Supermarkets Sector Termed 'Vibrant'

"First, they anchor strip shopping centers, which have done well," said Gutman, a 30-year veteran at Pathmark who now heads his own consulting firm, Brookside Advisors. "Next, supermarkets are focused on growth, so there are deals to be made." And because of shut-downs, consolidations, and the like, "space often becomes available, so there are always deals to be made." Finally, because supermarkets tend to have high-traffic sites, "because of their locations alone, there are always opportunities in any case.

"Supermarkets are probably the easiest to understand but least understood retail sector," Gutman said, noting that the genre has to date survived everything from food warehouses, to wholesale clubs, Internet shopping and Wal-Mart Supercenters. "The supermarket sector has stayed strong and vibrant."

What's next? Noting that from a financial perspective, the sector went through bad times from 1999-2002, recovered slowly for a couple of years and has now taken off again, "it's a vibrant business," agreed Mark Husson, a securities research analyst for HSBC. "It's related to the fantastic traffic you get in a supermarket, and lots of different kinds of supermarkets have a future."

Responding to a question about whether traditional supermarkets could get squeezed by the Wal-Mart Supercenters on one side and specialty markets like Whole Foods on the other, "to survive today, you need to market to a niche," responded Jim McCaffrey, president of McCaffrey's Markets, a regional chain in New Jersey and Pennsylvania. "You have to identify your customer and go after that. Some chains are not addressing that."

According to Richard Matwes, senior real estate rep for Wakefern Food Corp., parent of the ShopRite chain, "because ShopRite is a cooperative and the stores are family-owned, the operators are there all the time. Customer service is the key, and our individual owners do a very good job of that."

And Wakefern has found a niche with its PriceRite stores which, at about 30,000 sf, are half the size or less of the regular ShopRite stores, according to Matwes. The target audience is minority and blue collar populations.

"We have taken some sales from the chains," said James Dewey, northeast regional manager for the North Carolina-based Fresh Market Inc. "We're closer to Whole Foods. Our perspective is the niche market."

Regarding the Wal-Mart Supercenter factor, which hasn't really hit home in New Jersey yet as it has elsewhere, "Wal-Mart has thinned the population in many places," Husson admitted. "But the survivors have better market share than they did before." The implication is that those that didn't survive were weak links to begin with.

For Nick D'Agostino III, president/COO of D'Agostino Supermarkets in New York, it also comes down to customer service. And beyond that, "it's also a matter of your relationships with your suppliers," he said, faulting Wal-Mart in that respect. "We can get organics," he said. "Wal-Mart can't get organics."

As far as new stores, "one size doesn't fit all," McCaffrey said, re-emphasizing the niche factor. "Also, rents are getting horrendous, so we all have to look at sizes from a rent perspective."

And in terms of ideal co-tenants, Wakefern's Matwes took issue with a couple of categories, including the dollar stores, "which are now selling food." He also termed drug stores, "convenience stores that sell drugs. We don't like that as a co-tenant," he concluded.