Grocers' New Reality

LAS VEGAS-Some supermarket chains have already adjusted to the new reality that was created when Wal-Mart and Costco barged into the grocery business. Panelists for a presentation called “Grocery Wars” at the 2005 ICSC Spring Convention here Monday said that’s a good thing for grocery-anchored shopping centers because grocery-anchored centers need strong tenants, and the strongest tenants will be those who adjust to the new reality created by the entry of Wal-Mart, Costco and other new players in the grocery industry.

Panelists including Doug Wiele of shopping center owner/developer Foothill Partners in El Dorado Hills, CA and management consultant Peter Sealey of Los Altos Group in Los Altos, CA listed the strong forces exerting pressure on the profit margins of supermarket chains: Wal-Mart, Costco and other warehouse type retailers, ethnic grocery stores, upscale and specialty markets and a relatively new category, extreme value markets that often beat all the others on price although sometimes offering a more limited selection.

The result of all the new entrants into the supermarket game is that the so-called middle market is besieged on all sides by competitors that are skimming off either the high-end or the low-end shoppers—or grabbing middle-market shoppers by offering them better value than traditional grocery chains offer, the panelists said. But that still leaves a big middle market, says Mary Lou Fiala, president and COO of Jacksonville, FL-based Regency Centers, which owns about 400 grocery-anchored centers around the country. Fiala, and other panelists, agreed that some conventional grocery chains have already recognized that they must change in order to compete against the likes of Wal-Mart and Costco and some are doing it quite well. Of the approximately 400 grocery-anchored centers that Regency owns, Fiala said, 57 of them compete successfully with a Wal-Mart store that’s within three miles of them.