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‘Go Big or Go Home’ Era Ends for U.S. Grocery Retailing

By Dennis Kaiser

The era of “go big or go home” in U.S. grocery retailing is coming to an end, as top chains leverage new strategies to cope with change. That was the conclusion of a presentation by Elkhorn Real Estate Partners’ Joe McKeska at the 2018 ICSC OAC Summit in Dana Point, CA, which focuses on the open-air segment of retail real estate.

“For years, the prevailing strategy for chains to drive growth was through some combination of opening new stores and finding good brick-and-mortar operators to acquire in order to increase economies of scale,” said McKeska. “But today, we’re seeing less and less focus on new store growth and horizontal integration. Now the direction is vertical, grocers are intently focused on cultivating the capabilities they need to survive in a disrupted marketplace.”

McKeska, a 25-year veteran of the grocery business who previously headed real estate operations for Southeastern Grocers, LLC and Supervalu, Inc., noted that U.S. discounters and grocers have shown an extraordinary willingness to alter their business models in a strategic response to disruptive forces, ranging from e-grocers, specialty formats and Amazon Alexa, to meal kit delivery and everything in-between.

The changes are reflected in the capital investments planned by leading chains. Kroger plans a 68% reduction in new store capital from 2018 to 2020, compared to the prior three-year period. Walmart’s expansion plans for 2018 have shrunk to just 25 new stores, its lowest level in 30 years, and is in stark contrast to the 230 new stores the retail giant opened in 2015, pointed out McKeska.

Today’s strategies tend to focus on internal operational efficiencies and changes. “The capital focus continues to shift to remodeling existing stores under the banner of enhancing the shopping experience,” McKeska explained. “Heavy investments related to digital and e-commerce capabilities, in particular, those for click-and-collect, home delivery, and offering personalization, are now the order of the day.”

The total dollar volume of transactions last year actually increased by 12.2%, while the number of grocery-anchored shopping centers sold decreased. “What we’re seeing is a flight to quality,” McKeska said. “There’s a supply-demand imbalance for high-quality, grocery-anchored centers where the risk of store closure in the future is very low. When it comes to those with more questionable anchors, we’re seeing a decrease in pricing. Frankly, I expect that trend to continue given the increasing uncertainties in today’s marketplace.”

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About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.

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