Shopping Center Business

MAY 2018

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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GROCERS 260 • SHOPPING CENTER BUSINESS • May 2018 toy and gaming chain is one of several high-profile retail brands to file bankrupt- cy in recent years as e-commerce becomes more popular. THE AMAZON EFFECT Perhaps the most talked-about aspect of Amazon's effect on the grocery sector is the technology angle. Amazon is widely respected — even feared — for its role in disrupting retail and contributing to the demise of previously prosperous retail brands. But whether or not Amazon or any other grocer proves disruptive with respect to online grocery technology re- mains to be seen. Attempts at e-grocery delivery date back to the days when Am- azon itself was brand new. Webvan, for example, was an early online grocery business founded in 1996 that filed bank- ruptcy in 2001. As recently as 2017, a Nielsen survey found that just 9 percent of North Amer- ican respondents said they had purchased fresh groceries online. Still, grocers have been more aggressive in promoting online ordering and delivery in recent months in anticipation of growth. Kroger, for ex- ample, is rapidly expanding its ClickList ordering service to new markets. For a fee, the service allows customers to re- serve a pickup time up to three days in advance and have associates load grocer- ies into their cars in the store's parking lot. Brown points out that several think tanks have forecast 10 percent annual growth for e-groceries in the foreseeable future. He says the number could be even higher, reaching 15 percent year-over-year growth. "If you are a grocer, this should keep you up at night," he says. Amazon itself is investing in several gro- cery technology concepts. One of those is AmazonFresh, a grocery delivery ser- vice available in parts of the U.S. and in Europe. The service was rolled out prior to the Whole Foods deal and could get a big boost from the added infrastruc- ture. Another innovation is that Amazon has begun allowing customers to pick up small online orders using in-store lock- ers. Once an order is placed, customers receive a special code to open the locker and retrieve their items. According to a report from digital marketing firm inMarket, short "micro visits" of three to five minutes at Whole Foods stores with the lockers are up 11 percent since last August, compared to about 7 percent for stores without lock- ers. The hope is that shoppers will make additional impulse purchases during their short stop inside the retail location. One clear advantage Amazon gained through Whole Foods is a tremendous amount of local infrastructure in acquiring a grocery chain. "What Amazon has essentially done in the Whole Foods deal is purchased rough- ly 460 distribution centers," says Brown. The big question is whether those "distribution centers" continue to serve mainly in-store customers or shift toward e-groceries. Cushman & Wakefield senior managing director Ben Conwell has called effective delivery of groceries, particularly delicate items like fruits and vegetables, the "holy grail" of online delivery. FRESH COMPETITION There's a good reason that so many companies are looking to boost their e-grocery offerings. A joint study from the Food Marketing Institute and Niel- sen found that 20 percent of all grocery sales will take place online by 2025. By that same year, roughly three-fourths of all shoppers will get at least 25 percent of their groceries online, according to the study. However, e-grocery delivery is like to play out much differently in urban and dense suburban markets versus exurbs and rural areas, with online purchases ex- pected to catch on much faster in more populated, dense markets. According to Cushman & Wakefield, none of Whole Foods' current locations are in areas where there are less than 200,000 residents within a 10-mile radi- us, and there isn't an expectation for that strategy to change under Amazon. Thus, there is considerable overlap between the location of a typical Whole Foods custom- er and a typical online grocery customer. In 2017, more than 52 percent of all online grocery sales in the U.S. came from dense urban markets within eight states, accord- ing to Cushman & Wakefield. As challenging as online grocery services are to operate under the best of circum- stances, the relative lack of infrastructure in rural areas could mean e-groceries nev- er take off outside of larger cities. How- ever, Walmart — which operates mainly in suburban and rural areas — recently ex- panded its online grocery ordering to 100 cities in the U.S. The company has pushed more into urban areas through its acqui- sition of and the announcement it will offer same-day grocery delivery in New York City. "Our foot is on the gas with delivery," says company spokesperson Molly Blake- man. "We're being very deliberate in the selection of where we are placing delivery as it's more about where you deliver to rather than where you deliver from. By offering delivery in these 100 metro ar- At Levin Management's Wall Towne Center in Wall, New Jersey, the recently expanded 71,000-square-foot ShopRite now features larger produce and natural foods departments, as well as a cooking classroom.

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