Grocery Sales Move From Brick-and-Mortar to Online

Grocery sales are moving online. According to research from CBRE, grocery sales will largely move from brick-and-mortar retailers to online retailers in the next seven years. As a result, there will be a need for up to 35 million more square feet of cold-storage industrial space to accommodate the online sales. In addition to grocery sales, the increase in restaurant and food hall concepts is also contributing to the demand for cold-storage industrial facilities. Highly populated urban markets will see the biggest demand for these spaces. To find out more about the increase in online grocery sales and how it will impact the commercial real estate market, we sat down with Art Rasmussen, SVP of food facilities group at CBRE, and Patrick Wade, SVP specializing in retail investment properties at CBRE.

GlobeSt.com: Online grocery concepts aren’t new. What is driving the growth of online grocery shopping now?

Art Rasmussen: There are more major retail players in the sector that have invested in their ability to effectively compete in the on-line shopping and home delivery model. Target’s purchase of Shipt, Amazon’s acquisition of Whole Foods and Walmart is advertising its online grocery ability and acquired Jet.com for home grocery delivery. Of the four examples, Kroger is the only owner of a full-line retail grocery outlet but also has multi-department retail stores. This goes well beyond the direct grocery delivery model offered by Thrive Market, Peapod and Fresh Direct, for example. Plus, a very active derivative of home grocery delivery is the meal kit delivery market, highlighted by the Blue Apron public offering and growth of Sun Basket, Hello Fresh, Plated, Purple Carrot and Home Chef in the sector. All this is helping to drive growth in the online grocery-shopping sector.

GlobeSt.com: How is the growth of online grocery going to affect the commercial real estate market?

Rasmussen: That is something yet to be determined. It will be directly influenced by the additional need for physical capacity to serve this ever-growing market. How efficiently can retailers utilize their current storage, distribution and retail outlet infrastructure or are they outgrowing their internal capacity due to demand? Are they going to rely on third-party storage and logistics providers to support additional growth in order to avoid committing capital to brick-and-mortar warehouse and storage facilities should the ever evolving model or demand change? All this growth drives demand for industrial real estate for both cold storage facilities for perishable items and dry warehouses to support the balance of consumer goods that a customer would naturally need.

GlobeSt.com: Right now, grocery-anchored shopping centers are in the highest demand for retail product. Do you see that changing with the growth of online grocery sales?

Patrick Wade: The demand for grocery-anchored shopping centers will remain strong, but we are seeing a higher focus on top-performing grocers particularly in dense infill locations. We do think online grocery sales will affect these brick-and-mortar locations less if at all as distribution centers will struggle to deliver efficiently to these high-density sites. Also, there will always be those who prefer to shop for groceries at a location, rather than online, because they enjoy it. Especially in-store shopping for vegetables, fruit and fresh meats will likely be affected less by online sales. That means there is and will continue to be a place for brick-and-mortar stores.

GlobeSt.com: Industrial supply is already limited. How do you think the market should prepare for continued growth in online grocery shopping?

Rasmussen: I believe third-party cold and dry storage warehouse and logistics firms will be the go-to for many and therefore will experience tremendous growth as they support the increasing demand and logistics challenges the direct delivery model demands.

GlobeSt.com: Which markets will be impacted the most by this change?

Rasmussen: I think the larger, more densely populated cities will experience the biggest impact, especially those with a higher affordability index.