Whole Foods

Grocery Market Growth is at the Top and the Bottom

Competition in the local grocery market is more cutthroat than ever, with high-end food palaces and discounters opening dozens of new outlets over the past four years.

Since 2009, the number of gourmet grocery stores in Chicago and its close-in suburbs doubled from 22 to 44, while the number of discount supermarkets jumped 19 percent, to 94, according to a report from Oakbrook Terrace-based Mid-American Real Estate Corp.

The expansion of upper- and lower-end stores has taken a bite out of traditional, full-service grocers like Dominick’s, Jewel-Osco and locally owned chains. They’ve closed 8 percent of their stores in Mid-America’s study area, dropping from 161 to 148 outlets between 2009 and this August, according to the report.

“We just have a deep level of specialized concepts that fit different niches,” said Mid-America Principal Dan Tausk, who authored the study. “It’s making the longtime grocers react.”

The growth at the top and the bottom of the market reflects broader changes in the local economy.

On the one hand, gourmet operators are keen to meet increased demand among wealthy consumers living downtown for specialty items like gluten-free products and prepared foods. On the other, the discounters know that in a sluggish economy there’s a huge market of shoppers who can’t afford to pay a cent more than they have to for food.

The report, Mr. Tausk’s third since 2009, tracks grocery stores of at least 10,000 square feet within the most-populated part of the region, an area bound by Touhy Avenue on the north, Harlem Avenue on the west, 127th Street on the south and Lake Michigan on the east.

The study does not include convenience and drug stores. It divides grocers into three categories: gourmet stores, including Whole Foods Market Inc. and Mariano’s Fresh Market; full-service supermarkets, and discount chains, such as Aldi Inc. and Wal-Mart Stores Inc.

Grocery Market

OVERALL COUNT RISES

The overall store count rose to 286 stores at the end of August, up 9 percent from 2009. Total square footage jumped more than 12 percent, to 9.9 million square, the report shows.

Tracking who’s winning and losing among grocers is critical for the real estate industry. Grocery stores are the “backbone” of the local retail market, as Mr. Tausk puts it, since nearly every consumer must shop for food. Supermarkets also can be the key to the health of many shopping centers because they’re often the main draw for shoppers who spend their money at neighboring stores.

Gourmet grocers have expanded the most over the past four years. In addition to doubling their store count, their square footage nearly tripled, to more than 1.8 million square feet, according to the study.

New gourmet competitors include Plum Market and Mrs. Green’s Natural Market, But it’s the breakneck expansion of Mariano’s Fresh Market, a division of Milwaukee-based Roundy’s Inc., that has driven the gourmet category and, to a degree, the broader retail market as well.

Mariano’s added seven new stores between 2011 and this year in the urban area covered by the Mid-America report, creating a wealth of new opportunities for landlords, retail developers and tenants. Mariano’s often cover 70,000 to 75,000 square feet as compared to the typical 50,000-square-foot full-service store, Mr. Tausk said.

“They’ve been the story,” he said.

A Mariano’s spokesman did not return a call.

Between 2009 and 2013 discounters expanded their local footprint, growing from 79 to 94 stores, a 19 percent gain, according to the study. The growth reflected the the pinched bank accounts consumers felt in the aftermath of the recession, Mr. Tausk said. Four discount groceries closed over the last two years, however.

Aldi has the most stores in Mid-America’s study area, with 57.

HOW WILL FULL-SERVICE CHAINS COMPETE?

A key question is how full-service grocers will compete in the changing food retailing landscape.

Chains like Dominick’s and Jewel-Osco that don’t fit consumer expectation on low price or glitzy options are struggling in markets across the country, said Jon Hauptman, partner at Willard Bishop LLC, a Barrington-based grocery consultancy.

“We’re seeing the share of traditional grocers beginning to subside as shoppers find alternatives at either end of the spectrum, at the low-cost or more upmarket side,” Mr. Hauptman said.

Over the past two years, Jewel-Osco, owned by a venture that includes New York-based Cerberus Capital Management L.P., and Dominick’s, a unit of Pleasanton, Calif.-based Safeway Inc., have both closed two stores each, according to the Mid-America report. Media representatives at the firms did not return calls.

Jewel-Osco has the most full-service stores in the Mid-America study area, with 46, vs. 22 for Dominick’s.

Jewel-Osco hasn’t been opening new stores, but it has shown a willingness to improve customer service and remodel existing stores, according to Mr. Tausk.

“At the store level they’re very focused on improving,” he said. “I just don’t see that same level of activity at Dominick’s.”

Source: ChicagoRealEstateDaily Micah Maidenberg September 16, 2013
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