Investors Stay Focused On Grocery-Anchored Centers

Investors Stay Focused On Grocery-Anchored Centers

Grocers are among the few winners of the pandemic, and risk-averse investors are taking notice of the attractive fundamentals surrounding grocery-anchored retail centers. A record-high 722 assets traded hands in 2021 for a combined value of $13 billion. Sales growth, technological innovations and infrastructure improvements are fueling the bullish outlook, but it wasn’t an easy ride to get here.

Covid forced grocers large and small to pivot quickly. Seemingly overnight, dining out was no longer an option, and large swaths of the population took to their kitchens to bake banana bread and plan the next family meal. As an essential business, grocers had to contend with a sharp uptick in demand while also navigating supply issues concerns and a consumer base that no longer felt safe entering a store. Demand for online orders and curbside pickup soared, and grocery retailers worked to not only meet that demand but futureproof their success. It worked.

In 2021, U.S. grocery-anchored retail property sales held the largest share of any retail property type for the third consecutive year and the second highest in recorded history. Private capital was the most active buyer, comprising 67.7% of total volume. Public Real Estate Investment Trusts (REITs) claimed 17% of total market share, relative to their 9% share in retail broadly. Among the REITs, Kimco took the top spot with its purchase of Jamestown’s Grocery & Growth Collection for $425 million. Renewed interest from international capital pushed investments in U.S. grocery-anchored assets to just under $600 million, nearly double the amount seen in 2020.

As Covid morphs from hostile intruder to annoying relative, it’s clear that the growth sustained in the early days of the pandemic is showing no signs of diminishing. The 9.4% increase in grocery sales in 2020 was sustained in 2021 when total sales reached $803 billion, a 16% increase over pre-pandemic levels.

According to eMarketers, online grocery sales exploded by 64% in 2020 and another 12.3% in 2021 to reach total sales of $122.4 billion. Foot traffic to grocery stores has now fully recovered, yet online sales are forecasted to double in the next three years, reaching $250 billion by 2025.

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The sustained increase in sales has caused most large-scale grocery chains to kick into growth mode. Datex reported a 200% increase in grocery leases in 2021 versus 2019. Aldi’s aggressive expansion activity easily made it the most active grocer, with its 88 new store openings in 2021 nearly tripling the new store count of its next closest competitor, Publix. According to JLL Research, notable other grocers experiencing big growth gains include Grocery Outlet, Giant Eagle, Sprouts Farmers Markets, Amazon

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Fresh, Schnucks, Shop Rite, Hy-Vee, and Whole Foods Market

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. The bulk of these expansions are occurring in Southeastern states like Florida, Georgia, and the Carolinas.

A handful of leading grocers have chosen technology as their calling card. Consumers want fast, easy and fun. They cart around short attention spans and chaotic to-do lists. Experiential retail is not just exclusive to the mall; the grocery experience is evolving along with it and technology is at the forefront of the evolution.

One of the most exciting innovations is walk-out, cashier-less technology. Amazon first brought the “Just Walk-Out” technology to its Amazon Go stores in 2018 and has since rolled it out to its Amazon Fresh stores. Two new Whole Foods stores slated to open in 2022 in Washington, DC and Sherman Oaks, CA will boast the technology. Early adopters are loving the experience. Customers scan a QR code in their Whole Foods or Amazon mobile app or insert a payment card linked to those accounts. Upon exiting the store, Just Walk-Out automatically debits their account and sends a digital receipt. A self-checkout lane or human perched at a customer service counter is available in-store for those not quite ready or willing to take the technological leap. U.K.-based grocers Lidl and Tesco have successfully launched competing walk-out stores there.

With so much innovation on the horizon, inflation is the reality check. Grocers need to take a breath and apply the same lessons learned in the height of the pandemic. To create loyalty, you must provide a great experience in the store and online. The customers (and investors) will follow.

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