Are Grocery Stores and Supermarkets Good Investments?

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Key Takeaways

  • The case for a grocery store investment contains three major arguments.  First, they sell food products, which are essential items that we all need to survive.  As a result, the demand is, and will always be, evergreen.  
  • Second, grocery stores have proven to be remarkably resilient in the face of e-commerce driven disruption in the retail market.  This is due to individual customer preferences and the preferred routine of the shopping experience.  
  • Finally, grocery stores have proven to be remarkably adaptable to changes in customer shopping behavior.  For example, many have shifted their product mix to include organic food items.  Or, they have invested heavily in the online grocery shopping experience and have even begun to offer delivery services.

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When reviewing different real estate asset types, you may be wondering what makes each one a unique investment opportunity. Here at FNRP, we specialize in grocery anchored retail centers and know a thing or two about why this may be an asset type for investors to consider.

There are three main reasons why grocery stores can be a good investment: demand, resiliency, and adaptability.

1. There Will Always Be a Need for Grocery Stores

The most compelling argument for grocery store investment is also the simplest one: demand. Grocery stores sell food, which is something that we all need, every day, to survive. As a result, there is, and will always be, a constant demand for the items that grocery stores sell. Because the demand is evergreen, the grocery business is historically stable. However, it is also a historically competitive business, so we like to look for experienced operators who have a long track record of success.

2. Grocery Stores Are Resilient

There are several unique features of the grocery business that make it remarkably resilient to the type of e-commerce driven disruption that has been so challenging for other retailers. First, food preferences are uniquely individual. Shoppers like to feel the ripeness of a piece of fruit or purchase just the right cut of meat.

Many customers like to shop in store and in person to get the items that are most suitable for their individual preferences. Second, many grocery items are perishable. Things like dairy products and meat can spoil if not constantly refrigerated. As a result, some types of groceries can be difficult to ship safely. The alternative is to shop in store or to buy online and pick up in store. Finally, the grocery shopping experience is something that is part of the normal routine for millions of shoppers. These routines can be difficult to break, and as grocery stores expand their product offerings to include things like banking services and gasoline, they are also incredibly convenient.

3. Grocery Stores Are Adaptable

Grocery stores have proven to be incredibly adaptable as shopping habits change.

Look no further than the changes that were made to ensure the safety of shoppers during the coronavirus pandemic. Many stores implemented things like enhanced sanitization procedures, one-way aisles, dedicated shopping hours for the most vulnerable shoppers, and buy online/pick up in store shopping options. For example, Amazon-owned Whole Foods is a grocer that has invested heavily in their digital shopping capabilities. When these capabilities are combined with Amazon’s logistical expertise and extensive last mile grocery delivery network, the number of shopping and delivery options for customers is greatly enhanced. This is one of the reasons we are proud to have Whole Foods as a tenant at Cedar Center South in University Heights, OH.

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