The pandemic put a spotlight on essential retailers, and despite a resurgence across nearly all retail categories, the grocery sector remains top of mind for investors. Shopping Center Business recently reached out to Tom Georges, director in Stan Johnson Co.’s New York office, to discuss current trends impacting the single- and multi-tenant grocery industry and explore why European discount grocer ALDI has emerged as a growth leader.
SCB: How strong is demand for grocery retailers in today’s market? Why?
Georges: Over the past two years, several retail categories have proven themselves to be pandemic resistant, and the essential nature of grocery stores puts them right at the top of that list. With today’s sparsely stocked shelves, labor shortages at food processing companies and increased freight costs, however, grocery stores are faced with their fair share of challenges. But for investors, the grocery sector is driving significant demand. Grocery leased properties are highly sought-after properties for commercial real estate investors — not only do most customers still prefer to shop in person or have their online orders fulfilled by curbside pick-up, but grocery anchors help drive foot traffic to other inline retailers. Across the country, we’ve seen freestanding, single-tenant grocery stores as well as grocery-anchored shopping centers become very desirable portfolio additions. And within the single-tenant net lease sector, one of the most in-demand brands is discount grocery retailer, ALDI.
SCB: What’s driving ALDI’s rapid expansion and what regions are they targeting for growth?
Georges: With over 2,150 stores in 38 states, ALDI is one of America’s fastest growing retailers across any sector. Within the grocery sector, the company’s current plans for expansion put it among the largest brands by store count, already exceeding Ahold Delhaize’s (Food Lion, Stop & Shop and Hannaford) 1,029 U.S. locations, and quickly approaching Albertsons Cos. Inc. and The Kroger Company store counts, which are 2,260 and 2,800 respectively. Germany-based ALDI, with U.S. headquarters in Batavia, Illinois, is a price-driven brand which attracts the value conscious consumer. Furthermore, with their unique brands and quirky characteristics, they’ve amassed a loyal following, with consumers in underserved markets hoping for a grand opening announcement. In addition to wanting to serve their customer base, another driving factor in ALDI’s rapid expansion is looming competition from Lidl, another European grocer who’s announced expansion plans for U.S. markets. While Lidl’s ramp up hasn’t been as fast as originally predicted, ALDI hasn’t slowed down. Currently, 20 states have planned store openings in the near future with Chicago, Illinois and the Gulf Coast region seeing the most robust activity.
SCB: How is ALDI’s expansion creating opportunities for net lease investors?
Georges: With its long-term leases in the 15- to 20-year range, zero landlord responsibilities, typical 5.0 percent rent increases every five years, and well-located real estate, ALDI has become extremely attractive to net lease investors. With its rapid expansion, there are significant opportunities for investors to acquire newly built ALDI-tenanted properties. Just as a dollar store can enter a market that a Walmart or other big-box retailer cannot, due to lower population density, ALDI can be successful because of its smaller format and low-cost business model. With floorplates typically under 20,000 square feet, or roughly the size of a drugstore, ALDI is able to effectively serve markets that its competitors cannot and adequately staff their stores with fewer employees. Combined with their quarter-for-a-cart and no bagging policies, ALDI-exclusive brand items and shorter hours, ALDI’s cost-conscious business model has been a recipe for success.