New grocery store openings were up 30 percent in 2018, with more than 17 million square feet of space added in the United States.
That’s according to Chicago-based JLL’s "Grocery Tracker 2019" report, which notes that more than one-quarter of the new stores were in Florida, California and Texas, due to expansion by their respective local market-leading grocers: Publix, Sprouts Farmers Market, Aldi, Kroger and H-E-B.
“Grocery is one of the strongest retail sectors, with nearly twice as many new stores opening than closing last year,” said James Cook, JLL’s director of retail research. “The grocery sector has seen shopper habits shift to more frequent, shorter trips, versus large weekly hauls. As a result, grocers are focusing on developing smaller-format stores, those under 10,000 square feet, with more local offerings to appeal to the surrounding community.”
Already executing this tactic is small-format grocer Aldi, which opened 82 stores last year, accounting for nearly 16 percent of the total new stores by square footage. Sprouts Farmers Market continued at a fast pace, adding 30 stores with another 30 planned this year.
“In 2019, we expect to see even more grocery stores rolling out their smaller-format stores as they battle razor-thin margins in prime locations while still serving evolving consumer needs,” Cook said.
“Disruption in the grocery sector proved that even a needs-based retailer needs to evolve with consumers' changing shopping habits," he added. "Major chains such as Walmart, Kroger and Giant Foods are all making investments in areas that aim to provide their customers with a flexible and reliable shopping experience that best suits their individual preferences.”
This year is likely to bring an interesting evolution of the grocery sector, JLL speculated, as retailers move to accommodate the digital systems that permeate our daily lives. By focusing their tech advancements on flexibility and convenience, grocers are positioned to have a strong 2019 in both physical and digital retail.
JLL sees two top trends in 2019:
Robots delivering your groceries may be a thing of the present: Grocers are putting a large amount of investment behind autonomous delivery systems in 2019. National chains Kroger and Walmart are currently experimenting with the technology in smaller markets. In fact, Kroger and its partner Nuro, the robotics company, have begun making deliveries to Scottsdale, Ariz., residents – part of the chain’s continued focus on digital innovation as studied in the report.
New distribution centers and systems put the focus on speed: 2018 saw an increase in grocers building new fulfillment centers to meet the rapidly growing demand created by grocery delivery and click-and-collect programs. In fact, Giant Food Stores, one of the grocers looked at in the report, recently opened its first ecommerce pickup and fulfillment hub, in Lancaster, Pa., with dedicated click-and-collect lanes for drivers visiting the hub. The new fulfillment center should also bring an increase in deliveries, which will reach more customers than the original store that this hub facility replaced.
Beyond store openings, 2018 investment in grocery real estate totaled $9.9 billion – grocery cap rates saw some softening at the end of 2018, increasing 11 basis points from 2017. While single-asset grocery transactions have declined 5.8 percent since 2016, the average price per square foot has increased by 7.8 percent across the United States – in primary markets, the average price per square foot has increased by 9.5 percent over the past two years.
“While grocery investment saw a decrease in 2018, that may be due in part to stricter underwriting standards and lack of Trophy and Class A grocery-anchored deals on the market last year,” said Chris Angelone, JLL retail capital markets lead. “However, we expect an uptick in premium grocery locations to go on the market in 2019 as REITs and institutional investors continue to dispose of some of their smaller neighborhood and community centers.”
JLL is a professional services firm that specializes in real estate and investment management.