CREJ - Retail Properties Quarterly - February 2015
At the Rocky Mountain Commercial 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 population 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 percent. 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. Cannibalization 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 market 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 conventional 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-ALot, 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 supermarkets 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, Linens ‘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 retailers or allow for expansion of existing supermarkets to include new formats. 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 Albertsons change the dynamics of the grocery war and what role can developers, investors, landlords and city governments play to avoid becoming a casualty? In the short term, as the two companies complete their merger, 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 difficult 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 perishables and better facilities. I suspect these stores eventually will end up operating under one banner, 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 Arizona, it eventually ended up operating 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, whatever the decision, aggressively pursue a deal that gives you control, otherwise 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 realize you wanted to buy. The downfall of the specialty grocer is the lack of something as simple as Tide detergent, which is not available at these stores. Then there is the conventional supermarket, which is readily available 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 elsewhere, 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 generation of the neighborhood shopping center.