Will Supermarkets Come Full Circle?

by Shawn MacDonald

Picture this scenario. A satisfied customer is heading to her car with a shopping cart containing recent purchases. Shoes, a new dress, children’s clothes, milk, bread, Idaho potatoes, ground beef, and other food-related items. Is she shopping at Walmart, Target, Mejier? Nope, in fact, it is your local regional mall. What?? You mean the one with the department store anchors? That’s right!

As a young co-manager with The Kroger Company in Ann Arbor, Michigan, I was having a conversation with our Head Cashier who had been working with the company for 30-plus years. I was surprised to find out that she began her career at the old Arborland Mall store…ahhh, venerable Arborland.! This was the early 1990’s and the center was way past its prime. Opened in 1961, it was the first regional mall constructed by The Taubman Company, whose anchor tenants also included JCPenney and Montgomery Ward. By 1990, the mall was largely vacant, and was anchored by Burlington Coat Factory, Service Merchandise and Marshalls.

A half decade later, I was a “green” supermarket analyst, learning the ropes of retail site location. My mentors continually impressed many industry constructs upon me, none more important than supermarkets are a “convenience-based concept”. So, I asked why then would Taubman choose a supermarket as one of Arborland’s anchor tenants? To my surprise, I was informed that in the early years of shopping center development (late 1950’s through 1960’s), supermarkets were indeed popular with mall developers. In fact, they were relied upon to drive other businesses in the mall. So, what happened in the in the intervening years? The answer can be summed up in two “s” words – scale and success!

At 350,000, Arborland was a sizable shopping center for the day, but at the time was not enclosed. An “L-shaped” structure, it resembled many of community-type shopping centers of today where the vast majority of tenants are accessible to the parking lot. Over the years, as regional malls became much larger and enclosed with limited access-points to interior stores, they were also surrounded by an “ocean of parking spaces.” In addition to the loss of convenience, mall owners were able to charge higher rents and common area fees due to the success of the malls with shoppers. So, by the early 1970’s, supermarkets were being replaced by department stores as mall anchors.

Fast-forward to 2010…they’re baaacckk!! With a glut of retail vacancies plaguing them, shopping center developers are wooing supermarkets to fill some highly unconventional spaces…including ones in regional malls. Again, what has happened in the intervening years that would make supermarkets desirable anchor tenants? Are supermarkets no longer convenience-based? The truth is, they are still convenience-based operators, so in order to succeed as anchors, niche supermarkets may offer the best prospect for serving as anchor tenants and only in conjunction with a specific set of site characteristics (dedicated entrance or near a mall entrance, for example).

Aldi’s decision to locate a unit in a former restaurant space at Westfield’s Chicago Ridge Mall has fueled much of this discussion. After being denied an opportunity to locate just outside the mall, Aldi agreed to open the unit within the enclosed mall. Is this the start of a new trend? Only time will tell, but Westfield is touting on the mall’s website that they are “redefining convenience”.

So, will other mall developers rush to entice supermarkets to vacant interior spaces? In a recent blog entry, industry veteran Murray Shor weighed in on this topic . Succinctly put, Mr. Shor concedes that supermarkets may be best-suited for former big-box” locations on mall outlots. While I agree, I’ll take it a step further… only specialty or niche grocers like Whole Foods, Trader Joe’s, The Fresh Market, Save-A-Lot and Aldi, as well as certain operators such as Wegmans or Byerly’s really fit the bill. Each of these grocers are more “destination-oriented” than traditional supermarkets like Kroger, Safeway, or Albertsons, which stand less of a chance overcoming challenges such traffic congestion, insufficient parking, and inconvenient traffic flows associated with regional mall.

Will supermarkets come full circle? The debate is in its infancy, and will be sorted out in the coming years. For me, let discounters like Walmart and Target gobble up the empty spaces within regional malls like they have been for the past 10 years or so and confine supermarkets to the more convenience-based shopping centers. Surveys have shown that most people define grocery shopping as a “necessary evil”, so why make even less desirable to them?!