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Grocery Evolution

BY Michael Fickes

Supermarket-anchored shopping centers haven’t changed much since the invention of suburbia. Find a good location, sign a grocery anchor, get a construction loan and some inline local, regional and maybe national retailers, and you’re in business.

Today, however, supermarkets are beginning to change, and supermarket-anchored shopping centers, of course, must follow along.

Why are grocers changing? Competition from all sides.

Big boxes like Wal-Mart, Target, warehouse clubs and drug stores are competing with traditional grocers for commodity dry-goods sales.

Specialty grocers such as Whole Foods Market are attacking from the high end with prepared meals and excellent service.

These trends arose before the Great Recession. Today, as recovery proceeds, so will the evolution of grocery-anchored shopping centers, looking for economic recovery and competitive weapons.

Here’s an overview of the kinds of changes that shopping center developers and owners are seeing.

Crossroads Cos.
Evolution is natural

Mahwah, N.J.-based Crossroads Cos. owns, manages and leases five shopping centers in New Jersey and southern New York. The firm has developed some of its centers from the ground up and acquired others. So president and CEO Stephen L. Hittman has observed the grocery-anchored business from all angles.

"Supermarkets are constantly evolving based on size, customers, food products and price model," said Hittman. "The recession made companies close unprofitable operations and focus on operating efficiencies. Disposing of surplus real estate from the closings had a downward effect on rents, while job losses had a negative impact on profit margins as income levels and spending dropped."

Hittman’s point: All of these kinds of pressures cause shopping centers and the industry to adjust, change and evolve.

The company’s Crossroads at Somerset development in Franklin Township, N.J., offers an example of controlled evolution.

Anchored by a 73,000-sq.-ft. ShopRite, the center has evolved in phases over the past five or so years, as the surrounding upscale suburban neighborhood has been producing and filling 4,000 new housing units.

"We have completed three of four retail buildings and expect to start construction on the remaining 25,700-sq.-ft. building this fall," Hittman said. "Upon completion, it will be a 120,000-sq.-ft. neighborhood shopping center, with a nice mix of regional, national and neighborhood tenants."

Phillips Edison
The industry is making better decisions

One of the largest privately held owners of neighborhood and community shopping centers, Cincinnati-based Phillips Edison & Co. manages a portfolio of more than 280 properties, works with industry-leading grocers such as Kroger, Publix, Safeway and Giant Eagle, and has a comprehensive overview of the industry.

How is the industry evolving from that vantage point? "The majority of our grocery-anchored growth is driven by acquisitions for Phillips Edison-ARC Shopping Center REIT," said Bob Myers, president and COO. "That said, I think people have changed more than the assets. Most everyone has learned from the difficulties that we all experienced during the recession, and this has resulted in improved decision-making.

"Shoppers are more strategic on where they spend their hard-earned dollars. Landlords are savvier about creating a more stable merchandising mix of quality tenants. Retailers are more sophisticated in developing their expansion plans. Lenders are more disciplined in their underwriting."

As an example, Myers pointed to the quality of the merchandising and location decisions made by the developer of a recent acquisition — the 148,963-sq.-ft. Kleinwood Center in Spring, Texas, a Houston suburb. "It is our first center with H-E-B as the anchor, and it is 93% occupied. Other key tenants include Starbucks, Hallmark, Jimmy Johns, TGF Haircutters, The UPS store, Little Caesars and Weight Watchers.

"We like this center because it is located at an excellent intersection with a growing population base."

Casto
Rely on long-standing relationships

Change comes easier to developers with long-standing relationships with blue-chip anchor tenants.

"Real estate is about relationships," said Don Casto, a partner with Columbus, Ohio-based Casto.

The company has been building relationships with grocers, retailers and communities for more than 85 years. It has a portfolio of more than 120 shopping centers in the United States and Puerto Rico. Of those, 90% include a supermarket or a big-box retailer with a large food selection.

"We have long-standing relationships with gold-credit tenants," continued Casto. "We partner with Kroger, Whole Foods, Harris Teeter and Giant Eagle. We include Wal-Marts and Targets with expanded food selections in the mix as well."

Casto also said that the recession caused grocery anchors to become more selective about expansion plans. "Still we benefited from strong relationships," he said.

"Our tenants trusted that if they committed, we would then be able to bring a nice tenant mix and achieve appropriate financing."

A recently completed center, the 121,177-sq.-ft. Memorial Commons, in Goldsboro, N.C., illustrates Casto’s core thinking. "It all goes back to the old adage, ‘location, location, location,’" said Casto. "Anchored by Office Depot and a 53,232-sq.-ft. Harris Teeter, Memorial Commons has an ideal location at the gateway to Wayne Memorial Hospital, Wayne County Community College and the highest concentration of high-end housing in Goldsboro."

Donahue Schriber
Leveraging a lack of new developments

In California, the recession brought supermarket-anchored shopping center development to a halt.

"With no new development and competition from discount grocers, we’ve seen our traditional grocers investing in their existing stores and developing new offerings," said Lawrence P. Casey, president and COO of Costa Mesa, Calif.-based Donahue Schriber. "If you’re a developer, that’s bad news. But for owners — and we own — it is good. By investing in their stores, they invest in our centers and drive more business."

Donahue Schriber owns and manages a portfolio of 79 shopping centers throughout California, Arizona, Nevada, Oregon and Washington. Not including Targets and Wal-Marts, the company has 39 grocery stores and 13 major names, including Safeway, Kroger brands, Raley’s, Save Mart and Trader Joe’s, according to Casey.

The lack of new centers makes it difficult for new grocers to break into the California market. They have to fit themselves into existing vacancies.

That’s what happened recently at Donahue Schriber’s Laguna Crossroads in Elk Grove, Calif. "At one time, an Albertsons shadow-anchored that center," said Casey. "When it closed, we bought the site and reconfigured the 60,000-sq.-ft. space for Stein Mart, Kirkland’s and a 22,000-sq.-ft. Fresh Market, which was just entering the California market.

"In fact, Fresh Market is going into a former Borders in another center that we own."

Paster
Battling the commodity grocery discounters

Based in St. Paul, Minn., Paster Enterprises senses that powerful competitive challenges are beginning to buffet the industry. "How do we compete with big-box retailers getting into groceries?" asked Howard Paster, president. "Grocery folks from the low end to the high end realize that service is the way we differentiate ourselves from discounters."

Paster is working with his grocers — Aldi’s, Cub Foods, Festival Foods, Jim’s Market and Knowlan’s Food Markets — to figure out a service formula at Paster Enterprises’ half-dozen grocery-anchored centers.

With that question in mind, he is watching an experiment being carried out by Lunds & Byerlys, a regional Twin Cities grocer. In May of last year, the company opened a 20,000-sq.-ft. Lunds in downtown Minneapolis. "It has a smaller footprint, green construction, and 70% of the product is prepared foods," Paster observed. "They aren’t selling groceries at a 1% margin. I think this is where a lot of the industry is heading."

Service isn’t the only answer to big-box competition. Paster is beating the discounters at their own game in one of his centers. Aldi Foods co-anchors (with Chipotle and Half Priced Books) the 55,532-sq.-ft. Crystal Town Center in Crystal, Minn. "No one beats us on price there," he said. "You can differentiate with service at the high end and by price at the low end."

Irvine
A cross-shopping trend

During the recovery, Peter Moersch has seen a number of new trends emerge.

Moersch, VP neighborhood and community center leasing with Irvine Co. Retail Properties in Irvine, Calif., has a good vantage point. Irvine has 30 grocery-anchored centers and a diverse roster of grocers, including Albertsons, Ralphs, Vons Pavilions and Gelson’s, plus specialty supermarkets like Sprouts Farmers Markets, Trader Joe’s, Whole Foods Market and Bristol Farms. Four centers have Wal-Marts or Targets with grocery stores. "We’re seeing people shopping each of the different formats," Moersch said. "They will go to high-end outlets for meat and poultry and to discounters for commodities."

Moersch also noted that dual-income families seem to be seeking out more prepared foods. Woodbury Town Center in North Irvine illustrates both trends. Population within five miles is 233,188 and average household income is $129,611. If you think those demographics suggest a specialty grocer as anchor, you would be right. There is a Trader Joe’s. But you would also be a little bit wrong, because Ralphs also anchors the center.

"Both are well shopped," explained Moersch. "In addition, we think that addressing all grocery needs in one center draws people in.

"We view our grocery stores as an amenity. Each grocer in each center fits the shopping habits of that particular community."

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A.Olson says:
Sep-24-2013 05:05 am

Many other stores like Wal-Mart,Target and drug stores are competing with traditional grocers such as for dry-goods sales,stores provide various discount to the customer. Read here

A.Olson says:
Sep-24-2013 05:05 am

Many other stores like Wal-Mart,Target and drug stores are competing with traditional grocers such as for dry-goods sales,stores provide various discount to the customer. Read here

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Paint Grows Greener And More Sophisticated

BY CSA STAFF

Whether it’s a remodel or new construction, paint is one of a retailer’s most essential and cost-effective design tools. Chain Store Age spoke with Jim Gorman, of Benjamin Moore & Co., about how paint is being affected by technology and environmental concerns. The company, founded in 1883, manufactures its own resins and colorants, and has more than 3,400 colors in its collection.

What is the most common mistake retailers make when it comes to painting?

Buying paint on price and attempting to match colors by computer to save money. I say this because paint technology has changed dramatically over the last five years, and today’s newer technology is not available everywhere.

The new high-performing zero- and low-VOC products are ideal for occupied spaces with quick turnaround and getting retail space back to service — in some cases, in half the time normal paint would take.

How about choosing a color — any recommendations for retailers?

The answer is connected to the one above. With today’s paint choices and new colorant technology, retailers today can be far more adventurous with color without the penalties often associated with deeper colors.

Working with a manufacturer’s representative, a retailer can select bold colors and not have to worry about numerous coats, poor hide, touch-up or washability. It comes down to selecting the right product for the selected color and project.

Is there an easy way retailers can stay updated as to the latest color trends?

Yes, many paint manufacturers have designer representatives who will provide "lunch and learn" seminars with a client’s design staff. Manufacturer’s websites also can provide updates on trends. One of the best ways is to meet with paint manufacturers who belong to key retail associations, develop a relationship and connect with their color specialists.

Is technology impacting your business?

Tremendously! With the continued emphasis on VOC regulations, Benjamin Moore has developed a patented technology that provides industry-leading, high-performing zero- and low-VOC products.

These products clearly outperform any of the conventional paints manufactured over the last 25 years. This has placed Benjamin Moore at the forefront of green paint technology that many cannot replicate.

How have environmental concerns affected paints?

As environmental regulations tightened within the paint industry, manufacturers were forced to revise formulas to meet the regulations.

For some, this caused their products to lose some key performance attributes, especially in application and dry film performance. For Benjamin Moore, which invests heavily in R&D and manufactures its own patented colorant and resins, this became a break-through opportunity to develop our best products ever.

How can Benjamin Moore help retailers with regard to their green strategies?

All of our new products identified as "Green Promise" products meet or exceed every local and state VOC regulation. The best step a retailer can take is to meet with a Benjamin Moore representative to review their current specification and convert any of the older products to the new Green Promise products. Every aspect of their paint projects will benefit, especially the quick turnaround, low odor and back to service, all designed to save the client time and money.

The second step is to work closely with Benjamin Moore’s national account team to assure the retailer that the products and colors they selected are actually used on the job. Paint is one category where the paint contractor can, and at times will, substitute products on the job site for a variety of reasons. Colors may be a "close match" and VOC levels may be higher — you never know unless you are stringent with the contractor following the specification. Benjamin Moore has a project management team that can help assure our clients the right colors and products are used every time.

What makes Benjamin Moore’s "green" paints so green?

The secret is in the colorant. Being the only North American paint manufacturer to develop a patented zero-VOC colorant allowing our clients to choose any color and still have a zero-VOC product was an industry first. Conventional colorants, called universal tinting colorants, are very high in VOC levels. The other benefits listed above all add up to a unique benefit to our clients: high-performing zero-VOC products that do not cost more, but perform better than classic paints.

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More Effective Procurement

BY Victor Wulc

The U.S. retail and wholesale establishments make up one of the largest sectors of electricity consumption in the nation. And they’re likely to use even more within the next few years, according to the U.S. Energy Information Administration, whose recent annual report indicates that commercial and industrial entities will lead domestic growth in primary energy usage through 2040.

With consumption — and costs — on the rise for many chain store locations, building an effective energy management strategy today will play a critical role in maintaining productivity and profitability in the future. But is there a way for large retail sector electricity consumers to go beyond traditional procurement approaches to reduce expenses and consumption, while generating an entirely new revenue stream?

Good news. There is. And it’s a win-win for the retail store industry and the energy sector alike.

Through a unique approach that leverages load management strategies, retailers can earn profits while decreasing demands on the electric grid, reducing prices and consumption, and saving on charges that are typically passed from the utility to the supplier to the consumer.

Let’s start with the most appealing part of the equation — generating profits. Changes in electric utility regulation have empowered retailers in many markets to purchase their power from suppliers other than the traditional utility. Chain stores now have a wider range of products to choose from and more opportunities to tailor energy contracts to meet unique operating requirements.

Many retailers have responded by selecting product structures with a fixed price for all or part of the electricity spend. These structures are appealing because they add some certainty to the overall monthly cost. But that certainty comes at a price.

To enhance pricing and supply flexibility, consumers could benefit from the revenue-generating potential of load management programs.

The premise is simple: Utilities in most markets throughout the United States need consumers to cut back, especially in times of high electricity demand, in order to maintain grid reliability. As a result, various products are available that actually pay consumers to reduce their electricity consumption during such times.

Retailers specifically can benefit by:

1. Selling capacity, which is typically referred to as demand response, where consumers commit to reducing their load at times chosen by the grid operator, typically for a matter of hours during emergency conditions. The compensation earned for providing this service is generally fixed months or even years in advance.

2. Selling energy, where consumers reduce their consumption at times of its own choosing. Through these transactions, a certain amount of energy is sold at a predetermined price during a defined hour or block of hours. If the market price is at least as high as the price specified by the consumer, the offer is accepted and the consumer is paid the market price for providing the promised amount of electricity.

3. Selling synchronized reserves, where the consumer provides energy by curtailing consumption for a brief period on a relatively short notice by the grid operator.

Aside from generating revenues, retailers that participate in these programs benefit by avoiding spikes in wholesale electricity prices and by reducing risk premiums.

Another cost-savings opportunity retailers can leverage through load management strategies is by reducing certain charges known as “pass-through costs,” which originate with the utility or the system operator and are passed to the supplier and then to the customer. These price components vary from region to region and typically include the grid operator’s cost to ensure capacity, transmission and distribution infrastructure maintenance and upgrades, and ratepayer-supported energy-efficiency and renewable energy programs.

The key to reducing these charges is to understand exactly how they are calculated, which varies by market. For example, a charge may be based on the customer’s demand during certain peak hours on the regional power grid or during certain peak hours on the local utility’s distribution grid. By working with your retail electricity provider to understand exactly how these charges are set, retailers can use the load management strategies to reduce those costs or prevent increases.

Retailers that participate in load management programs benefit not only by generating revenue, but by avoiding spikes in wholesale electricity prices and by reducing risk premiums.

Victor Wulc is the sustainability marketing director for GDF Suez Energy Resources, one of the country’s largest competitive retail electricity providers to commercial, industrial and institutional customers.

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