CHICAGO – According to Mid-America Real Estate Corporation’s biennial Urban Grocery Study published this month, there was a 60% increase in new square footage devoted to the gourmet sector in Chicago and its near suburbs since the last report was published in the summer of 2011. Gourmet also saw a 41.94% increase in the number of new store openings, which continues the 40.91% increase in store counts experienced in the 2009-2011 report. The near future is also being led by gourmet.
GOURMET UP
“Of the 21 stores proposed for 2013, 15 are gourmet, 3 are full-service and 3 are discount,” says Dan Tausk, Mid-America principal and vice president who is author of the study along with analyst Nancy Fetsch. Another reason gourmet gained more momentum in the last two years was the major change in store size for that category.
“Some in the gourmet sector are expanding their merchandise to include more staples and choices offering one-stop shopping, and reversing the recent trend to split grocery dollars heavily between discount, warehouse, specialty and gourmet stores. They’re betting that bigger stores with the prepared foods element and strong staples can persuade the consumer to consolidate their grocery visits like our parents used to.”
Leading the way in expanding store size and offerings is Mariano’s, (which the Urban Grocery Study defines as “gourmet”) with square footage per store now averaging 70,000 square feet, while average grocery store size in the study area has been around 50,000 square feet. Mariano’s now holds a total of 943,000 square feet of stores that are either open or proposed for 2013. Between 2011 and 2013, Mariano’s opened 5 stores, and proposes an additional 9 for the rest of 2013 and beyond. Whole Foods was also active with 2 new stores proposed in 2013, totaling 3 new stores on deck, with a Hyde Park location proposed in 2011, and still not open.
Much of the gourmet activity is concentrated in the higher income Central City (Zone 1; refer to map).
DISCOUNT, FULL-SERVICE DOWN
Conversely, the study shows a dramatic shift in the opposite direction for the discount category, which lost 4.08% of its store count between 2011 and 2013. Just two years prior, discount was experiencing a 24.05% increase in stores count (2009-2011).
“Discount declined significantly because of an increase in store closings among both independent and chain grocers,” says Mr. Tausk. Discount grocers are also downsizing slightly, cautious about expanding, he says, which reflects the same trend in non-grocery retailers, in general.
Meanwhile, the number of full-service grocery stores continues the decline noted in the 2011study: this year netting 8 less stores than in 2011 (including the closing of 2 Jewel and 2 Dominicks), and losing 5% of the overall square footage.
INCREASES IN SIZE, NOT NUMBERS
Although the total number of grocers in the 2013 study increased by one, the square footage of operating grocery space increased by 443,218 square feet, with proposed new grocery totaling more than 1.05 million square feet – about 180,000 more square footage than in 2011. “Basically, 18 new grocery stores opened between 2011 and 2013, but 17 closed,” says Mr. Tausk. “The square footage increased, however, because of a fairly dramatic increase in grocery store size.”
The figures show an overall increase in store size by nearly 17,000 square feet. In 2011, the average proposed grocer size was 33,486 square feet, while in the 2013 study, the average proposed grocer size was 50,152 square feet, due in large part to Mariano’s larger store format, Tausk says. . “Even stores like Best Buy and the office supply sector are downsizing,” he says. “So, you can see why it’s unusual for a grocery chain like Mariano’s to expand store size right now.”
Proposed grocers totaled 21 in 2013, down from the 26 proposed in 2009.
INDEPENDENTS LOSING GROUND Tausk says that taking into account all grocery categories – full-service, discount and gourmet — about 400,000 square feet of grocer development proposed in 2011 was stalled or delayed 2 or more years, or killed altogether by 2013. He says that 11 of the 17 stores that closed in Chicago and the close suburbs between 2011 and 2013 were in the Near South/ SW submarket (8 closings) and the South/Southeast sub-markets (3 closings) – markets with boundaries that are already underserved with regards to square footage of operating grocery stores per person or household. Overall, the dramatically underserved submarkets of the West City and S/SE City still rank at the bottom of penetration statistics with 1.56 square feet/person and 1.29 square feet/person respectively, while the city’s average is now 3.47 square feet/person
“Of course, our study does not take into account the positive impact from recent city initiatives on food deserts, such as the addition of food trucks, drugstore food, city farms and farmer’s markets in these areas,” Tausk says. “But the food deserts are obviously still severely underserved by traditional stores.
“In our 2011 study, we thought we were seeing some hopeful signs with stores proposed for development there, but these fell through due to the economy and a lack of any new construction getting out of the ground everywhere..”
ADDITIONAL HIGHLIGHTS
New High-End Concepts: Newcomers into the Chicago area are all higher end, upscale concepts. Mrs. Green’s Natural Market out of New York is under construction in Lincoln Park. Michigan-based Plum Market opened their first Chicago store in Old Town, and Eataly, which has an established New York City location, plans to open a 63,000 square foot mixed grocery-prepared foods restaurant concept in the downtown area of River North in late 2013. Fresh Thyme Farmers Market, headquartered in Phoenix, has also entered the scene, with their first proposed store at Montrose and Clarendon (former location of 2011 proposed Mariano’s).
Whole Foods Active: Besides their Hyde Park location proposed in 2011, Whole Foods contemplates a store in Evergreen Park and possibly an Andersonville location, for a total of 100,000 square feet among the three locations. Continuing their repositioning as a go-to grocery store for everyday staples for shoppers on any budget, Whole Foods announced an 18,000 square foot store in the Englewood neighborhood at 63rd and Halsted, a true food desert. The proposed store, with a slated 2016 opening, is not included in this study due to timing.
Slowed or Quiet Grocers: Although Aldi was the story of the 2009-2011 study with their rapid expansion and plans for new stores, they were relatively quiet in the 2011-2013 study, opening no new stores, abandoning 2 proposed stores and making no progress on their Roseland store proposed from 2011.
Wal-Mart opened a total of 8 stores (5 Neighborhood Markets, 3 Express) before closing the Express store at 83rd and Stewart, attributing the closing to cannibalization from its own Supercenter located nearby. Current plans are for 2 additional Neighborhood Markets in the Grand Boulevard and Auburn Gresham neighborhoods, but growth has slowed dramatically. The + 40,000 square-foot “Market” concept will be the growth model.
Save-a-Lot opened 5 stores from the 5 proposed in 2011; however, they promptly closed 2 in the Near South-Southwest City neighborhoods of West Chatham and Englewood as part of a strategy to close underperforming or non-strategic stores. No new expansion is planned.
Tony’s Finer Foods and Pete’s Market, Chicago’s Hispanic-oriented market leaders, were quiet from 2011 to 2013. Pete’s Near West Side location proposed in 2011 is still under construction with no opening date set. Tony’s acquired a North West Side former grocery site but leased it to a health club.
Jewel closed 2 stores and focused their energies on operations and remodels. Some potential limited expansion may be on the horizon.
Dominick’s closed 2 stores, both of which were reopened by other grocers (Mariano’s – Roscoe Village and Fair Play – Oak Lawn). No expansion plans are set for 2013 and beyond.
STUDY PARAMETERS
The study originated in the summer of 2009 with boundaries that are west to Harlem, north to Touhy and south to 127th. A total of 286 grocery stores greater than 10,000 square feet make up the 2013 Urban Grocery Study, adding up to almost 9.9 million square feet of operating grocery store space. Of that total, 232 are national/regional chain stores (81.12% of the market), versus 54 independents (18.88% of the market). By category, the study defines three segments of the grocery market: full-service, gourmet and discount, with full-service accounting for 52% of the total number of stores. The current study data covers activity between September 1, 2011 to August 31, 2013.
SUMMARY, LINK TO CHARTS: Mr. Tausk says that the grocery segment is ever changing and evolving as stores that were decreasing in size are increasing again. Stores that were losing sales are focused on operations now. Gourmet is hot now, whereas discount led the charge 2 years ago. “New competition is forcing existing players to step up their game.”
Mid-America’s next study is scheduled for publication in the summer of 2015.
Mid-America Real Estate Corporation is a member of Mid-America Real Estate Group, a ChainLinks affiliate. Mid-America Real Estate Group is a full-service retail real estate organization that has become the Midwest’s leader in retail investment sales. For more information, call (630) 954-7300 or visit www.midamericagrp.com.
Source: Mid-America Real Estate Corporation
