First National Realty Partners specializes in the purchase, ownership, and management of grocery store anchored retail properties. As such, it is not an understatement to say that the success of our business is closely correlated to the success of the grocery business. Fortunately, the grocery business is a good one.
In this article, we are going to discuss sales statistics for popular grocery stores and why they are important to the health of our real estate transactions. By the end, readers will have the information needed to determine if a grocery store anchored property investment is good fit for their own objectives.
If you are an accredited investor and would like to learn more about our grocery store anchored property investment opportunities, click here.
What is a Grocery Store Anchored Retail Center?
A grocery store anchored retail center is a multi-tenant commercial property where a grocery store/supermarket leases the majority of the retail space. For example, we own a property called Cedar Center South, where Whole Foods leases 45,282 SF (33%) of the 138,000 SF of gross leasable area. Because Whole Foods is the largest tenant, by far, the success and profitability of the center is closely tied to their continued ability to pay rent, on time, every month.
The ability of Whole Foods to pay their rent is dependent upon the success of their core business, which is to sell groceries and grocery related items to consumers through their retail store front and website/app.
Why The Grocery Business Is a Good One
There are many reasons why we like the grocery business, but we want to highlight three of them in this article:
1. Stability
The core product offered by grocery stores is food, which is something that all U.S. consumers need every day to survive. So, demand for grocery products is evergreen and will continue to be in perpetuity.
2. Consistency
Because food demand is evergreen, the grocery business is a remarkably consistent one. At any stage in the economic cycle, consumers need to buy food, which means that grocery retailer sales, profitability, and ability to pay rent have proven to be remarkably resilient to economic shocks.
3. Distribution
This is a fairly recent development, but grocery stores – especially large supermarkets and warehouse clubs – are essentially large footprint warehouses embedded within the communities they serve. As such, they make the perfect distribution point to fulfill online grocery / e-commerce orders and perform “last mile” deliveries to customer homes.
For these reasons – and others – grocery stores make an ideal anchor tenant. Their stability and consistency drive reduced credit risk, which means that their rent payments are reliable. But, just because the grocery business is a good one does not mean that all grocery stores are created equal. Some are more profitable, more popular, and more attractive as tenants than others. For this reason, it is important to take a data driven approach to analysis, which starts with studying annual sales for each of the major grocery store chains.
Grocery Store Sales Overview
Statista reports that total sales for US grocery stores in 2020 was ~$760B. While that number is extraordinary, it is important to note that the grocery business is notorious for its low margins, which means that the grocer only makes a very small profit on each item sold. Often, it may be just a few cents, which means that grocery stores rely on high sales volume for big profits.
How Much Grocery Stores Make On Average
The market share of the grocery store landscape is dominated by large, chain stores. Statista also reports that, in 2018, there were 31,669 chain supermarket locations across the United States and only 6,638 independent food retailers. This is important to note because the large chains have the scale necessary to drive efficiencies in their supply chain and operating model, which makes them more profitable on a per store basis than many independent retailers.
Top Grocery Stores by Sales in the US
According to Supermarket News, a retail trade publication, the two companies with the largest grocery stores sales in 2020/21 were Walmart (through their Walmart Supercenters and Sam’s Club brands) and Amazon (through their Whole Foods, Amazon Fresh, and Amazon Go brands). Their sales were $434B and $236B respectively. While there is no doubt that these are major forces in the grocery business (and tenants in properties that we own), they are a tricky comp because they are not pure grocers. These companies dominate the U.S. retail industry and the broader retail market because they sell a variety of retail goods, including clothing, electronics, and sporting goods.
The largest pure play grocer is the Kroger Company, who reported retail sales of $132.5B in 2020/21 according to the same report. Kroger has a diverse, nationwide portfolio of grocery stores that include popular brands like Kroger, City Market, King Soopers, Ralphs, and Harris Teeter.
Rounding out the top 10 grocery stores by sales are: Costco, Walgreens, Target, CVS, Albertsons, Ahold Delhaize USA (Food Lion, Hannaford, Peapod), and Publix. Again, it is important to note that there is a difference between pure grocers like Publix and retail companies who sell some groceries, like Walgreens and CVS.
To read more about the top 50 grocery stores by sales volume, click here.
Why Do Sales Matter?
Bringing the focus back to commercial real estate investment, the sales performance of major grocers/food stores matters because it has an impact on the grocery store anchor’s ability to pay rent and it is an indication of consumer grocery shopping behavior.
As an investor who specializes in grocery store anchored retail centers, we spend a significant amount of time analyzing an anchor tenant’s sales performance and profitability to identify the amount of credit risk that they present to a property. If they are financially sound and have a long history of profitable operations and on time rent payments, we can feel more comfortable with them as the anchor. For example, we own multiple centers where Whole Foods is the anchor tenant. Given their multi-decade track record of profitable operations, we are comfortable with them.
But, Don’t Forget About The People
Although they aren’t the biggest stores by sales volume, certain grocery store chains are famous for the devotion of their customers. According to a recent report from ASCI, Trader Joes, Publix, H-E-B, and Wegmans rank as the grocery stores with the highest customer satisfaction scores. So, it should come as no surprise that centers where these stores are the anchor tenants also tend to fetch the highest prices upon sale.
Final Thoughts on Grocery Store Sales
At First National Realty Partners, we specialize in the purchase and management of grocery store anchored retail centers.
A grocery store anchored center is defined as one where a grocery store is the largest tenant. As such, the success of the center is highly dependent upon the anchor’s ability to pay their rent, on time, every month.
Fortunately the grocery business is a good one because demand for its products are evergreen, which means that their sales and profitability are remarkably consistent through all phases of the economic life cycle, and their location in the community makes them an ideal last mile distribution point for home deliveries.
The bulk of the grocery market share is dominated by chain stores, which is reflected in total grocery sales. Companies like WalMart, Kroger, and Amazon are the largest grocery stores by sales volume. But, companies like Publix, Trader Joes, and H-E-B are customer favorites.
Grocery store sales matter because they are an indicator of tenant health. As commercial real estate investors, our primary concern is the tenant’s ability to pay their rent. Grocery store sales with a high sales growth rate, coupled with promising forecasts are an indication that they are an acceptable credit risk.
Interested In Learning More?
First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. With an intentional focus on finding world-class, multi-tenanted assets well below intrinsic value, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in.
If you would like to learn more about our commercial real estate investment opportunities, contact us at (800) 605-4966 or info@fnrealtypartners.com for more information.
