Mountain Com-

mercial Real Estate Expo in

November 2004, I delivered

a presentation on the future

of grocery store development

in the Denver metro area. This article

follows up on those predictions and

what impact the merger of Safeway

and Cerberus, Albertsons’ parent

company, will have in the continuing

grocery war.

Grocery store

trends.

Between

1989 and 2004,

the growth of new

grocery stores

exceeded the popu-

lation growth – the

population during

that period grew 37

percent, compared

with the growth

of new grocery

stores at 42 percent.

Albertsons’ store

count increased 52

percent, followed

by King Soopers at

47 percent, then Safeway at 30 per-

cent. Many of the new Safeway stores

were on-site replacement stores,

which increased its market share by

6.3 percent, while Albertsons, despite

aggressive expansion, had its market

share decline 14.6 percent, and the

market share of King Soopers also

decreased 8.7 percent. Cannibaliza-

tion of existing stores, and having to

compete with larger, newer Safeway

stores, contributed to King Soopers

and Albertsons losing market share

despite building more new stores

than Safeway.

National trends showed that mar-

ket shares of conventional stores

were projected to decline from 76 to

55 percent between 1997 and 2009,

with price operators market share

increasing from 21 to 39 percent and

the market share of specialty stores

increasing from 3 to 6 percent.

In 2004 I accurately predicted that

conventional supermarkets would

concentrate on remodeling and

experiment with alternative formats

to compete with the specialty stores

entering the market. Based on current

research and findings, I predict that

specialty stores and super discount

stores will be responsible for building

most new stores, and fewer conven-

tional stores will be built.

Historical perspective.

A walk

through the retail cemetery shows

how the retail environment has

changed over the years. The early

grocery chains like Millers, National

T, A&P, Furrs, Cub Foods and various

Hispanic grocers are long gone. New

food stores like Sprouts, Whole Foods,

Trader Joe’s, Vitamin Cottage, Save-A-

Lot, Super Target, Super Walmart and

Walmart Neighborhood stores have

taken their place. King Soopers has

had the most aggressive new store

development in recent years, while

Albertsons and Safeway have closed

stores. And as these new supermar-

kets and discount stores got into the

pharmacy business, drug chains like

Skaggs, Osco, Eckard, Longs Drugs

and Drug Emporium are no longer

around. Looking at nonfood chains,

Handy Dan, Mervyns, May D&F, Lin-

ens ‘n Things, Woolco and Kmart, as

well as major appliance stores have

also disappeared – replaced by Home

Depot, Lowes, Kohl’s, dollar stores

and outlet malls.

Redevelopment of neighborhood

shopping centers also has been

updated to accommodate new retail-

ers or allow for expansion of existing

supermarkets to include new for-

mats. I was fortunate to be involved

in the transformation of two King

Soopers shopping centers that were

redeveloped as Safeway-anchored

shopping centers. The bottom line is

retailers may come and go, but good

locations are irreplaceable.

The Safeway/Albertsons merger.

How

will the merger of Safeway and Alb-

ertsons change the dynamics of the

grocery war and what role can devel-

opers, investors, landlords and city

governments play to avoid becoming

a casualty? In the short term, as the

two companies complete their merg-

er, I do not think capital spending

will be high on the list of things to

do. The companies suggest that they

will continue to operate under both

banners, but I believe this will be dif-

ficult to do. Albertsons has never had

a shopper-loyalty card, it sold off its

gas stations and, even when its stores

were new, they felt plain, old and

dated. Albertsons does have more

nonfood stock-keeping units than

a typical Safeway store, but, in my

opinion, Safeway has better perish-

ables and better facilities.

I suspect these stores eventually

will end up operating under one ban-

ner, and it will be Safeway. After all,

it is the oldest supermarket chain in

Denver. For example, when Kroger

acquired Smith’s and Smitty’s of Ari-

zona, it eventually ended up operat-

ing them as Fry’s Food Stores.

If you are an owner of a Safeway or

Albertsons shopping center and there

is a store with the other name close

by, you need to decide if you want

them to stay or have them leave. Now

is the time to take control and, what-

ever the decision, aggressively pursue

a deal that gives you control, other-

wise you could become a casualty of

the grocery war. Waiting for the other

store to decide what it is going to do

is not an option that will benefit you.

Appealing to the customer.

Retail,

particularly in the grocery sector,

has become more difficult to find a

format that is appealing to the fickle

consumer. On one hand, you have

examples like Costco, which requires

the customer to buy a membership in

order to be able to shop at its stores,

and what you buy this week may not

be available next week. The specialty

grocer follows an opposing model,

selling items you did not even real-

ize you wanted to buy. The downfall

of the specialty grocer is the lack of

something as simple as Tide deter-

gent, which is not available at these

stores. Then there is the conventional

supermarket, which is readily avail-

able in convenient locations. But the

conventional supermarkets aren’t

without faults either. The model is

based on trying to sell a little bit of

everything, meaning inventory can

run low and certain items are not

available, therefore, these stores lose

customers to the large membership

retailers and specialty and discount

stores.

I think it is time for conventional

grocers and shopping center owners

to re-examine who their customers

are, and develop shopping centers

that offer the convenience, goods and

services that consumers demand.

Often shoppers are willing to go else-

where, rather than shopping at the

most convenient location. Maybe this

Albertsons and Safeway merger will

provide an opportunity to develop

a new format for both stores, and

become co-anchors of the next gen-

eration of the neighborhood shopping

center.

Neighborhood centers and the grocery war

Grocery Update

Howard

Gerelick

Shopping center

consultant, retired

vice president

of real estate,

Safeway, Denver

Albertsons and Safeway will merge, but continue to operate under both names.

The merger could result in a grocery war for owners if two stores are close to each other.

I think it is time for

conventional grocers

and shopping center

owners to re-examine

who their customers

are, and develop

shopping centers that

offer the convenience,

goods and services that

consumers demand.