Mark Newman

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DALLAS—Grocery-anchored centers continued to be an attractiveproperty type for investors in 2017, with sales volumes increasingby 5.3%. The asset class remained stable amid a period of lowretail transaction volumes. But after grocery store expansions went bananas in 2016, the industrytook a minute to digest the following year. Openings of new grocerystores reached 13.4 million square feet of space, which is adecrease of 28.8% year-over-year, according to JLL's grocerytracker 2018 report.

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“It's not surprising that overall grocery store expansions fellin 2017, when compared to the boom in 2016. The largest grocerychains are feeling pressure from specialty grocers, discountgrocers and wholesale clubs. But we are seeing strong local chainscompeting head to head, and winning. Locations within the tradearea and in the right markets are key. More than one-third of newstore openings were in just three states: California with 1.6million square feet, and North Carolina and Virginia with growth of2.7 million square feet across both states. Retail followsrooftops, so the states with strong population growth will continueto see an influx of grocers,” said James Cook, director of retailresearch, JLL.

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Moreover, those grocers with strong performance showed anappetite for three main experience drivers: diet and discountembracers, label-less and more mobile.

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While grocers are taking a break on new store openings,investors' hunger for grocery-anchored shopping centers isn'tsatiated yet. JLL's retail investment sales leader, Chris Angelone,shared that it's increasingly more difficult to make a generalstatement about the sector.

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“Owning a property-anchored by one of the top grocery chains isno longer a guarantee of strong performance,” he says. “Investorsare now looking to hedge risk by finding pockets of geographicsafety for their acquisitions. Owning retail is like owning anoperating business and investors need to keep in mind-changingconsumer preferences.”

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Some of the trends to watch include smaller footprints. Grocerssuch as Aldi and Trader Joesbenefit from the flexibility to take smaller spaces in verticallyintegrated projects. Some brands will continue expandingfootprints, but traditional and legacy grocers may begin focusingon existing inventory and investing in improving the shopperexperience.

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“The impact of e-commerce on the grocery industry is now fullymature, having transitioned from what was once a focus only oncertain items and soft goods to a full-blown application for howconsumers are buying every category, including produce,particularly in metro areas like Dallas-Fort Worth,” Mark Newman,JLL executive vice president, tells GlobeSt.com. “But traditionalgrocers have not lost their focus on the in-store offering, stayingcompetitive by providing an enriched experience at their stores,something e-commerce cannot provide. There's no substitute fortalking with real human beings, smelling fresh produce and enjoyingdiverse in-house amenities, like restaurants and classes, whichmany of these retailers are putting in place.”

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As shoppers demand more digital integration, retailers have newaccess to unprecedented amounts of data. This data will providegreater efficiency in operations and enhanced customization ofproducts for consumers. In addition, the technology of blockchainhas the capability of improving food safety, allowing products tobe recalled more quickly and improving inventory management. Withblockchain's ability to improve data management betweenstakeholders in the supply chain, the grocery industry is prime forintegration.

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Acquisitions with the greatest implications will occur betweengrocers and non-grocery companies, such as Kroger's potentialpartnership with Ace Hardware, focusing on innovation andtechnology that can build upon digital networks, logistics,delivery and customer engagement.

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Expect grocers with existing rapid checkout technologies tocontinue to roll out programs across the country and for others tojoin the ranks of several grocers that have been testingcheckout-free concepts.

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“Ultimately, it comes down to the level of priority the consumerplaces on time, value and money. They will have the final say onhow, when and why these warring grocers will succeed and gainmarket share. But it will take time for consumers to becomeaccustomed or even be willing to try different offerings oralternative methods to meet their needs,” Newman continues.

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He points to Lidl's attempt to enter the North American marketas a recent example of how consumers can dictate whether or not agrocer succeeds. The grocer was willing to invest in premium landin a booming part of the US, and the sales weren't asprojected.

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“That could be for a number of reasons but certainly includesthe competition with established roots in the market and to someextent the impact of e-commerce,” Newman muses.

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Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.