Retail: Grocery Real Estate Set To Transform | Real Estate Thinking
- The grocery-anchored retail space is set to undergo a significant transformation in the next decade(s) due to rising e-commerce grocery sales, advancements in in-store technology, as well as a growing number of lower and higher income households (i.e. continued shrinking middle class).
- Mass adoption of in-store technology likely means that customers will prefer to shop in-store for fresh produce and meats while opting to pick-up (or have delivered) the ‘middle-isle’ (i.e. non- perishable goods).
- Retail gross leasable area (GLA) space per grocery store should shrink over time and the configuration of the current-day grocery store will evolve as a majority of the space will be utilized as a last-mile distribution center for the ‘middle-isle’ pick-up or shipment.
- ‘Winning’ grocers will anticipate and cater to the needs of their customers through technology and in-store customer experiences.
- ‘Losing’ grocers are unable or are unwilling to anticipate and to cater to their customers due to a variety of reasons from being over-levered to general mismanagement. These grocers will face obsolescence similar to what has happened in the general retail space in the last decade (Fig 1).
- While there will be ‘winners’ and ‘losers’ among grocers, grocery stores are not going away any time soon and in some sense are future-proof from a pure ‘everyone needs to eat’ perspective. We recommend adding grocers to mixed-use retail strategies.
In our view, advancements in technology will enhance consumer experience and ultimately productivity for brick-and-mortar grocers. Omni-channel services across various U.S. retail grocery stores increased in 2018 (Fig 4). Kroger is among the leaders. Kroger has recently collaborated with Microsoft to test digital shelf technology. Kroger EDGE (Enhanced Display for Grocery Environment) is a technology powered by Microsoft Azure that digitally displays pricing and nutritional information, as well as video ads and coupons for various products. Further, it gives Kroger the ability to instantly change prices, activate promotions and undercut sales at other chains. Kroger’s ‘Scan, Bag, Go’ app enables customers to pay for their items without checkout lanes, registers or cashiers.
Stronger usage amongst young millennials (YMs) can be credited to time constraints due to their complex household and work schedules. Older generations may have more time to shop in-store for their items and do not appreciate the convenience aspect that e-grocery provides to busy YMs that are establishing their careers and households. These generational differences can be further explained in a survey conducted by The Hartman Group (Fig 6).
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