One of the topics that comes up often when discussing Gainesville commercial real estate is the idea of an urban grocer. Grocery stores and other retail are vital to the success of any true urban environment but as the article below outlines there are usually challenges. Our team has had many discussions about locating a grocery store like Publix, Whole Foods, Earth Fare, Fresh Market, or Traders Joes in Innovation Square to serve the market there. Our goal is to get these chains to think outside of traditional shopping centers like Butler Plaza and consider Innovation Square for a location.
By Ben Johnson | Shopping Centers Today
Just before the recession, grocery store purveyors were enthralled with the suburbs, where a housing boom had rooftops proliferating. Then the markets caved, the jobless rate began to rise and grocery development shrieked to a halt. Now, after three years of a painfully slow recovery, grocery chains are doing the unthinkable: They are seriously looking at urban downtown locations. “There was so much momentum to do grocery development in the suburbs that downtowns were overlooked,” said urban retail planning consultant Larry Kilduff, president of Kilduff & Associates. “Now those are going to get done.” Grocery chains are generally growing little, if at all, and this has meant a dearth of new downtown grocery store announcements.
Supermarket chain Harmons, based in West Valley City, Utah, is opening downtown Salt Lake City’s first full-service grocery store in 25 years, as part of the $1.5 billion City Creek retail project. And Harmons has solved an age-old impediment to downtown grocery development — parking — by putting the parking lot atop the store.
Local grocery Marsh is opening its second store in downtown Indianapolis, a 40,000-square-foot facility that is slated to open next summer. Downtown Los Angeles, too, is getting a new grocery: Smart & Final Extra has signed a 20-year lease for 25,000 square feet on the ground floor of an office building at 845 S. Figueroa St. that is undergoing a $20 million renovation. The store is scheduled to open next spring.
But the trend really got a shot in the arm in June, when Target Corp. announced that it would open at least 10 downtown stores offering fresh produce under the City banner. The first of these opened in July on South State Street in downtown Chicago. Others are scheduled for Los Angeles, Seattle and San Francisco by year-end. Grocery sales helped the company boost total sales by 3.7 percent last year.
The challenge for potential downtown retailers involves serving two masters: a daytime population of office workers mainly craving prepared take-out food on the one hand, and a growing residential base of young professionals and empty nesters doing more-serious grocery shopping on the other. Foodies moving into downtown apartments and condos want the type of upscale fare available at Whole Foods and Trader Joe’s, but so far these chains have largely shunned downtown locations. Instead, Whole Foods, for instance, has targeted areas between downtown and the suburbs in several locations, including Detroit and Oklahoma City.
Whole Foods is opening its first store within Detroit’s city limits, at 21,000-square-feet, early next year, supported by some $4.2 million in city-sponsored tax credits and incentives. In March the company opened a 41,000-square-foot store next to the huge Chesapeake Energy corporate campus just east of Oklahoma City’s upscale Nichols Hills. Still, the Detroit and Oklahoma City downtowns remain devoid of true full-service grocery options.
More-value-oriented grocery chains have been the leaders of this charge into the downtowns, but their success has been mixed. In August 2009 Schnucks, a St. Louis–based private chain of 90 supermarkets, opened the first grocery store ever in downtown St. Louis. But the 28,000-square-foot store is generating the chain’s highest traffic volume and yet its lowest sales, according to retail consultant Larry Lund, president of Real Estate Planning Group. “The office population is showing up at lunchtime wanting sandwiches and pizza,” Lund said. The chains are having difficulty striking the right balance, he says. In a 2007 study he conducted of the city of Pittsburgh, Lund made recommendations against the four potential downtown development sites the city proposed. The 3,100-square-foot Rosebud Fine Food Market and Deli opened in March 2008 but had closed by March 2010.
To be sure, there have been plenty of other false starts and failures. A Hartford, Conn., grocer ran into trouble just six months after opening. The 8,100-square-foot, upscale Market at Hartford 21 was the downtown’s first grocery store, but various challenges to the store’s format and equipment forced its owners to close down.
“Grocers, given their industry and low margins, find it tough to survive without scale to maximize their buying power, so it’s not surprising to see store closures,” said Naveen Jaggi, senior managing director of brokerage retail services at CBRE. “You’re not going to find a major grocery chain operate at a loss just to go urban.”
Municipalities across the country are clamoring for downtown grocery stores in the belief that these will attract people to the urban center. But though economic incentives are often dangled in front of grocery operators, experts say this is no key to long-term success. “People in grocery store development know that you can build a free food store and give it to a retailer and they still can’t afford to operate it if they don’t have enough volume,” Kilduff said. “You can’t force it where it can’t go.”
In fact, it turns out the real estate cost is not a primary concern for grocery chains, which pay at most 5 percent of sales in such costs. “At some point, even free rent is too expensive,” said Lund. “They are not big rent payers. The actual operation of the store is labor-intensive and the shelf life of fresh produce is very short. Downtown customers are upper-income people, and they want high-quality produce. The turnover of produce requires new product twice a week, and you’ve got to get the volume of customers to support that. It’s really frustrating getting the economics of these to work.”
The situation developing in San Antonio is sounding a familiar theme among cities these days. “We are actively trying to find a way to bring a grocery store to downtown San Antonio,” said Mark Brodeur, the city’s director of downtown development. “The marketing people say we don’t have enough people living downtown to support a traditional grocery store. But the combination of office workers and tourists creates a larger market.” Brodeur, who hails from California and has some 30 years of urban-planning experience, knows the urban mind-set is different from that of the suburbs. The city is looking at nontraditional types of grocery stores, he says. “Everyone is used to a 20,000-square-foot store, but we believe it would be a smaller footprint and not offer everything that a larger grocer would offer. I believe people will still get in their car to buy 17 rolls of paper towels.”
To those seeking the next great opportunity for downtown grocery development, Kilduff says he would look at the top metro areas. “I would sift through them, and I would take a look at a few,” he said. “It won’t have to be the Sun Belt, because that’s where all the people are moving. We will go where the people are now and find the cities that have the demographic that we’re looking for and then test the thesis there.”