CREJ

22 / 28

Page 22 — Retail Properties Quarterly — August 2017
Grocery Update
Let us help you with your next project.
COLORADO | TEXAS
2785 Speer
Residence Inn
Park Regency Assisted Living
ONE PROJECT AT A TIME.
L ast year, I wrote about how
many of the conventional
supermarkets were build-
ing larger stores that offered
more products in an attempt
to compete with new retailers.
While this was initially a success-
ful defense, I did not think it ulti-
mately would be the way to defeat
these new enemies in the grocery
war. Today, it’s rumored that Kroger,
which was aggressively building
larger stores, has put on hold on
any new store development. Did
Kroger stop building new stores
because someone there read my
article and agreed with me, or am
I the Nostradamus of grocery war
prophecies?
Regardless of my opinion, devel-
opment of new stores by the con-
ventional supermarkets has slowed,
and many observers believe that
conventional supermarkets face
a new threat from internet giant
Amazon with its purchase of Whole
Foods. Will Amazon drop the A
bomb, moving grocery purchasing
online? I don’t think so.
Many companies have tried and
failed to convert customers to
online grocery shopping. The con-
ventional supermarkets fought
back by offering their own internet
shopping and delivery or in-store
pickup options. Amazon is not new
to this either; the website offers
grocery products to online shop-
pers and has started experimenting
with brick-and-mortar stores called
Amazon Fresh.
When you compare Kroger with
Whole Foods, it become clear that
the “conventional supermarket” still
dominates. Kroger
has 2,778 stores in
35 states compared
to 438 Whole Foods
stores in 28 states.
The average store
size for Kroger is
62,600 square feet,
compared to 39,000
sf for Whole Foods.
The average sales
per sf for Kroger
is $557 compared
with $915 for
Whole Foods. Of
the estimated
$649.1 billion in
total food sales
in the U.S., Kroger’s market share
is 17.7 percent compared to 2.4
percent for Whole Foods. However,
Whole Foods clearly is the domi-
nant food retailer in the natural
food sector with a 15.7 percent mar-
ket share of the natural foods sales
in the U.S.
Back to the battleground, the
conventional supermarkets typi-
cally feature a larger army in terms
of more convenient store loca-
tions that can offer more variety
than an online retailer. So why is
an online retailer’s purchase of a
natural foods grocery chain causing
so much speculation? The answer,
I believe, goes back to 1980 when
Whole Foods opened its first store.
The opening created an excitement
among consumers to buy products
and prepared foods that were not
typically available in conventional
supermarkets. The diverse product
offerings gave consumers a unique
shopping experience. Even with its
limited number of stores – making
it less convenient than convention-
al supermarkets – and its higher
prices – earning the nickname of
“Whole Paycheck” – the chain devel-
oped an almost cult-like following
from consumers.
I believe it is access to this con-
sumer that Amazon hopes to capi-
talize on with its purchase of Whole
Foods. Amazon now has a retail test
tube to be innovative with and to
experiment with new formats, inte-
grating the brick-and-mortar shop-
ping experience with the unique-
ness of what internet shopping has
to offer.
Can the conventional supermar-
kets fight this new partnership? Yes,
if they recognize that they will have
to make major changes to their store
formats. These changes need to take
advantage of their convenient loca-
tions and make the shopping experi-
ence more exciting.
Just as video stores and, later,
online and on-demand availability
of movies were projected to be the
demise of movie theaters, theaters
responded by adding better sound,
seating and food to make going to
the movies an entertainment experi-
ence. These new theaters still can
motivate customers off their couch
into their luxury chairs with better
screens, 3-D and waiter service, in
spite of many homes having expen-
sive home theaters.
The conventional supermarkets
must do the same and enhance the
shopping experience for consumers
– is it possible to make going to the
supermarket as exciting as watching
a movie in a theater?
To start, these conventional stores
must look at their product mix and
focus on items that consumers need
daily, not on what consumers buy
only occasionally. For example, cus-
tomers would benefit from a larger
assortment of food options, say
types of chips, than they would from
a larger assortment of home clean-
ing supplies, say mops, which are
only bought on occasion.
If consumer are not provided with
more food choices, they will drive
past the more conveniently located
supermarkets in favor of shopping
at a destination store with more
unique product offerings and ser-
vice. It doesn’t take a rocket scien-
tist to sell food – it is a commodity
we all need – but how it is sold will
determine who wins the grocery
war.
This is the major problem facing
the conventional supermarkets. To
combat it, they need to think uncon-
ventionally. I don’t think you can
buy a mop at Whole Foods, but you
can on Amazon. By buying Whole
Foods, Amazon will be able to join
the best of both worlds of online and
brick-and-mortar shopping.
Nobody said wars make sense, but
sometimes they are needed for the
greater good. Hopefully Amazon’s
purchase of Whole Foods and its
entry in to the battlefield of the gro-
cery war will ultimately benefit all
of us. More and different stores will
give us better stores. We will enjoy
a better shopping experience – an
experience that makes us want to
go to the grocery store to see and
taste the new and exciting food
offerings.▲
Howard
Gerelick
Shopping center
consultant, retired
vice president
of real estate,
Safeway, Phoenix