Grocery Store Trends Open Air Conference Miami, Florida March 2, 2017 - Elkhorn Real Estate Partners
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Grocery Store Trends
Open Air Conference
Miami, Florida
March 2, 2017
Ted Frumkin Jeff Chamberlain Joe McKeska
Chief Development Officer SVP Real Estate and Facilities President
Sprouts Farmers Market Publix Supermarkets Elkhorn Real Estate Partners
Phoenix, Arizona Lakeland, Florida Oak Brook, Illinois
Grocery Store Trends
2017 ICSC OAC Miami
Trends in Grocery Retailing – Major Themes
Changes in the grocery retailing landscape
Traditional grocery retail impacts and priorities
Industry growth and investment trends
Mergers
and
acquisitions
trends
Key takeaways
for landlords
and investors
Q&A
2
Grocery Store Trends
Changes in the Grocery Retailing Landscape 2017 ICSC OAC Miami
Grocery shopping transformation
being driven by the collision of
changes in demographics, shopping
behavior, and technology
Changes include ethnic, cultural,
socioeconomic, and generational
Technology enabling and driving
rapidly changing channel and format
disintermediation
Aggressive new competitor entry
such as meal subscription services,
boutique restaurants, and non-
traditional retailers selling food
Continued increase in the number of
channels through which consumers
purchase food
Includes increase in digital and e-
commerce options available to meet
changing consumer expectations
3
Grocery Store Trends
Changes in the Grocery Retailing Landscape 2017 ICSC OAC Miami
Source: The race to reinvent grocery shopping by Bricks
Meets Clicks – January 2017 Source: Coca Cola
Retail Research
Council Report
January 2017
Source: Coca Cola
Retail Research
Council Report
January 2017
4
Grocery Store Trends
Traditional Grocery Retail Impacts and Priorities 2017 ICSC OAC Miami
Physical stores will continue to drive vast
majority of sales for foreseeable future
According to recent Coca Cola Retail
Research Council report, grocery
shopping in the future will become much
more omnichannel and omniformat,
lifestyle driven, highly personalized, and
digitally integrated
E-commerce still only 2% of sales but
growing rapidly with recent Nielsen and
Food Marketing Institute (FMI) study
projecting that e-commerce may capture
20% of the food-at-home market by
2025
Certain categories are more vulnerable and will erode more quickly with the
Nielsen/FMI projecting 40% of center store grocery categories moving on-line
New formats and channels will not only impact sales, but will also pressure
profit margins given venture capital funding/loss leader approach and high brick
and mortar fixed and variable operating costs
5
Grocery Store Trends
Traditional Grocery Retail Impacts and Priorities 2017 ICSC OAC Miami
Source: Experian
Lifestyle Segmentation
Source: Coca Cola
Retail Research
Council Report
January 2017
Source: Walmart Corporate Web Site, Walmart Pickup – Grocery Facility in Bentonville, AK
6
Grocery Store Trends
Industry Growth and Investment Trends 2017 ICSC OAC Miami
Heavy focus on improving existing
business models to increase
competitiveness
Numerous initiatives and investments
in improving traditional points of
differentiation such as quality/price
equation, fresh departments, and
overall shopping experience
Resultant brick and mortar investment
priorities include remodeling existing
stores and replacing older stores to
implement initiatives thereby
improving productivity and profitability
of retail square footage
New store growth taking place but slowing and mostly limited to in-market
opportunistic or new market growth in alignment with longer term strategies
Capital savings being shifted to digital and e-commerce platforms to better
compete given accelerating changes in shopping behavior and consumer
expectations
7
Grocery Store Trends
Industry Growth and Investment Trends 2017 ICSC OAC Miami
Walmart Number of 2015 2016 2017
New Stores (US) = 230 130 55
Source: Photo by Neil Stern: Aldi Takes a (slight) Detour on Road to
2000 US Stores – Forbes 2/17 Source: Walmart 10/16 Investor Presentation
Kroger New Store & Remodel Project Counts 2013 - 2016
Project Type 2013 2014 2015 2016 Totals
New Stores 17 33 31 50 131
Relocations 7 12 12 20 51
Closures (28) (48) (37) (17) (130)
New Stores (1) (4) (3) 6 53 52
(1) Excludes acquisitions % Increase from 2013 = 1.97%
Project Type 2013 2014 2015 2016 Totals
Major Remodels 158 156 183 150-170
Minor Remodels 190 221 246 -
Total Remodels 348 377 429 ?
Source: Kroger 11/16 Investor Conference Presentation
8
Grocery Store Trends
Mergers and Acquisitions Trends 2017 ICSC OAC Miami
According to a recent study completed by the
Food Partners, the number of bankruptcies has
remained fairly constant since 2010
The number of stores being acquired has
increased during this time even accounting for the
three largest transactions
Grocery retailers and strategic private equity
players are becoming more willing to
invest/acquire both e-commerce companies and
unique formats
Notwithstanding Walmart (e.g. - Jet.com), this is
still nascent as most retailers are focusing on
either developing these capabilities internally or
partnering with third parties to deliver the same
All of this points to continuing industry consolidation as competitiveness and
pressures on brick and mortar retailers increases at an accelerating pace
Near term M&A activity will most likely be in the arena of local and regional
chains and smaller independents given that the logical large consolidations have
been completed over the last few years including ABS/Supervalu, ABS/Safeway,
and Ahold/Delhaize
9
Grocery Store Trends
Mergers and Acquisitions Trends 2017 ICSC OAC Miami
Number of Supermarket Bankruptcies by Year Average Stores per Transaction
16 80
Source: The Food Source: The Food 71
14
14 Partners NGA 70 Partners NGA
Presentation 2/17 Presentation 2/17
12 60
10 50
43
40
8 7 30
6 30
6 5 18 26
4 20 12
4 3 3 16 14
10 4 13
2 1 1 1
0 0
0 2010 2011 2012 2013[1] 2014[1] 2015[1] 2016
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Avg. Stores per Trx. Avg. Stores per Trx. (Excl Large Trx)[1]
[1] Albertson’s, Safeway and Delhaize acquisitions in 2013, 2014 and 2015, respectively
Supermarket Bankruptcy Detail
No. of State
Stores Sold
Company Date Filed Stores Filed Status
Fairway Group Holdings Corp. 5/3/2016 15 NY Emerged 4,500 4,164
Fresh & Easy 10/30/2015 97 DE Liquidated Source: The Food
Haggen 9/9/2015 164 DE Sold 4,000
Partners NGA
The Great Atlantic & Pacific Tea Co. 7/19/2015 297 NY Liquidated
3,500 Presentation 2/17
Dahl's Foods 11/10/2014 10 IA Sold
Associated Wholesalers 9/9/2014 n/a DE Sold 3,000
Farmers Foods (Highland Springs and Webb) 6/2/2014 2 VA Closed
2,500 3,400
C&K Market 11/19/2013 60 OR Emerged 2,006
Fresh & Easy Neighborhood Market 9/30/2013 167 DE Sold 1,889
2,000
Midwest Gourmet Foods (Fox & Obel) 9/19/2013 1 IL Unknown
Mi Pueblo San Jose 7/22/2013 21 CA Emerged 1,500 877 1,335 979
Belle Foods 7/1/2013 57 AL Sold 1,000 749
Pro's Ranch Markets 5/29/2013 11 CA Sold 510
Liborio Market 4/13/2012 8 CA Liquidated 500 130 1,012 764 979
671
Michael’s Fresh Market 12/30/2011 7 IL Unknown 0
Associated Grocers of Maine 8/26/2011 n/a ME Dismissed 2010 2011 2012 2013[1] 2014[1] 2015[1] 2016
Azteca Ranch Market 8/1/2011 n/a CO Liquidated Stores Sold Stores Sold Through Large Transactions[1]
Moo & Oink 8/24/2011 4 IL Liquidated
Andronico's Market 8/22/2011 7 CA Sold
A.G. Ferrari Foods 3/30/2011 13 CA Sold
Rizk-Co-Zann Foods Corporation 3/10/2011 1 PA Dismissed 10Grocery Store Trends
2017 ICSC OAC Miami
Key Takeaways for
Landlords and Investors
11Grocery Store Trends
2017 ICSC OAC Miami
Q&A
12Grocery Store Trends
Speaker Biographies 2017 ICSC OAC Miami
Jeff Chamberlain
Jeff is Senior Vice President of Real Estate and Facilities at Publix Super Markets. He is currently a board member for
Enterprise Florida, Publix Employee’s Federal Credit Union, Lakeland Economic Development Council and Chair of
Lakeland’s High Skill/High Wage Recruitment Program.
Ted Frumkin
Ted is the Chief Development Officer for Sprout’s Farmer’s Market. He served as their Senior Vice President of
Business Development since joining Sprouts in December 2012 after spending his last 11 years at Staples as the Vice
President of Real Estate. Ted is responsible for all aspects of the company’s new store growth managing real estate,
construction, property management and facility maintenance. Prior to joining Sprouts, Ted held various real estate
management positions with Las Vegas Discount Golf & Tennis, Taco Bell, Wal-Mart, Office Depot, and Rubio’s
Restaurants. Over his career, Ted has added over 5,000,000 square feet of retail space and over 150 restaurant
outlets across the United States. He has taught Retail Site Selection and Negotiation for the Institute of Corporate
Real Estate and currently holds a Master of Corporate Real Estate with Honors designation from the International
Association of Corporate Real Estate Executives (NACORE). Ted has a Bachelor’s of Fine Arts degree from Texas
Christian University and an MBA from Florida International University. Ted currently resides in Scottsdale, AZ.
Joe McKeska
Joe is the president and co-founder of Elkhorn Real Estate Partners which is an advisory and investment firm based in
Oak Brook, Illinois specializing in assisting retailers and retail investors in analyzing and creating value from their real
estate portfolios in alignment with their broader business strategy. Prior to co-founding Elkhorn Real Estate
Partners, Joe was Senior Vice President of Real Estate for Southeastern Grocers (Winn Dixie, Bi-Lo, and Harvey’s
banners). He was the company’s executive team leader for all real estate related functions with oversight of a
40MM square foot portfolio. McKeska also spent 17 years in various real estate positions with Supervalu, Inc. and its
predecessor companies including Albertsons, Inc. and American Stores Company where his last position was Group
Vice President of Real Estate in which he was responsible for a portfolio of 1,500 stores totaling approximately
90MM square feet. He is a graduate of the University of Illinois with a B.S. in Real Estate Finance and also obtained a
M.B.A. in Finance from the Kellogg Graduate School of Business at Northwestern University.
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