THE SUPERMARKET SECTOR IS FACED WITH CONSOLIDATION OF BIG
PLAYERS, GROWTH BY SPECIALTY CHAINS AND AN ENVIRONMENT OF
VERY LITTLE NEW CONSTRUCTION. WHO WILL COME OUT ON TOP?
IAN RITTER: What kind of impact will the Safeway-Albertsons merger have on the
industry? Do you foresee a lot of vacancies as a result? If so, can they get backfilled?
TED FRUMKIN: This is just a continuation of the consolidation we’ve seen in our industry.
The traditional grocers have been faced with increasingly strong competition for food dollars from big box retailers like Walmart and Target, specialty grocers like Sprouts, drug
stores and dollar stores. This, coupled with the continued growth of the natural/organic
sector, is fundamentally changing the way consumers think about grocery shopping. It is a
natural progression for retailers like Sprouts to consider backfilling any opportunities created by this consolidation. From Sprouts’ perspective, it will create opportunities in markets that otherwise would be more difficult to penetrate. However, we know that there will
likely be competition among retailers for any sites that come onto the market.
FERNANDO De LEON: Inevitably there will be vacancies as a result of spacing and concept similarity. They’re both middle-market grocers. The specialty grocers on one end, and
the value concepts on the other, are driving this consolidation. We’ve backfilled Albertsons
boxes, and what we found is that retailers are looking for smaller footprints with more
efficient prototypes, so we are having to demise spaces and build expensive landlord work
letters and tenant improvements, all of which necessitate higher rents. This is in the context of fewer backfill prospects every year.
MICHAEL PHILLIPS: If there were a lot of new building going on, this would be more
worrisome. Since we don’t have a lot of new supply coming on in the next couple years,
absorption will be significant, and most of them are good locations where landlords will get
control of that space. That will mitigate a lot of dislocation.
BILL ROSE: Mike Cohen, you’re financing a lot of properties. When you look at
these, do you care who the grocer is?
There isn’t a retail real estate sector that is discussed much more nowadays than the supermarket arena. Two of the biggest middle-market operators, Albertsons and Safeway, are combining, and retail observers are waiting to see what store-closure fallout could occur as a result. Meanwhile,
specialty grocers focused on quality and organic products, such as Sprouts Farmers Market, the Fresh
Market and Trader Joe’s, are looking for space and drawing consumers. On the other end of the spectrum, lower-priced options, such as Walmart’s Neighborhood Markets, Aldi and others, are popular
with the cost-conscious shopper and fighting for space. All of this is happening in an environment with
very little new retail real estate construction.
In conjunction with this month’s ICSC RECon show and Real Estate
Media Thought Leaders Marcus & Millichap’s annual Retail Trends
event at the conference, we bring you a roundtable discussion on
where the grocery sector is headed, as well what is taking place overall in retail real estate.
Head of Mid-Atlantic and Southeast Origination
Citigroup CMBS and CREF
FERNANDO DE LEON
Leon Capital Group
Senior Vice President of Business Development
Sprouts Farmers Market
MICHAEL C. PHILLIPS
Principal, President and Chief Executive Officer
Phillips Edison & Co.
Vice President and National Director
Marcus & Millichap’s National Retail Group
Chief Investment Officer
Inland Private Capital Corp.
Retail Real Estate Reporter
Real Estate Forum