The grocery business is as old as retailing itself, yet it is undergoing landmark innovation as technology opens new channels for meeting the needs of shoppers. This has become especially significant and accelerated by the coronavirus pandemic. While real estate investors have become skittish about the fast-changing and hyper-competitive retail sector, grocery-anchored retail in particular has, by and large, been rock solid in its performance.
One of the executives most involved in the property type has been David Dunn, CEO of Slate Grocery REIT, an owner and operator of grocery-anchored real estate.
Tell us about the recent performance of grocery retail vis-à-vis general retail real estate.
Grocery had historically been grouped into the broad category of retail. However, as a result of the COVID-19 pandemic, the markets are now recognizing that grocery-anchored real estate is much more defensive in nature relative to its retail counterparts. The importance of grocery and other essential services has never been more apparent, as evidenced by governments allowing these businesses to operate throughout the entirety of the pandemic to provide customers with access to essential goods and services.
How have grocery-anchored real estate assets fared during the pandemic?
The majority of grocery stores and other essential operators have remained open since the onset of the pandemic and thus rent collections have continued to be strong.
What impact has Amazon’s entry into the grocery business had on the industry?
While Amazon can become a meaningful player in the grocery industry, it won’t be without formidable competition from America’s largest grocers such as Walmart, Kroger, Publix and Ahold Delhaize, which make up a sizable portion of the market. Amazon’s investments continue to prove that a brick-and-mortar real estate presence is critical to competing in the grocery industry. Their investments include acquiring Whole Foods’ 460-plus grocery stores and launching their own Amazon Go and Amazon Fresh store formats. The first Amazon Fresh store recently opened in Los Angeles to provide consumers with a tech-enabled grocery shopping experience that includes the Amazon Dash Cart to reduce customer checkout time. Alexa features also help customers manage their shopping lists and better navigate aisles.
How have legacy supermarkets responded to Amazon’s move into their space?
Some of the traditional players have committed to click-and-collect and same-day delivery capabilities, which have become increasingly important in the current environment. We are seeing significant investments in ecommerce fulfillment strategies from major grocers to compete with Amazon and address changing consumer expectations. Take Walmart Plus, which competes directly with Amazon Prime by offering same-day delivery and expedited in-store checkouts through Walmart’s U.S. network of 4,700 stores. According to Piplsay, 11 percent of Americans had subscribed to Walmart Plus within 14 days of its launch. Walmart also recently announced a pilot in North Carolina to deliver select grocery and household essential items from Walmart stores to customers using drones. While it will be some time before this is rolled out at scale, it is interesting to see innovation in the sector. It underscores the importance of neighborhood grocery stores as critical distribution points fulfilling both in-store and online purchases.
What changes should grocery retail investors and consumers expect over the next five to 10 years?
COVID-19 brought about more than five years of growth in ecommerce in a matter of months. Grocers with existing omni-channel capabilities were in the best position to adapt to the significant and rapid shift in consumer needs. Most grocery ecommerce sales will continue to be fulfilled through grocery stores due to their in-place infrastructure and proximity to the consumer. These characteristics make grocery stores an irreplaceable part of the food distribution supply chain. While we believe that grocery ecommerce sales will somewhat moderate as people grow more comfortable with shopping in-store, we also believe the grocery ecommerce market will be significantly larger relative to pre-COVID expectations. We expect grocers to continue investing in their omni-channel capabilities so they are prepared to fulfill consumer demand, whether it be in-store or online.