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Food Feeds Retail

BY Al Urbanski

Visitors to the RECon show in May found themselves questioning whether they were at a retail real estate show or a food show. The booths of quick-service, fast-casual, and new-concept food chains were mobbed, and an executive from a REIT with a national portfolio told Chain Store Age that he continued to have substantive conversations with grocery and restaurant chain representatives on the closing day of the show, when most attendees had already left.

Food is the lifeblood of humanity, and so it also is now with the brick-and-mortar retail industry. As growth in new square footage of retail centers continues to slow, grocery-anchored centers continue to flourish and explore new regions and new concepts. New grocery players were a hot topic of conversation at RECon — Lidl’s vow to open 100 stores in the coming year, Whole Foods’ scaled-down “360” concept, and Kroger’s continued expansion.

Lidl, the German value grocer that, along with Aldi, set the all-powerful Tesco back on its heels in the U.K., has been openly aggressive in moving into the states. Its first major incursion into the market will be on the East Coast, where it is hunting for freestanding space on which to erect 36,000-sq.-ft. stores. Where it has failed to find suitable property to buy, it is leasing space.

Kroger is in the middle of a $4 billion expansion and renovation plan. Wegmans is branching out geographically with its 130,000-sq.-ft. grocery and takeout powerhouses. And tried-and-true grocery banners are extending their visions to unheard-of locations. Both Wegmans and Kroger are beginning to move into emptied department store spaces in enclosed malls, and Aldi — long a fixture of lower-income neighborhoods — is opening a store in the Buckhead suburb of Atlanta.

“Grocers are proving themselves to be adaptive. It’s either that or they die,” said Jeff Edison, CEO of Phillips Edison & Company, Chain Store Age’s Fastest-Growing Acquirer of 2016 and a significant owner of grocery-anchored centers.

“There’s going to continue to be a shakeout in the grocery business,” Edison said. “People like Marsh’s go out and others come in and take up their space, so our focus doesn’t change. We continue to concentrate on acquiring and growing.”

Disruption

As enclosed malls decline by attrition, new grocery-anchored centers continue to be built in the U.S., especially in high-job-growth regions where housing starts have picked up. More than a quarter of new grocery square footage in 2016 was erected in two states: Texas and California, which accounted for 3 and 2 million sq. ft., respectively.

Margaret Caldwell, managing director of Jones Lang LaSalle’s retail investment sales practice, said investors remain keen on grocery-anchored centers. “There are lots of institutional investors who, if they had a preference, would take grocery-anchored centers all day long,” she said.

Just as mall and shopping center developers reinvent themselves during a period of social and behavioral disruption, traditional supermarket chains find themselves equally challenged to present new business models, Caldwell said.

“There’s some concern about there being too many grocery players out there, but it’s really a question of which existing supermarkets will survive,” she said. “There will be consolidation.”

According to JLL’s “Grocer Tracker 2017” report, among the challenges traditional grocers will need to address are becoming “grocerants” that dispense prepared as well as packaged foods, developing urban formats, and incorporating online-style convenience into the supermarket shopping experience through technology.

Owners, managers, and developers of grocery-anchored centers, too, must adapt to demographic changes in individual markets. Cole Credit Property Trust IV lost its traditional-format Big Y supermarket at Boston Commons in Springfield, Mass., which was then backfilled by Kohl’s, leaving the center without a grocery anchor. VEREIT, the center’s operator for property management and leasing, employed a broker in Hartford, Conn., with an idea to expand one of its grocery clients to Springfield to serve the local Asian population.

5 Star Supermarket moved into the 104,000-sq.-ft. center recently in a much a smaller footprint than Big Y had maintained, but immediately began doing profitable business and drawing a new clientele to Boston Commons. “They focus on fresh and prepared foods for the Asian market, with bakery, meat, fish, and prepared foods — which is a huge revenue driver for them,” said VEREIT’s VP of leasing Sarah Nelson.

Regional adaptation is bound to play a huge role in the success of supermarkets in the coming years, Jeff Edison observed. “What the grocer business is trying to figure out is how is the customer going to define convenience — and how is it going to define convenience outside of the top six markets?” he asked.

The Gainesville enigma

A fascinating supermarket scenario is currently playing out in Butler Enterprise’s 2 million-sq.-ft. retail complex in Gainesville, Fla. Seventy different boxes sell food within Butler’s three retail “neighborhoods,” and all appear to be doing well at it. “Sales productivity is fantastic on a square-foot basis,” Butler VP of finance Cory Presnick said.

Over the past half-decade, Walmart closed a standard-sized store and opened a Supercenter at Butler, which serves some 2 million visitors a year, including University of Florida students, as well as employees of 10 regional hospitals in Gainesville. Two full-size Publix supermarkets, Target, and Trader Joe’s operate in Butler Plaza, and Walmart is joined by Sam’s Club and Aldi in Butler North.

Ground will soon break on a sixth supermarket at Butler Town Center, a mixed-use development combining street-level boutiques and a Regal Cinema. A Whole Foods was the first building to begin construction there and is set to open next winter. Rounding out the food frenzy at the town center will be a freestanding food hall, a P.F. Chang’s, and a Bonefish Grill. Complex-wide, Butler already offers more than 40 dining options.

“We’re able to hit all the demographic cross-sections because we pull regionally,” Presnick said. “We get doctors, and students, and farmers.”

What’s going on in Gainesville would have been difficult to fathom a decade ago, but so would a food-oriented RECon show. It becomes clearer with each passing year that a retailer’s way to the consumer’s heart is through his or her stomach. Butler’s grocery theme park, unusual as it may seem, may well serve as a laboratory for today’s increasingly alimentary retail experience.

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Spotlight on The Tile Shop

BY CSA STAFF

With home remodeling and housing starts on the rise, The Tile Shop is in a sweet spot. The specialty retailer of manufactured and nature stone tiles reported an 8.8% increase in net sales and a 4.9% increase in same-store sales for its first quarter. With 130 stores in 31 states, The Tile Shop displays its tiles in a showroomlike environment that includes full-room tiled displays and a design studio where customers can utilize 3-D renderings to visualize their design ideas.

Chris Homeister joined The Tile Shop as COO in October 2013, and became president and CEO in January 2015. Prior to joining the company, he served as general manager and SVP of Best Buy’s entertainment business group.

Chain Store Age editor in chief Marianne Wilson spoke with Homeister about The Tile Shop and its plans for the future.

How is The Tile Shop positioned?

The Tile Shop has a unique retail offering that caters to both the trade professional and to general consumers who are looking to update their tile options. Our trade professionals include general contractors, interior designers, flooring installers and customer homebuilders.

What changes have you implemented since becoming CEO?

I’ve focused my efforts on three areas: developing our people, implementing new programs for the professional consumer and strategic store growth — all of which contributed to a dramatic improvement in financial performance. Many initiatives were aimed at encouraging the same type of entrepreneurship that fueled the company’s growth in its early years as well as improving the customer shopping experience.

How are things going?

Our initiatives are working well: Between January 2015 and June 2017, we’ve opened 23 new stores, comp-store sales increased in excess of 7% each year, and our share price has more than doubled. Further, employee turnover has significantly declined and new store financial performance has improved dramatically.

Turnover of sales associates in your most recent first quarter was down nearly 50% from two years ago. How do you explain it?

Over the last couple of years, we’ve placed a significant emphasis on ensuring that our sales associates are growing and developing by enhancing product knowledge and sales skills, expanding our sales career path, and leadership development among our current workforce. Developing great people is at the core of our business, and is the key element that has been driving our success.

I’ve also made it a personal priority to establish one-on-one relationships with store managers at each of The Tile Shop’s stores. And, I personally speak to each new store manager before she or he is selected to lead our store.

The customer is at the center of everything that we do, and I want to ensure that we have leaders in our store who share this same vision. Through these initiatives, The Tile Shop has a created a class of tenured, motivated leaders at the store level who have the skills and confidence to provide an exceptional customer experience. Just as important, they recruit sales associates and designers to the store that make this vision come alive every day. Further, a pipeline of talent is being readied to step into new leadership roles as the company expands.

What are your key priorities?

This year, The Tile Shop is focused on expanding our brand to additional key markets, such as the Southwest, to inspire homeowners and professional contractors alike to realize their home design dreams. We will also continue to build upon our success with improving the e-commerce shopping experience, as well as finding unique ways to showcase our tile offerings via innovation and technology to further enhance our customer experience.

In a challenging retail environment, The Tile Shop is thriving. What are key factors in the company’s success?

In the first quarter of 2017, we reported record sales and profits. And we’ve continued to see these record numbers due to our effectiveness of consistently providing a high customer service level, which is certainly a key to our high average order and overall satisfaction.

Additionally, our pro business has never been stronger, where we are viewed as a trusted partner with our professional customers at each store location.

Is online a priority in this niche?

More than 90% of our customers visit our website before, during and after their shopping experience with The Tile Shop. This is exactly why we’ve made significant improvements to our website over the past several years, including the launch this past year of an innovative and interactive new design tool called Design Studio that also allows professionals and general customers to customize their room design using The Tile Shop products. We’ve also improved product pages and design content so it’s easy for customers to get inspiration for their next tile project.

What is the average store size?

The size varies based upon location, but 14,000 sq. ft. is our new average showroom size.

What’s the store experience like at The Tile Shop?

We’re focused on providing a premier experience that starts with our sales team. We’ve placed significant focus on enhancing product knowledge, customer engagement and leadership development among our current workforce. The result of these efforts has been a class of tenured, motivated leaders at the store level, who have the skills and confidence to provide an exceptional customer experience.

Also, sales associates have been trained to use Design Studio to develop a blueprint of a customer’s space, and specify material requirements and design objectives.

We introduced a new store format in 2016, and it is performing extraordinarily well. It works in both urban and more traditional suburban environments. It includes more design tables and new merchandising strategies, as well as an expanded installation and accessories assortment. In addition, our professionalgrade tools have also increased greatly, which is another reason for our strong growth with this class of customer.

About how many new locations are planned for 2017?

We will be opening approximately 12 to 15 stores in 2017, as well as entering into a new priority market later this year.

We are opening strip center and freestanding stores. We are also opening in urban locations, most recently in Atlanta (Buckhead) and Washington, D.C.

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Project Profiles

BY CSA STAFF

The Neighborhoods at Butler

Location: Gainesville, Fla.

Size: 2.1 million sq. ft. (1.75 million sq. ft. with an additional 350,000 sq. ft. under development)

Developer/Owner: Butler Enterprises

Grocery anchor: Publix (West), Publix (Central), Trader Joe’s, Aldi, plus sizeable food components in Walmart, Sam’s Club and Target. Adding Whole Foods to anchor Butler Town Center (under construction with a planned opening winter 2018).

Key tenants: (Plaza) Target, Best Buy, Ross, Michaels, Joann Fabrics, PetSmart; (North) Dick’s Sporting Goods, Walmart, Sam’s Club, Lowe’s, Ashley Home Store, Total Wine, Marshalls; (Town Center) Regal Cinemas, PF Chang’s (opening 2018), Stengel Field Food Hall (opening 2018), The Residences & Terraces of Butler (apartments-opening 2018); plus the 46 restaurants and fast-food eateries throughout the project which function as a major, traffic-driving anchor.

Construction status: Butler Plaza open and operating since 1975, Butler North (98% leased) open and operating since 2016, Butler Town Center-under construction for rolling opening to begin January 2018.

The Neighborhoods of Butler are unique in four key areas:

  1. 1. The primary food consolidation in the greater Gainesville market is all in one area, which is able to support several supermarkets due to the regionality of the center. Outside of Gainesville, shoppers have to travel over an hour for the nearest Trader Joe’s, Aldi or Publix.
  2. 2. The grocery demand is partially driven by 50,000 University of Florida students who alone spend $216 million on food and groceries annually.
  3. 3. Now under development, Butler Town Center will be the first of its kind in the region, bringing the first Whole Foods and the first chef-curated food hall in a 15-plus county area in North Central Florida.
  4. 4. The property this project has built on over the last 42 years was once a fully operational air strip called Stengel Air Field, made famous by the planes that were built there and the pilots who made history with them. In the Town Center, this history will be brought to life in the imagery, architectural details, and even an actual plane that will hang extended from the ceiling of Stengel Field Food Hall.

Georgesville Square

Location: Columbus, Ohio

Size: 270,045 sq. ft. of gross leasable area

Owner: Phillips Edison & Company

Grocery anchor: Kroger

Key tenants: Lowe’s, Great Clips, GNC and Wendy’s

  • The center is approximately 11 miles from downtown Columbus and The Ohio State University.
  • Georgesville Square is one of the highest performing community center assets in the Columbus area.
  • It benefits from over 100,000 vehicles a day being located off of I-270 and Georgesville Road.
  • It is currently 94% occupied with national tenants such as Lowe’s, Great Clips, GNC, Miracle Ear, H&R Block, Men’s Wearhouse, AT&T, Arby’s, Wendy’s, O’Charley’s, and Dairy Queen.
  • The center has great frontal visibility.
  • Kroger is undergoing a multimillion-dollar renovation and small expansion adding Click-List, Starbucks, remodeling the façade, and updating the interior. Lowe’s made upgrades to the store just prior to Phillips Edison & Company acquiring the center.

Boston Commons

Location: Springfield, Mass.

Owner: Cole Credit Property Trust IV

Grocery anchor: 5 Star Supermarket

Key tenants: In initial discussions with retailers on a plus/minus 8,000 sq. ft. outparcel for new development

Construction status: Complete, future outparcel development in consideration

Specialty grocers are gaining market share as consumers seek out different options to support their goals in buying healthy foods that are quick and convenient, shopping at local or regionally-based stores with a neighborhood feel, or finding especially cost-effective options. 5 Star Supermarket is a regional grocer with one other location in Hartford, Conn., specializing in the sale of traditional Asian and ethnic grocery items including produce, meat, fish, bakery and prepared foods. This retailer made significant modifications to the space including the addition of an expanded kitchen facility to support its prepared foods offering. The availability of convenient, but “home-cooked,” fare in combination with its specialty items aligns 5 Star Supermarket with an underserved demographic in the Springfield area. The addition of this tenant will increase daily traffic to the shopping center which benefits the existing tenants.

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