All types of retailers are relentlessly looking for store sites.
As the Wendy's, Walgreens and Wal-Marts of the world seek more retail locations, property becomes scarce and land values soar. Industry analysts and food retailers contend that fast-food outlets, drug stores and mass-merchandise discounters are among the biggest competitors for retail sites. They say that prime locations are becoming more difficult to find, especially as a result of a surge in freestanding drug stores.
The squeeze, they point out, has caused supermarkets to adopt a flexible approach to real estate. Many of them now are tinkering with sites and formats in an attempt to get a profitable mix.
Supermarkets find expansion is possible if they:
Move farther onto the fringes of a city -- where land is available and where the populace is moving.
Switch to alternative formats such as "neighborhood markets" and limited-assortment stores that require less space than a traditional market.
Build, where necessary, "double deckers," or two-story stores where land is at a premium.
Endear themselves to developers by allowing fewer noncompeting clauses in contracts with strip centers.
In order to get good sites, supermarkets have dropped many of the restrictions placed on shopping-center developers, said Gerald Divaris, president of Divaris Real Estate, Virginia Beach, Va. "The bakery is a good example," said Divaris, himself a former supermarket owner in Zimbabwe. "In the past, a supermarket operator would have said 'no' to another bakery in the same center. Now they say 'OK' as long as the bakery is not bigger than a certain size."
Developers are seeking these concessions from store operators in order to "hedge their bets" against possible business failures, Divaris pointed out. Consolidations of big chains and the emergence of Wal-Mart "have created some concerns for developers," said Divaris whose company handles leasing for a number of supermarket accounts, primarily in the East and South.
"We must ask ourselves -- do we have a long-term project here -- or do we have a lease that will go dark?"
Divaris and a number of retailers agree that since most residential growth is in "wide-open" country on a city's fringes, there always will be enough space available for store development -- and such open expanses should provide enough room for the larger stores of today, which include everything from the big perishables departments to banks and flowers.
For example, Winn-Dixie Stores, Jacksonville, Fla., which had been rapidly enlarging its units in the past five years to accommodate new departments and larger assortments, has not had trouble in finding good sites, said Mickey Clerc, vice president of public relations. "It's not like New York or Boston," he noted. "We go with the population -- and expand to the suburbs." The company is building traditional supermarkets in the 45,000-square-foot range. This compares with mainly 27,000-square-foot units 15 years ago.
Food Lion, Salisbury, N.C., is another company that is building bigger stores with greater space requirements. Operating for years with a 38,000-square-foot prototype containing amenities such as bakeries and delis, the firm now has a number of experimental stores of 40,000 or more square feet. The added space accommodates two aisles instead of one of health and beauty care products, expanded snack foods and a larger pet-supplies department. Food Lion's growth, too, will be primarily in suburban areas, a spokeswoman said.
Wallace & Owens, a nine-unit independent based in Malden, Mo., finds plenty of land available in its Missouri and Arkansas territories, primarily because the stores are in predominantly rural areas, said owner Steve Wallace. But Wallace, like several other operators, finds expansion to be less feasible in economically charged areas. He pointed to a "fast-growing" Jonesboro, Ark., market where the cost of real estate has made expansion impossible. The company already has two stores there.
Wallace said that the firm tries to buy land well in advance of construction. Two such sites -- in undisclosed rural areas -- have been acquired and currently await development.
Northern California also is booming -- and as a result new store construction is expensive, said Jim Watt, vice president of real estate for Save Mart Supermarkets, Modesto. Construction costs are up 10% to 15% in the last couple of years, he noted. Cost and availability of materials are major factors in the price hikes.
There are still some commercially zoned properties available in California's Central Valley, Watt said, but they are "few and far between in metro areas." He noted that competition for good sites will intensify as major chains, through acquisitions, enter the area. With the elevated costs for new store construction, Save Mart has been focusing on expanding present units, Wall pointed out. Nevertheless, the company is building two to three new stores a year in the Central Valley.
The sizes usually are 50,000 square feet for a conventional store and 60,000 square feet for a warehouse store.
In Chillicothe, Mo., a city of 8,800 persons, a strong economy has made construction costs "as expensive as in the city," said Bill Koch, owner of the local Piggly Wiggly and three other such stores in nearby areas. "It's difficult to come up with a desirable store site," he noted.
Nash Finch Co., Minneapolis, which develops sites for its corporate stores as well as affiliated independents, is finding that redevelopment of existing property is the way to go.
"There are very few bare-ground sites left," said Deborah Carlson, vice president for store development. "We are looking at more redevelopment opportunities in order to get on the right corner."
Nash Finch operates primarily in the Midwest and Southeast. Although a number of store formats are offered, foremost consideration is given to the one that fits the needs of the particular market, Carlson pointed out. Formats run the gamut -- from near convenience store size to a 100,000-square-foot corporate Econo Foods unit in Cedar Rapids, Ia.
Nash Finch offers a complete real-estate service to independents -- everything from researching a site to a turnkey operation. "They come to us for assistance -- - but sometimes we go to them if we see a good opportunity," Carlson said.
One of the biggest challenges to site selection is found in the New York-New Jersey metropolitan area, where available space is at a premium. In addition, local government officials often make big-store construction difficult. In this atmosphere, stores adapt by offering as many amenities as possible in limited space -- sometimes as small as 16,000 square feet.
"When we have the opportunity to replace on-site, we like to do that," said Don Vaillancourt, vice president for corporate communications at Grand Union Co., Wayne, N.J. "Some of our stores have been operating at some very choice locations for many, many years," he noted. "If the old store is successful, you can expand on that."
On-site replacement, Vaillancourt said, provides a built-in customer base -- with the store not subjected to costly zoning procedures. "Also, when you look at a new location, you have to rely on research."
Finding a site is the first part of Grand Union's selection process. Then, if research shows that demographics are good, a lease is signed and a format is chosen. While most units are superstores of 45,000 to 65,000 square feet, the company also embraces upscale and limited-assortment formats.
Even in Vermont and upstate New York, the company has difficulty finding sites for "proper size stores" -- said to be 55,000 to 65,000 square feet.
Demographics were right for an upscale Fresh Market in Danbury, Conn., so the company opened there in October. Earlier though, Grand Union converted several underperforming stores to Hot Dot Foods, a limited-assortment concept. Of eight units opened in Vermont and upstate New York, two were subsequently closed because they were not performing up to expectations, Vaillancourt pointed out.
He described the Hot Dots as a "real-estate solution -- a different format to try to pep up the stores." The units vary in size -- but go as high as 20,000 square feet. They are not expected to be a big growth factor in the company.
Companies large and small increasingly are eyeing two or more formats. For example, Wallace & Owens currently operates conventional supermarkets and Country Marts, the latter described as upscale warehouse stores. They are supplied by Associated Wholesale Grocers, the Kansas City, Kan., cooperative. Wallace said that his company now is investigating the limited-assortment format.
Wallace & Owens fits a site to a format, Wallace noted. The company first checks out demographics -- then selects a format and a site to accommodate the size of store needed. "If conditions are right for a Country Mart, we need the right size tract to put it in."
In most instances licensees easily find the necessary space -- usually 10,000 to 12,000 square feet to install a limited-assortment store, said Michael Sewell, marketing manger for Save-A-Lot, a wholly owned subsidiary of Supervalu. Buildings range from old restaurants to hardware stores. The company operates or supplies more than 800 stores in 34 states.
Not to miss a beat, Wal-Mart, as previously reported, launched its 40,000-square-foot Neighborhood Markets in the past year as an alternative to the big supercenters. Following tests with four prototypes, David D. Glass, Wal-Mart's chief executive officer, said a few months ago that the company is "more comfortable with the concept -- and will continue to build others."
In yet another display of flexibility, Schnuck Markets, St. Louis, is testing a new neighborhood-type format in one of its old supermarkets that had been closed for four years. Called Schnucks Express, the store occupies 17,000 square feet of the 50,000-square-foot building. Schnuck reopened the store last August, pressured by a neighborhood campaign to bring back a supermarket to the area. The Schnucks Express contains a full-size pharmacy to serve the area's largely elderly population. A spokeswoman said that the concept will be tested for about one year before a decision is made on expansion.
Emergence of freestanding drug stores has fostered competition for building sites in the trade area of K-VA-T Food Stores, Abingdon, Va., said Louis Scudere, vice president for real estate. Also, because of mountainous terrain, retailers must make maximum use of available land, it was noted.
Thus, the company next spring will begin construction of a 45,000-square-foot store in Gatlinburg, Tenn., where the supermarket will be on the top floor of a two-story building -- and the parking lot and other shops will be underneath. Consumers will be moved up and down by elevators and people movers.
With Gatlinburg surrounded by a national park and a forest, property is at a premium, Scudere noted. The company was able to obtain a site of only 2.5 acres for a 45,000-square-foot store -- so "it had to go up."
Similarly, because a large-enough building site wasn't available in Key Biscayne, Fla., Winn-Dixie has operated a "double-decker" there for years, said the firm's Clerc. A parking lot is above the 39,000-square-foot store. Customers move by way of elevators and stairs.
Site selection and size also are being influenced by the emergence of gas pumps on many supermarket parking lots. Bill Koch, who also owns a Piggly Wiggly in Warrensburg, Mo., recently opened the first PW Petro, a freestanding fueling station in the supermarket's parking lot. The store's sales were up about 10% the first week -- and PW Petro sold more than 6,000 gallons of gas.
Four gasoline pumps and a canopy occupy about 20,000 square feet of what was a parking area and green space. Koch had purchased 15 acres of land prior to opening his 32,000-square-foot store in 1998. He is considering erecting a small convenience store on a corner of the parking lot.
K-VA-T, through its Food City stores, got into the gasoline business last year with 10 installations. Another 10 are planned this year. Scudere said that the company will try to squeeze them onto current parking lots. Each outlet consists of six gas pumps, an 8- by 10-foot thick kiosk selling tobacco, gum, candy and automotive supplies -- and two soft drink machines.