Why Grocery-Anchored Real Estate Does Better!

By: Taro Chellaram /Real Estate Articles/Feb 22, 2023

Why Grocery-Anchored Real Estate Does Better!

As the retail market continues to shift, so do the shopping centers. The market is shifting back to where consumers need it to be, by focusing on grocery stores and necessity-based stores. Experts are predicting that experiential-based retailers will see more successes in the near future, and many shopping centers are adapting to these changes by focusing on those that hold both essential and experiential-based retail businesses. Grocery-anchored shopping centers are most definitely, the way to move forward in commercial real estate. 

WHAT DO YOU MEAN BY A ‘GROCERY-ANCHORED’ RETAIL CENTER? 

Grocery-anchored shopping centers are made up of a grocery store as the main tenant with an assortment of smaller tenants surrounding it. They act as the main 'attraction' of the area and are meant to draw in customers. Groceries are essentials, meaning customers will keep its demand high even during times of rising inflation and interest rates. The customers that visit grocery stores, such as pharmacies and specialty food retailers, can also be potential customers for other stores in the same plaza. This is why such retail centers are at the top of most real estate investors and developers' lists. Very few retail investments offer such high demand and success rate. Many a times, investors are confused between two kinds of retail investments – necessity-based tenants and experiential-based tenants. Both types of retail establishments attract customers, but they do so in different ways. Necessity-based shopping locations offer products and services that consumers need - think grocery stores or gas stations. Experiential-based shops provide an immersive or interactive experience for visitors - think restaurants with menus designed by famous chefs or jewelry boutiques known for the craftsmanship of their designs.

Shopping centers anchored with experiential tenants or traditional retail stores don’t get as much customer traffic, or they don't succeed financially in the same way that grocery-anchored shopping centers do. The main reason behind this is that people go to experiential-based stores when they want a special experience, but the frequency of their visits is lower than for regular supermarkets: according to studies, people visit local grocery stores about 1.5 times per week. As a result, experiential stores have shorter windows of opportunity to earn repeat customers' dollars and higher costs per transaction.

INVESTOR POINT-OF-VIEW 

Real estate investors see such retail centers as profitable investments while residents enjoy the benefits that such real estate brings to their cities and towns (increased supply, diverse product selections, increase standards of living and quality of life, etc.) There is a growing debate about the future of physical stores in an ever-growing digital world. Many commentaries have suggested that we’ve entered an era known to as “the death of physical shopping” and “the rise of e-commerce.” While this is true to come extent and applies to certain sectors, it is in most part, not applicable to grocery stores. Grocery stores will continue to be popular regardless of the presence or absence of online grocery markets. U.S. Census Bureau data shows that 97% of grocery sales are still in physical stores. The impact of ecommerce on this space has been largely limited to the most urban locations.



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