Grocery stores aren’t always the ideal anchor tenants

marianos

by Dan Rafter

Joe Parrott, a senior vice president of retail services at CBRE’s Bannockburn, Illinois, office, has long studied the performance of retail anchors. He even releases a regular Chicago Retail Anchor Report.

In Parrott’s most recent report — for spring of 2015 — he found that retail anchor rents in the Chicago market have surged during the past year, with average asking rents growing more than 20 percent.

But what makes for an ideal anchor? Parrott says that depends on whether you are a tenant of a retail center or an investor.

Parrott said that tenants whose business requires customers to come back to their stores on a regular basis — say quick-service food restaurants, hardware stores or beauty salons — love having grocery stores as anchor tenants.

“Shoppers come back to grocery stores weekly or multiple times a week,” Parrott said. “It becomes convenient for these shoppers to stop by the quick-service restaurant next door.”

But retailers who sell discretionary products, maybe in the jewelry or fashion space, prefer fasion, department stores or big box stores such as Bed Bath & Beyond as anchors, Parrott said.

Investors, though, do like grocery store anchors, Parrott said, especially grocery stores that see a high volume of business.

“That is a very safe investment because even if the grocer in place went out of business, there will always be another grocer that wants to take over locations that have a history of high sales performance,” Parrott said. “If the sales at a location are strong or above average, your risk of having a long-term vacancy is negligible.”

The grocery store business is changing, though. Parrott said that in the Chicago area, Jewel remains the strongest performer in the traditional grocery category. But that category is getting smaller as it faces pressure from the high-end segment — led by grocers such as Whole Foods and Mariano’s — and from the lower-cost end featuring such retailers as Target, Costco Wholesale, Aldi and Walmart.

The most notable of the recent casualties in the traditional grocer category in the Chicago area was Dominick’s Finer Foods, a once-strong grocer that closed all of its stores in this market in 2013 and 2014. The problem Dominick’s faced? Its prices weren’t as low as what shoppers could find in the grocery sections of Walmart and its merchandise wasn’t as high end as what they could get at grocers like The Fresh Market.

Despite the challenges traditional grocers face, Parrott says that this segment of the grocery industry will survive.

“I don’t expect the traditional grocery segment to go away,” Parrott said. “There will always be a place for the traditional grocery store that offers a broad selection. The strongest players in this space will adapt and survive.”

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