Buono: “It's really more about how they might reprogram inside the store to get more margin or efficiency.”
SAN DIEGO—Food-price decline means yet another squeeze on profit margins for grocers already facing price wars from increased competition and pressure for lower prices from discount grocers and new entrants, Anthony Buono, chairman of CBRE's global retail executive committee, tells GlobeSt.com. In a recent report from the firm, Buono said, “A steady decline in food prices has delivered a mixed bag for the economy, providing consumers with more disposable income but crimping the already-narrow profit margins of grocery operators. If these low prices persist, grocers will see margin pressure, but may adapt by focusing more on higher-margin prepared foods and refining their supply chains.”
We spoke exclusively with Buono about what a decline in food prices means for food-related retail space.
GlobeSt.com: What does a decline in food prices mean for food-related retail space?
Buono: The decline in food prices means yet another squeeze on profit margins for grocers. (Grocers are already facing price wars from increased competition and pressure for lower prices from discount grocers and new entrants like Lidl). I think this squeeze is going to force grocers to really think about expanding prepared foods and other areas of the business that are higher margin and protect them from commodity and food-staple fluctuations.
But this will have limited, if any, short-term impact on decisions about acquisition or disposition of space. Food costs will fluctuate every month and quarter. It's really more about how they might reprogram inside the store to get more margin or efficiency.”
GlobeSt.com: Is the decline expected to continue and have long-lasting effects on this space?
Buono: The decline won't last forever—it is due to a temporary mismatch in supply and demand of food production (lower demand from abroad, especially China, because of strong dollar, plus high production from US producers). Domestic production will have to adjust and slow down to match that lower demand. It will happen. However, even though it won't last forever, fluctuations are bound to happen over and over—grocers need to think about longer-term solutions to prevent losses during these lower periods (like the prepared-foods and grocerant trend).
GlobeSt.com: What could cause food prices to rise and have the opposite effect on this space?
Buono: If demand from abroad for our foodstuff picks back up or we see changes to currency and exchange rates that are favorable to exporting. The more likely solution is a slowdown in domestic production (supply) to meet demand.
GlobeSt.com: What else should our readers know about food prices and retail space?
Buono: I think the grocery industry is transforming—it is such a low-margin business and competition is getting fiercer. This is just another thing that's going to push the industry toward innovating and adding things like restaurants and cafés to their offer.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
