Grocery Anchors Are Bright Spots In A Pandemic, Though Not All Are Created Equal
Traditional grocery retailers kept their traffic consistent during the pandemic after it initially fell during the outbreak, according to data from retail traffic analytics firm Placer.ai. But more niche food retailers like Whole Foods and Trader Joe's, all the rage pre-pandemic for their experiential appeal, felt the pinch of lockdowns and wary consumers.
Whole Foods, even with its ties to Amazon delivery services, suffered a substantial traffic drop during the pandemic. By August, when other grocery retailers had mostly recovered in terms of traffic, Whole Foods' foot traffic was still down 22% from last year, data from Placer.ai shows.
Meanwhile, traditional grocer Albertsons saw its foot traffic in August rise 9.6% over last year.
There is one complication in Placer.ai's data: It depends on geolocation and proximity data from smartphones, which means it may not fully capture traffic from online and curbside pickup, which has spiked during the pandemic.
"Placer.ai can track any visit that's over a threshold of five minutes or so," the firm said in a statement to Bisnow. "This allows them to differentiate between a visit and a passerby. Technically, it doesn’t track any drive-thrus, however, if a pickup takes longer than five minutes it is tracked by Placer.ai."
Online orders peaked in June at $7.2B in the U.S. and then stabilized at $5.7B in August, according to data by Brick Meets Click, as reported by Food Navigator-USA. That data shows about 37.5 million U.S. households said they were using online grocery services in August, compared to 16.1 million a year ago. That is a 133% year-over-year increase, and it encompasses both delivery and curbside pickup.
That may mean specialty stores like Whole Foods, which has the power of owner Amazon behind it, are doing better than the data shows. But everyone Bisnow interviewed agreed that specialty grocers have lagged in the pandemic.
"The big thing that happened this year was the rebound of the traditional grocery," Placer.ai spokesperson Ethan Chernofsky said.
The idea behind this trend is simple, he said. Amid the pandemic, consumers decided to stick to places they know, love and trust.
Retail experts also attribute the bounce by full-service grocery retailers throughout the pandemic to the stores' proximity to customers, and the fact that essentials ― sold mostly at traditional stores ― became much more integral to the shopping experience during the healthcare crisis.
"Full-service grocery stores that had paper products and cleaning supplies [saw] a proportional increase in sales because the demand for those things increased because we were staying home as opposed to spending our dollars somewhere else," Younger Partners Managing Director Micah Ashford said.
Shoppers took fewer trips during the pandemic, but spent more per visit, pushing total store sales for independent grocers up 13.3% during the first half of the year, data from the National Grocers Association shows. The goods that drove the most demand were traditional items such as meat and produce, center store products and frozen foods.
Niche grocers like Trader Joe's and Whole Foods cater to more affluent, urban shoppers craving store experience and certain specialty products as opposed to affordability and comprehensive product offerings, Chernofsky said.
"They are part of the grocery journey, but they are not always the whole grocery journey for the consumer," he said.
Meanwhile, grocers that offered that entire journey in one place have thrlved. Kroger, for one, faced disappointing sales in 2019, but rebounded amid the pandemic, Weitzman Executive Managing Director Robert Young Jr. noted. The grocer's profits rose from $559M in Q2 2019 to $820M in Q2 2020, and identical sales (excluding fuel) rose 14.6% year-over-year.
"We found one of the key factors to Kroger's success in many cases was proximity [to homes during the pandemic]," Young said. "If they are close by, you are going to go there. In this type of environment, the community grocer was made all the more significant."
Though traditional grocery stores outperformed specialty ones this year, both remain appealing retail anchors, and Ashford and Young expressed confidence in both types of stores going forward.
While the novelty of higher-end or affluent specialty grocers may have fallen from the top of the grocery-story pandemic list, Ashford said that as a retail investor and purchaser, the Whole Foods and Trader Joe's of the world remain top tenants.
"[The] grocery store is the best product, in my opinion, to buy right now, whether it's a Trader Joe's or a Tom Thumb," Ashford said.
Ashford said as an investor, she noted during the pandemic the only deals that kept paying rent throughout the entirety of the healthcare crisis were centers anchored by grocery stores. That held true whether the store was an Amigo's grocery store in a tertiary market or a Tom Thumb in a retail location, Ashford said.
While other retailers struggle, grocery outlets are expanding in U.S. regions where populations are rising during the pandemic, a report from CoStar Group says.
"I do think as an anchor [tenant] they provide ... resilience," CoStar Group senior market analyst Bill Kitchens told Bisnow. "I see grocers as kind of a solid footing in terms of their performance in any given kind of mixed-use scenario."
There's even evidence to suggest the pandemic escalated the ongoing migration of new grocery store development to suburban areas of the Dallas Metroplex, Kitchens said.
"We are looking at pandemic migration patterns, and some Texas suburbs are key beneficiaries [for grocery construction]," he added.
In the most recent real estate cycle from 2010 through 2019, 70% of new grocery concepts landed in the North Texas suburban counties of Tarrant, Collin, Denton and Rockwall, according to CoStar's report.
The new construction in these areas was driven by population and job growth, Kitchens said, and Texas as a whole is on solid footing when it comes to opportunities in grocery store development.
"More folks are coming to Texas — the Texas suburbs especially — and that plays well with the story of grocery development and fundamentals in the market as well."
Young with Weitzman has witnessed the same growth, making grocery development a safe bet in growing North Texas even as other retail products lose their luster.
"Sprouts, which has a pretty good current footprint in DFW, wants to add a lot more stores [in DFW]," Young said. "Their motivation in addition to good retail sales during the pandemic is that in DFW, we are blessed with continued population and job growth."