California has seen a huge shake-up in the grocery sector over the past 18 months, how can new entries compete?
California is one of the most culturally and socioeconomically diverse states in the country, with the largest population. That may create a perception that anyone can enter and just open for business. However, like anywhere else across the nation, grocery stores have to fight for a finite number of consumer dollars. New entries in the market also have to compete with established grocery operators that have loyal customers.
The success of a grocery store is really based on more of a micro-market level. Grocers need to understand their target customer and the specific demographics in any given neighborhood, and then they have to prove to their customers that they are worth trying, liking, and staying with.
For most people, grocery shopping is a habitual event with a defined budget. Have you ever gone to an unfamiliar market and been frustrated by your inability to quickly locate what you’re looking for, higher prices, or finding only a non-preferred brand? These are real barriers, among others, that new entrants need to overcome.
One segment that seems to have gotten it right is ethnic grocers. El Super and Northgate are doing very well in areas with a large Hispanic population and Asian grocers such as H Mart, 99 Ranch Market and Tokyo Central are performing well in areas with Asian demographics—they are great examples of locating well and knowing the target consumer.
How do you advise your clients when grocery stores or other anchor spaces go dark?
We always take an individual approach with each client to understand its ownership goals and exit strategies. Depending upon the quality of the real estate, location, nearby competition, and immediate demographics, we craft a strategic plan that provides landlords with a vision for new tenancy. Sometimes that includes the creation of a junior anchor situation by breaking up a large space into smaller spaces with, for example, a Trader Joes, fitness operators, and other daily uses. Other options could be filling the vacancy with value-oriented concepts such as dollar or warehouse stores, ethnic grocery operators, or higher-end boutique operators such as Sprouts and Gelson’s. It will be interesting to observe what happens with the 100 Macy’s closings that were recently announced. Without a plan, a looming vacant space can understandably keep owners up at night.
Any last thoughts?
Store closures in the grocery sector will happen just like other sectors of the retail world. However, I do believe things in the grocery space are settling down and the hard lessons have been learned. If grocery operators stay in their niche, know their customer and don’t grow too quickly, they have a much better chance at longevity.