200% Growth In Grocery Leases Could Make A Dent In Food Deserts
Grocers and supermarkets have been the stars of retail for years now, and they are proliferating fast across the country and in Los Angeles. That boom is thus far having minimal impact in the food deserts of LA, where residents lack access to fresh produce, though some say momentum may be building.
In 2021, total national sales in grocery stores reached $803B, an almost 16% increase over pre-pandemic levels, according to JLL’s March Grocery Tracker report.
“Grocers capitalized on these gains by reinvesting in their businesses in the form of store renovations, enhanced fulfillment options and new store openings,” the report’s authors wrote.
Developers and investors have piggybacked on this growth and the predictability of service retail by building and buying grocery-anchored shopping centers in force. Nationwide, 2021 saw a 200% increase in grocery leases, JLL’s report said.
There is some hope the grocery boom will shrink food deserts — areas that have limited access to fresh, affordable produce and groceries — though the recent evidence is varied.
“That expansion is not just in primary markets, which have always been hard to penetrate in Southern California, but also in secondary markets because of the work-from-home phenomenon that has taken hold,” said Jim Dillavou, co-founder and principal of retail-focused Paragon Commercial Group.
Paragon is under construction on a Sprouts in Fountain Valley and a Stater Bros.-anchored center in Riverside and just got entitlements for a grocery-anchored center on Ventura Boulevard in Studio City. Dillavou said it is likely that over the next 12 months, Southern California will see a record number of new leases for grocery stores.
The Los Angeles area also saw some grocery store closures in 2021. The most high-profile were three closures of Food 4 Less and Ralphs locations that owner Kroger attributed in part to an ordinance passed that would require essential grocery workers to be paid $5 an hour more than their current wages. The company said the stores were already underperforming but that the possibility of paying workers more sped up plans to close the locations.
“That would be a total disaster for us if that Ralphs was to leave,” Hyde Park-area resident Denise Francis Woods told the Los Angeles Times last year. “We’re considered a food desert.”
A lack of access to fresh, affordable food in Hyde Park and other South LA neighborhoods was highlighted in the aftermath of the 1992 Los Angeles Uprising, also known as the LA Riots, that followed the verdict in a police brutality case involving Rodney King. Thirty years later, “grocery stores are still a rarity” in the area, the Los Angeles Times reported in late April.
The U.S. Department of Agriculture has been tracking these areas using census data and has information going back to 2015 looking at low-income census tracts where at least 33% of residents are a half-mile or a mile from a supermarket or large grocery store. (The distance is different for measuring rural tracts.) The department no longer calls these areas food deserts, instead referring to them as “low-income and low-access.”
LA County is on a slight upswing in tackling its food access issues.
In 2015, 67, or 2.9%, of Los Angeles County’s census tracts were low-income and low-access, with residents living at least a mile from a large grocery store, according to the USDA’s food access research atlas. More than 293,000 people lived in those tracts.
In 2019, that had dropped to 61 tracts, or roughly 2.6%. These tracts represented 254,049 people.
2019 figures are the most current ones available for the atlas, so it is unclear whether the county’s access to grocery stores has continued to decrease and in which areas.
These low-income, low-access tracts are spread across the county, but there are a handful in South Los Angeles, a neighborhood whose long history of disinvestment is starting to show signs of a turnaround, perhaps most prominently in the form of a $2B light rail line slated to open this year that will eventually connect to Los Angeles International Airport.
Local small businesses like Süprmarkt, founded in 2016, began as a way to address access to healthy foods.
“We really don’t have the options that we deserve to have in these communities,” founder Olympia Auset told the Los Angeles Times in 2019.
She said it is critical to have healthy food options in walking distance to residents, noting that many in the neighborhoods her business serves don't have cars.
Now bigger names are looking to follow.
CBRE First Vice President Jamie Brooks told Bisnow the public investment of the light rail and the private investment that is already starting to follow it, along with the pandemic-related boost the sector has received, have played a role in what he said is a major sea change in interest in South LA from an increasingly large pool of grocery tenants.
“There's just more and more interest and more commitment to backfilling some of these neighborhoods that historically haven't had traditional fresh produce and things that you would come to expect in any community,” said Brooks, who has spent nearly two decades working in the area.
Dollar stores have, in many places, stepped up to close gaps in access, sources said, in part because they generally have smaller formats than the bigger grocers seek out, making it a bit easier to find space.
Discounters like 99 Cents Only Stores are looking to expand store counts and add more produce and groceries to their shelves but are running up against hurdles, including high construction costs, high land costs and a lack of available suitable space, said SharpLine Commercial Partners President and founder Barbara Armendariz, who represents 99 Cents Only. Some cities have also accused dollar stores of potentially worsening food deserts by stifling mom-and-pop grocers and are looking to limit their growth.
Armendariz gave an example of one LA-area discount store deal she had where the two sides just couldn’t come together.
“We can't make the numbers make financial sense for both the developer and the tenant because construction costs are so high right now,” she said. “So, is there an appetite for growth? Absolutely. We just seem to have some challenges, at least here in LA.”
Brooks is the leasing agent for the Ralphs on Slauson that was shuttered last year. He said he isn't worried about filling the empty space.
“For the first time in my career, there's not a grocer that I can reach out today who won’t take a look at some of the projects we're talking about” in South LA, Brooks said.