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U.S. grocery store openings increased 30 percent in 2018.

More than 17 million square feet of new grocery stores opened driven by new grocers in Florida

New grocery store openings were up 30 percent in 2018, with more than 17 million square feet of space added in the United States according to JLL’s Grocery Tracker 2019 report. More than one-quarter of the new stores were in Florida, California and Texas due to expansion by their respective local market-leading grocers: Publix, Sprouts Farmers Market, Aldi, Kroger and H-E-B.

“Grocery is one of the strongest retail sectors, with nearly twice as many new stores opening than closing last year,” said James Cook, Director of Retail Research at JLL. “The grocery sector has seen shopper habits shift to more frequent, shorter trips, versus large weekly hauls. As a result, grocers are focusing on developing smaller format stores, those under 10,000 square feet, with more local offerings to appeal to the surrounding community.”

Already executing this tactic is small-format grocer Aldi which opened 82 stores last year, that accounted for nearly 16 percent of the total new stores by square footage. Sprouts continued at a fast pace adding 30 stores with another 30 planned this year. Cook adds, “In 2019, we expect to see even more grocery stores rolling out their smaller format stores as they battle razor thin margins in prime locations, while still serving evolving consumer needs.”

“Disruption in the grocery sector proved that even a needs-based retailer needs to evolve with consumers changing shopping habits,” added Cook. “Major chains such as Walmart, Kroger, and Giant Foods are all making investments in areas that aim to provide their customers with a flexible and reliable shopping experience that best suits their individual preferences.

This year is likely to bring an interesting evolution of the grocery sector, as it moves to accommodate the digital systems that permeate our daily lives. By focusing their tech advancements around flexibility and convenience, grocers are positioned to have a strong 2019 in both physical and digital retail.

Two key trends in 2019:

1. Robots delivering your groceries may be a thing of the present:
Grocers are putting a large amount of investment behind autonomous delivery systems in 2019. National chains Kroger and Walmart are currently experimenting with the technology in smaller markets. In fact, Kroger and its partner Nuro, the robotics company, have begun making deliveries to Scottsdale residents – part of the chain’s continued focus on digital innovation as studied in the report.

2. New distribution centers and systems put the focus on speed:
2018 saw an increase of grocers building new fulfillment centers in order to meet the rapidly growing demand created by grocery delivery and click-and-collect programs. In fact, Giant Foods, one of the grocers looked at in the report, recently opened its first e-commerce pick up and fulfillment hub in Lancaster, Pennsylvania with dedicated click-and-collect lanes for drivers visiting the hub. The new fulfillment center should also bring an increase in deliveries which will reach more customers than the original store this hub facility replaced.

Beyond store openings, in 2018, investment in grocery real estate totaled $9.9 billion – grocery cap rates saw some softening at the end of 2018, increasing 11 basis points from 2017. While single-asset grocery transactions have declined 5.8 percent since 2016, the average price per square foot has increased by 7.8 percent across the United States – in primary markets the average price for square foot has increased by nearly ten percent (9.5%) over the past two years.

“While grocery investment saw a decrease in 2018, that may be due in part to stricter underwriting standards and lack of Trophy and Class A grocery-anchored deals on the market last year,” added Chris Angelone, Retail Capital Markets Lead, JLL. “However, we expect an uptick in premium grocery locations to go on the market in 2019 as REITs and institutional investors continue to dispose some of their smaller neighborhood and community centers.”

For further insights on what impacted the grocery sector in 2018 and trends to look out for in 2019, download the full Grocery Tracker Report here.

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