Grocery chains buck retail tide with wave of new stores

Times may be tough for brick-and-mortar stores in the rest of the retail industry, but not for those selling food.

After a slowdown during the Great Recession, grocery store construction has been on a tear in metro Atlanta, with close to 50 new stores going up in the last five years, according to store opening announcements and representatives of various chains.

The boomlet has included both established giants and new entrants. Phoenix-based Sprouts Farmers Market, for instance, has built 10 stores in the two years since it entered the market in 2014. Discount chain Aldi has expanded with close to 20 over the past five years.

Publix, which duels with Kroger and Walmart for market leadership, has added about seven stores since 2010, while chains like Costco, Trader Joe’s and organic giant Whole Foods Market have contributed at least a dozen others.

Experts said the growth, as well as the new players, are signs of an economy that’s growing again, if slowly, and a reflection of a metro area with massive disposable income.

“Atlanta in the last 30 years has become a much more sophisticated market,” said Abe Schear, a partner at Arnall Golden Gregory and food industry expert. “Atlanta also is growing and has many of the types of consumers that these stores are looking for.”

That’s important because margins in the grocery industry are notoriously low —- around 2 percent to 3 percent (jewelry stores, by comparison, can have margins as high as 30 percent). That means grocers must be sure they can make their numbers before opening a new location.

And more stores are coming.

Kroger, the biggest chain in metro Atlanta, is building a 109,000-square foot store at Glenwood Park south of I-20 and an 82,000 square-foot store in south Buckhead near Piedmont Road and Lindbergh Drive. Publix, meanwhile, is considering a 45,000-square foot store at Moores Mill Shopping Center.

Sprouts plans to continue its construction binge with at least two more stores in the next year and eventually a distribution center, spokesman Diego Romero said. Romero said Atlanta has been a target because it is the hub of the south and has a big population of millennials, one of the chain’s primary customer bases.

A grocery bubble?

But too much of a good thing raises risk. The rush to build is likely to lead to oversupply and some players may have to reassess their commitment to Atlanta, experts said.

“That is likely to happen,” said John Bemis, executive vice president and retail market lead for Jones Lang LaSalle or JLL. “Who will survive, I don’t know. But it will happen some time in the next 10 years.”

The construction of the grocery markets contrasts with the free fall for other parts of the retail industry.

Clothing giants Macy’s and JCPenney are closing stores as the nation seems to have fallen out love with malls. Booksellers are hanging on by a thread. And record stores, photo developers and gift card outlets have all but disappeared.

Grocery stores are growing because they are a relatively sound investment in a skittish retail environment where online spending has created an impression that brick-and-mortar stores are on their way out, experts said.

Unlike other retailers, the grocery business can’t be easily replaced by Internet shopping because of the subjectivity of choosing a perfect melon or finding the right marble in a piece of steak.

“Groceries are the prime retail component that a lot of investors find safe right now,” said Jon Neville, a partner at Arnall Golden Gregory and also a grocery industry expert.

Changing habits

Their growth also reflects changing shopping habits. Gone are the days when consumers stopped by just one store for all their grocery needs.

Increasingly, consumers shop at two or three stores — picking up fruit and vegetables at Sprouts, wine at Trader Joe’s and meat and dairy at Kroger. Others may stop by Whole Foods to pick up prepared dishes like Massaman beef curry or apricot chicken tagine that they can take home and eat immediately.

“Millennials are changing the way customers shop in our stores” said Brenda Reid, a spokeswoman for Publix. “They want a broad selection of all natural and organic products which have a shorter shelf life. Therefore, they are in the store several times a week to pick up food for today and maybe tomorrow.”

Not everyone is sharing in the bounty. The new stores are primarily being built north of Ponce De Leon Avenue with locations in Midtown, Buckhead and the northern suburbs, including DeKalb, Cobb, Gwinnett and Fulton counties.

Wide swaths of the city of Atlanta south of I-20, including downtown, are food deserts that none of the brands have touched, except for Kroger’s coming store at Glenwood Park.

The challenge to attracting grocery stores, including the specialty brands, is convincing them to make a leap of faith, said Jennifer Ball, vice president for planning and economic development for Central Atlanta Progress.

Chicken and egg

The chains often look for specific demographics — generally specified numbers of residents with specific incomes, though such numbers are never public — before they open a store. Conversely potential residents of areas deemed “food deserts” won’t consider moving there without a grocery store.

“It’s a chicken and egg thing,” she said.

Lorrie Griffith, editor of the Shelby Report, a leading food and grocery publication in Gainesville, Ga., said the race to build grocery stores reflects pent-up demand. Like other parts of the retail industry, grocery store development nosedived during the Great Recession.

Grocers also are increasingly sought by developers. Sprouts was recently incorporated into an apartment complex at the corner of Piedmont and Cheshire Bridge roads while Whole Foods is expected to be part of an apartment tower planned for 14th Street in Midtown.

The Kroger on Ponce De Leon Avenue, derisively referred to as “murder” Kroger, will be enveloped into a mixed-used tower on its current site with a new more geographic friendly moniker, “Beltline” Kroger. In addition, officials considering redevelopment of Gwinnett Place Mall and Underground Atlanta are pushing grocery stores as part of their plans.

“In-town Atlanta is changing incredibly quickly with greater population density, more transportation alternatives, more affordable housing,” Kroger spokesman Glynn Jenkins said. As Atlanta changes, he said, Kroger has to constantly look at opportunities to update stores or build new ones in hot areas.