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Grocery Store Trends
Open Air Conference
Miami, Florida
March 2, 2017
Ted FrumkinChief Development Officer Sprouts Farmers MarketPhoenix, Arizona
Jeff ChamberlainSVP Real Estate and Facilities Publix SupermarketsLakeland, Florida
Joe McKeskaPresidentElkhorn Real Estate PartnersOak Brook, Illinois
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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 takeawaysfor landlordsand investors
Q&A
Grocery Store Trends2017 ICSC OAC Miami
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Changes in the Grocery Retailing Landscape 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
Grocery Store Trends2017 ICSC OAC Miami
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
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Grocery Store Trends2017 ICSC OAC MiamiChanges in the Grocery Retailing Landscape
Source: Coca Cola Retail Research Council Report January 2017
Source: Coca Cola Retail Research Council Report January 2017
Source: The race to reinvent grocery shopping by Bricks Meets Clicks – January 2017
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Traditional Grocery Retail Impacts and Priorities
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
Grocery Store Trends2017 ICSC OAC Miami
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
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Grocery Store Trends2017 ICSC OAC MiamiTraditional Grocery Retail Impacts and Priorities
Source: Coca Cola Retail Research Council Report January 2017
Source: Walmart Corporate Web Site, Walmart Pickup – Grocery Facility in Bentonville, AK
Source: Experian Lifestyle Segmentation
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Industry Growth and Investment Trends 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
Grocery Store Trends2017 ICSC OAC Miami
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
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Grocery Store Trends2017 ICSC OAC MiamiIndustry Growth and Investment Trends
Source: Walmart 10/16 Investor Presentation
230 130 55Walmart Number of New Stores (US) =
2015 2016 2017
Source: Photo by Neil Stern: Aldi Takes a (slight) Detour on Road to 2000 US Stores – Forbes 2/17
Project Type 2013 2014 2015 2016 TotalsNew Stores 17 33 31 50 131Relocations 7 12 12 20 51Closures (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 TotalsMajor Remodels 158 156 183 150-170Minor Remodels 190 221 246 -Total Remodels 348 377 429 ?Source: Kroger 11/16 Investor Conference Presentation
Kroger New Store & Remodel Project Counts 2013 - 2016
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Grocery Store Trends2017 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
Mergers and Acquisitions Trends
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
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Grocery Store Trends2017 ICSC OAC MiamiMergers and Acquisitions Trends
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10
14
5
7
1
6
3 3
1
0
2
4
6
8
10
12
14
16
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of Supermarket Bankruptcies by Year
1,012671 764 979
877 1,335
3,400
130
749510
1,889 2,006
4,164
979
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2010 2011 2012 2013[1] 2014[1] 2015[1] 2016Stores Sold Stores Sold Through Large Transactions[1]
Stores Sold
Source: The Food Partners NGA
Presentation 2/17
Source: The Food Partners NGA
Presentation 2/17
Supermarket Bankruptcy Detail
Company Date FiledNo. of Stores
State Filed Status
Fairway Group Holdings Corp. 5/3/2016 15 NY EmergedFresh & Easy 10/30/2015 97 DE LiquidatedHaggen 9/9/2015 164 DE SoldThe Great Atlantic & Pacific Tea Co. 7/19/2015 297 NY LiquidatedDahl's Foods 11/10/2014 10 IA SoldAssociated Wholesalers 9/9/2014 n/a DE SoldFarmers Foods (Highland Springs and Webb) 6/2/2014 2 VA ClosedC&K Market 11/19/2013 60 OR EmergedFresh & Easy Neighborhood Market 9/30/2013 167 DE SoldMidwest Gourmet Foods (Fox & Obel) 9/19/2013 1 IL UnknownMi Pueblo San Jose 7/22/2013 21 CA EmergedBelle Foods 7/1/2013 57 AL SoldPro's Ranch Markets 5/29/2013 11 CA SoldLiborio Market 4/13/2012 8 CA LiquidatedMichael’s Fresh Market 12/30/2011 7 IL UnknownAssociated Grocers of Maine 8/26/2011 n/a ME DismissedAzteca Ranch Market 8/1/2011 n/a CO LiquidatedMoo & Oink 8/24/2011 4 IL LiquidatedAndronico's Market 8/22/2011 7 CA SoldA.G. Ferrari Foods 3/30/2011 13 CA SoldRizk-Co-Zann Foods Corporation 3/10/2011 1 PA Dismissed
4
1812
30
43
71
16 14 13
26
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013[1] 2014[1] 2015[1] 2016
Avg. Stores per Trx. Avg. Stores per Trx. (Excl Large Trx)[1]
Average Stores per Transaction
Source: The Food Partners NGA
Presentation 2/17
[1] Albertson’s, Safeway and Delhaize acquisitions in 2013, 2014 and 2015, respectively
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Key Takeaways for Landlords and Investors
Grocery Store Trends2017 ICSC OAC Miami
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Q&A
Grocery Store Trends2017 ICSC OAC Miami
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Grocery Store Trends2017 ICSC OAC Miami
Jeff ChamberlainJeff 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 FrumkinTed is the Chief Development Officer for Sprout’s Farmer’s Market. He served as their Senior Vice President ofBusiness Development since joining Sprouts in December 2012 after spending his last 11 years at Staples as the VicePresident 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 estatemanagement positions with Las Vegas Discount Golf & Tennis, Taco Bell, Wal-Mart, Office Depot, and Rubio’sRestaurants. Over his career, Ted has added over 5,000,000 square feet of retail space and over 150 restaurantoutlets across the United States. He has taught Retail Site Selection and Negotiation for the Institute of CorporateReal Estate and currently holds a Master of Corporate Real Estate with Honors designation from the InternationalAssociation of Corporate Real Estate Executives (NACORE). Ted has a Bachelor’s of Fine Arts degree from TexasChristian University and an MBA from Florida International University. Ted currently resides in Scottsdale, AZ.
Joe McKeskaJoe is the president and co-founder of Elkhorn Real Estate Partners which is an advisory and investment firm based inOak Brook, Illinois specializing in assisting retailers and retail investors in analyzing and creating value from their realestate portfolios in alignment with their broader business strategy. Prior to co-founding Elkhorn Real EstatePartners, Joe was Senior Vice President of Real Estate for Southeastern Grocers (Winn Dixie, Bi-Lo, and Harvey’sbanners). He was the company’s executive team leader for all real estate related functions with oversight of a40MM square foot portfolio. McKeska also spent 17 years in various real estate positions with Supervalu, Inc. and itspredecessor companies including Albertsons, Inc. and American Stores Company where his last position was GroupVice President of Real Estate in which he was responsible for a portfolio of 1,500 stores totaling approximately90MM square feet. He is a graduate of the University of Illinois with a B.S. in Real Estate Finance and also obtained aM.B.A. in Finance from the Kellogg Graduate School of Business at Northwestern University.
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