Food for Thought

Journalists like big stories. Especially during the lazy, hazy days of summer, we need those blood-pumping topics to get our media radar tingling and our instincts juiced.

When I realized that my real estate coverage in this August issue would be grocery-anchored shopping centers, there was no tingle. Not even a twinge.

Five interviews later, though, I knew I had judged too soon (see story on page 143). There’s a lot of press-worthy stuff going on in the grocery arena. Alongside local specialty chains such as New York City-based Fairway Market with four stores going on six, regional stalwart Wegmans and national icon Kroger are rolling out stylish stores and specialty offerings. Discounters are soaring; the organics—think Whole Foods Market and Trader Joe’s—are flourishing.

What developers Tri-Land and Cedar told me for this month’s story, though, is that just because a grocer is successful in one market doesn’t mean it will be in another. Not every city is a Kroger city. Or a Wegmans town. And market position isn’t the only determining factor for success. “We’ll want the No. 1 or No. 2 grocer in a market or we want the emerging independent,” Rich Dube, president of Westchester, Ill.-based Tri-Land Properties, told me.

Developers have to do lots of homework if they’re going to go after the right grocer for their centers.

I did some homework myself, and found out that while grocery sales are up almost across the board, not everyone is profiting from the heightened sales. Escalating costs are playing havoc on margins, and grocers seem to be having a harder time than others making the bottom-line numbers print in black ink rather than red.

For perspective, I talked with Rick Burke, president of Lease Administration Solutions out of Marblehead, Mass., and my longtime go-to for lease- and profit-related issues. He believes, as do I, that the lease-administration department is too often overlooked in the hunt for profit. So when I asked him what grocers can do to shore up their bottom lines, I wasn’t surprised when he answered, “Tighten up their lease-administration departments and treat lease administration like a business rather than an overhead.” But then, “Grocery stores can also perform a review called ‘reverse-lease audits,’” he added.

He had me there. I’ve never heard of a reverse-lease audit. “Because a large grocer will lease spaces around it to keep a competitor from moving close, they will then sublease the space out—making the grocer both a tenant and a landlord.” That means grocers need to pay more attention to the sublease portions of their business—and do a reverse-lease audit, “auditing the master lease to the sublease to verify that everything is getting billed out correctly.” In other words, grocers may not be passing through all the charges they are paying and “This becomes a dollar-for-dollar reduction to the bottom line,” Burke said.

Next month, Burke and other experts will be teaching about such topics at the National Retail Tenants Association’s annual conference in Orlando, Fla. You might want to check it out at www.retailtenants.org .