WSL Future of Health Event

The end of an era for chains?

Print Friendly, PDF & Email

DANA POINT, Calif. — The era of “go big or go home” in U.S. grocery retailing is coming to an end as top chains leverage new strategies to cope with change, said Joe McKeska, president of Elkhorn Real Estate Partners, during a presentation at the 2018 International Council of Shopping Centers (ICSC) Open Air Centers (OAC) Summit here.

“For years, the prevailing strategy for chains to drive growth was through some combination of opening new stores and finding good brick-and-mortar operators to acquire in order to increase economies of scale,” said McKeska. “But today, we’re seeing less and less focus on new store growth and horizontal integration. Now the direction is vertical — grocers are intently focused on cultivating the capabilities they need to survive in a disrupted marketplace.”

McKeska said he formed Elkhorn Real Estate Partners in 2017 with A&G Realty Partners to help retailers and investors maximize their real estate portfolio performance in alignment with their broader business strategies. McKeska noted that U.S. discounters and grocers have shown an extraordinary willingness to alter their business models in a strategic response to disruptive forces — e-grocers, specialty formats, Amazon Alexa, meal kit delivery and everything in between.

“The changes are starkly visible in the capital expenditure investments planned by leading chains,” he said. “Kroger, for example, plans a 68% reduction in new store capital from 2018 to 2020 compared to the prior three-year period. Meanwhile, Walmart plans 25 new stores in 2018, the lowest number in 30 years. Bear in mind that as recently as 2015, Walmart opened 230 new stores for the year.”

Instead of rolling out large numbers of new stores or growing horizontally by acquiring significant portfolios operated by their rivals, grocers are looking inward toward their own operations, noted McKeska. “The capital focus continues to shift to remodeling existing stores under the banner of enhancing the shopping experience,” he said. “Heavy investments related to digital and e-commerce capabilities — in particular, those for click-and-collect, home delivery and offering personalization — are now the order of the day.”


You must be logged in to post a comment Login