The 2021 holiday retail sales are on pace to eclipse predictions of record spending, despite supply chain disruptions, inflation and the uncertainty of the COVID-19 omicron variant. National Retail Federation’s (NRF) Chief Economic Jack Kleinhenz said in its 2021 forecast, “the season could turn out even better than we expected. Consumers and retailers have both revised their playbooks and broken with previous traditions. With the momentum we’ve seen so far likely to continue, it seems probable that we will exceed our initial projection.”
While that sounds promising for the retail sector overall, one of the key lessons learned during the pandemic was that grocery retailers emerged as a dominant force in shifting consumer shopping patterns. The big questions are will those increased grocery spending trends continue and has grocery replaced department stores as an anchor?
Consumers drove record sales across the grocery sector during the pandemic, cementing grocers’ potential to serve as an anchor retailer. Grocery emerged as an essential retail category and the segment’s performance in 2020-2021 reinforced a view that it is also recession proof. It clearly was the cornerstone for the retail sector during a turbulent time, and certainly has made a strong case that grocery may be the new anchor retailer.
Grocery retailers are working to solidify that position by evolving to meet consumer demand for enhanced shopping experiences. By creating experiential offerings inside the grocery store, it is working to expand what grocery is. Expect to see more amenities such as food tastings and demonstrations including those involving high-profile chefs. Those efforts are designed to drive engagement and create opportunities to build brand affinity and extend time in store. We expect to see beer and wine tasting sections, culinary schools, restaurants, coffee bars and other features that provides the customer with more direct in-store experiences meant to reinforce the consumer experience and keep the customer engaged with store personnel.
Grocery retailers are also making adjustments to the merchandising mix to appeal to consumers seeking experiential shopping environments. The center of the store area is changing too. Center store items are actually shrinking because they’re not perishable and can be shipped. That means, warehousing of center store items are shifting to fulfillment centers – both Central Fulfillment centers and Micro Fulfillment centers. Consumers have yet to perceive this shift yet, as store space gets reallocated to online fulfillment space.
These changes are designed to drive higher spend and bigger baskets, which is important to the grocery retailers. But there are other potential benefits. There is expected to be positive spill-over to the center’s co-tenants. But there is concern that grocery anchors may steal foot traffic and business from other retailers at a center. That may be an age-old argument dating back to the days when department stores served as a center’s anchor. Savvy in-line retailers have already figured out ways to encourage shoppers to step beyond the four walls of the anchor store.
The shift to having a grocer serve as the anchor destination creates considerations that may not have been factored into the design of a center. The dynamics of a center must adjust from a time when shoppers arrived at an anchor department store that featured multiple entrances and was positioned at a focal point surrounded by sufficient parking areas. For grocery to function well as an anchor today, its location, ingress and egress must be convenient, prominent and flow well. Additionally, parking areas will likely need to be reconfigured to accommodate new uses, especially during peak grocery shopping times.
Centers were already struggling with adding online return areas, but now must figure out how to accommodate pick up areas for online grocery orders, as well as curbside or drive-thru options. That is especially crucial in centers where a grocer is located in line with a linear layout. That makes it difficult to accommodate shoppers wanting to park close in front as well as those who’ve ordered online and arrive to collect orders – and there simply may not be an option to add a drive-thru.
Another factor to weigh when centers shift to a more dominant grocery-anchored strategy is finding the right balance. For mixed-use and lifestyle centers, it is vital for owners and developers to develop a synergistic plan that considers everything from traffic flow and shopping times to merchant mix.
A final consideration in this grocery-anchored discussion involves location. There’s been a shift to favor suburban sites. The pandemic contributed to a trend that was already underway. It had been driven by the Millennial cohort’s search for larger places to live than they could typically find in CBDs. Millennials tend to wait longer to get married, start a family and their inability to meet the qualifications to buy a home, means they are staying in a rental product longer. Millennials are starting to move into new a life phase and seek a more subdued and less urban setting where they can start a family lifestyle.
The single-family rental product, which tend to be located in the suburbs, appeals to them.
The uncertainty about when workers will be allowed to return to an office setting or if they will continue to work from home has complicated projections about demand for grocery retailers in suburban or CBD locations. Clearly, the model has been disrupted and whether it returns to previous patterns remains to be seen. What is obvious, given the transitional situation today, retail center owners and developers have an opportunity now to capture future success by developing strategies that feature a grocery retailer as prominent anchor in plans for a center.