Hunger Games: Grocers, Restaurants Leading Retail Growth
Here’s something to look forward to: Brick-and-mortar store openings in 2022 are on pace to outnumber store closings for the first time in five years. The trend is an ironic byproduct of the pandemic, said Erik Foster, a Chicago-based principal and head of industrial capital markets at Avison Young. As many people moved to up-and-coming metro areas these past two years, many retail chains have followed.
“There's a lot of that momentum that's going to where people are wanting to live,” he said.
That momentum includes expansion plans for many grocery and quick-service restaurant chains, according to Anjee Solanki, a San Francisco-based national director of retail services at Colliers.
“You're seeing growth in a lot of the suburban markets, you're also seeing domestic travel and with domestic travel comes the desire to spend a bit more,” Solanki said. “I also believe that you're seeing newer concepts starting to roll out [as well as an] expansion of existing concepts.”
Grocery’s Growth Pattern
Discount chains appear to be leading the way with regard to this trend. Dollar General announced plans to open 1,100 new stores nationwide in 2022, including tripling the number of locations for its upscale Popshelf concept. Dollar Tree and Family Dollar, which often take on triple net leases plan to open 400 new stores, including some that combine both brands at one location.
Aldi plans 100 more stores, an expansion that would make Aldi the third-largest grocery chain in the country by number of locations, following Walmart and Kroger. At the other end of the spectrum price-wise, Foxtrot, an upscale Chicago-based convenience store, has plans for 50 new locations, primarily in Boston, Chicago and Austin, Texas.
Other retail chains planning expansions include Big Lots, Costco, Five Below and Tractor Supply. Wayfair, the popular online purveyor of furniture, also plans to open its first three brick-and-mortar stores.
Foster said these expansions reflect population shifts in the United States, with a particular focus on growing southeastern cities, as well as their suburbs and exurbs.
“It'll be interesting to see if the urbanization in some markets begins to slow from a density standpoint … how … food retailers and other necessity retailers ... react to more of a sort of exurban, suburban growth pattern,” Foster said.
Solanki said brands on the rise fit those needs. In terms of quick-service restaurants, growing brands include Dunkin' Donuts, Shake Shack, Chipotle, Chick-fil-A and Raising Cane's.
Many of these restaurants have expanded their drive-thrus to three lanes , adding one lane just for picking up mobile orders . Dutch Bros., a drive-thru coffee chain based in the western United States, is also one of the nation’s fastest-expanding retailers. Meanwhile, Taco Bell is addressing the labor shortage by testing out a fully automated restaurant in New York’s Times Square.
“Convenience with the flexibility for that consumer to choose their type of offering,” is the retail trend, Solanki said. “So, on Monday I want convenience, on Wednesday I want to have a nice meal with friends sitting either outdoors or indoors. I think people want options.”
Besides grocery stores and quick-service restaurants, Solanki expects the momentum behind emerging concepts such as healthcare retailers focusing on pets , stem cell therapies or cannabis to continue in 2022.
“What I love about what we do in retail is that it's constantly evolving … and change is probably the one constant that we see,” Solanki said.
Still Challenges Ahead
It’s no secret that retailers, especially grocery stores and their distribution partners, must adapt to lingering headwinds that emerged last year, such as inflation, the labor shortage and resulting supply-chain issues. There were also recent flash disruptions in the form of winter storms and the continuing impact of the pandemic. Albertsons Cos., which owns grocery chains including Safeway and Jewel-Osco, said the omicron variant surge late last year sidelined many employees working in grocery stores, food production and distribution.
With or without the coronavirus / the pandemic, many other employees chose to leave the industry. A survey by the National Grocers Association found that many grocers reported operating with only half of their typical workforce over the past year.
Foster also flagged climate change as a factor. Severe weather affected corn and soy output to feed farm animals, and ultimately the availability of meat, eggs and dairy products. Heavy rains in Brazil impacted coffee production, while winter storm-related road closures on both coasts in the Northeast and Washington state slowed food shipments to other areas.
And then there is inflation.
“The problem that persists is that the vacancies in the industrial market are at all-time lows in almost every market,” Foster said. “And construction supplies such as concrete, steel and especially even now roofing materials are in short supply and they are delayed in their delivery. So, the construction time for new facilities, if a tenant wanted to expand to a new market or even a bigger location … is delayed significantly. They can't even grow to meet the demand that they may be experiencing from the consumer.”
While the pandemic and inflation may be temporary, Foster said retailers and their partners are already adapting for the labor shortage, which may be here to stay. Some grocery stores are adding more self-checkout terminals, while back-of-house technology is being used to update pricing and manage inventory.
“What we're finding is that as people’s spending habits and lifestyles are changing, the logistics and supply chains are responding with a growing flexibility,” Foster said. “The supply chains and logistics nodes … have learned to become more adaptable.”