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Why invest in supermarkets

It’s a time of great evolution for the bricks-and-mortar retail industry, as the digital revolution presents challenges and opportunities for traditional sales models, with the rise of ecommerce in particular changing the retail landscape forever. Other aspects of technology, too, are playing their part, as big data and social media deepen relationships between retailers and customers. Stores know more than ever about the clients they serve – although they’re seeing them less frequently in the flesh.

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Add to that the globalisation of trends and the worldwide growth of purchasing power, and it is clear that retail has become a borderless world — at least for the consumer. Ecommerce in Europe is growing exponentially, and its market share is expected to be worth €602 billion this year — a 14% rise on 2016, according to the European Ecommerce Report 2017. But not all online purchases are equal. The research shows that while Europeans’ most favoured online purchases are mobile phones (30.1%) their least favourite remains food and beverages (1.6%). 

Shopping experience counts

The local, in-person experience currently persists as the favoured model for grocery shopping for many reasons. Consumers still prefer to select their own fruit, vegetables, meat and fish by hand. The other big issue is price, as profit margins are already slim in the grocery world, so adding professional pickers and delivery has a cost, which the consumer has largely been unwilling to absorb. While retailers have been put off by the economics, shoppers continue to build this routine but rewarding experience — involving often repetitive, fairly inexpensive purchases — into their day or week. 

Investor interest 

The low penetration of online shopping for groceries — between 1 and 3% in Europe, with considerable variation between markets — has reinforced real estate investor faith in supermarket investments, according to PATRIZIA Immobilien’s Daniel Hermann, Head of Fund Management Retail.

We believe that ecommerce won’t have a big impact on food retail in Germany, unlike other types of retail.

“Since 2012-2013, we have sought to build up a major food-anchored retail portfolio in Germany. At the time, PATRIZIA had around €500 million invested in all kinds of retail assets, now we have more than €2 billion in food retail which is about 50% of our current total retail exposure,” Hermann said. “We’re keen on grocery-anchored retail schemes for a number of reasons: the large food retail tenants here in Germany are blue chip companies with a strong trading performance and we consider the quality of rental income as very high. In addition, we believe that ecommerce won’t have a big impact on food retail in Germany, unlike other types of retail. Customers like going to supermarkets in Germany, with just 1% of food shopping happening online there, compared to 3.4% in the UK. We expect that will increase over time as well in Germany, but not by a large amount.” 

It might sound strange, but for us it’s sometimes easier to source the larger portfolio deals for our separate mandates.

He added: “For our existing funds, we typically acquire retail properties in the €15 to €45 million range, but due to the lack of products and rising competition they’re becoming hard to find. It might sound strange, but for us it’s sometimes easier to source the larger portfolio deals for our separate mandates as we can bring large amounts of capital into action, moving quickly even in non-standard and special situations.” 

“Despite subdued retail investment activity generally, the food store market has recovered a large amount of ground and is proving increasingly popular with investors,” said James Watson, Head of Retail Capital Markets at Colliers International. “Confidence has returned to the sector; retailers are beginning to take new stores again and we expect transactional volumes to be well ahead of last year.”

Investing in supermarkets 

Colliers reports that in the first half of this year, supermarket investments in the UK alone rose by 20% year on year, reaching a total of £727 million. A dedicated grocery-focussed investor, Supermarket Income REIT, raised £200 million (€227 million) via an initial public offering this summer on the specialist fund segment of the London Stock Exchange’s main market, with a plan to acquire a diversified portfolio of supermarket real estate assets across the UK, underlining this trend.  “The supermarket sector currently represents a compelling real estate opportunity. Supermarkets provide secure, long-term income combined with the potential for substantial capital growth,” said Nick Hewson, chairman of Supermarket Income REIT. Elsewhere, Bouwfonds IM revealed plans to assemble a real estate investment portfolio worth €250 million focussing on Dutch convenience shopping, including shopping centres comprising one or more supermarkets and clusters of convenience stores, while Bayerische Versorgungskammer (BVK) launched a new German supermarket and retail centre fund, acquiring an initial portfolio of 46 properties.

At 41%, Germany accounts for the lion’s share of investment activity into the sector.

Meanwhile, new data from Savills on retail warehousing volumes — including hypermarkets, supermarkets, retail parks and stand-alone units in Europe — shows that investment has been rising at a significant pace (38% pa on average) since the bottom of the market in 2009. Indicatively the total volume last year (€11bn) was 4.2 times higher than the total in 2007. The highest increases over the past decade were noted in Germany (8.8 times) and Sweden (5.7 times). According to Savills, Germany accounts for the lion’s share of investment activity into the sector, at 41%, confirming its safe haven status for investors. The UK follows in second place at 27%, with an estab-lished but evolving retail warehousing sector that is ahead in the cycle of structural change.

Importantly, the newfound popularity of these assets isn’t just due to the evergreen reliability of grocery store investments, but also due to another key food phenomenon — the improvement of the food and beverage (F&B) offer in many of these locations. “Retailers and landlords realised that the changes in the retail sector were structural rather than cyclical,” said Eri Mitsostergiou, director of Savills European Research. “Out-of-town schemes needed to offer a diverse mix of product categories, wide leisure and an F&B offer plus an overall attractive environment in order to become a destination of choice.”

F&B – going glocal

Retail landlords everywhere have been focussing on improving the F&B offer in their shopping centres as the ultimate fightback against the ecommerce trend. Eating out remains one of the central pillars of the current generation’s leisure time, and diverse restaurants and snack bars — many of which draw on local tastes — have been generating improved footfall and dwell times. Unibail-Rodamco — Europe’s largest listed commercial real estate company — launched a programme to revamp its F&B offer in its centres several years ago and now includes dynamic dining areas in all of its centres to strongly differentiate from the competition. “Food halls — something between a co-working space and a dining area — have a unique draw,” said Unibail-Rodamco’s COO Jean-Marie Tritant.


After all, if fashion brands are replicated almost perfectly everywhere, food has plenty of scope for glocalisation. While many landlords are happy to ink deals with global brands such as Starbucks, Costa Coffee or Joe and the Juice, original formats and environments that can bring local flavour back into a shopping centre are proving crucial, linking retail spaces back to their communities. Another hallmark of this brave new F&B world is that it isn’t scared of an online future, promoting social media interaction, offsite ordering and being generally prepared to rip up the rule book.

Growth in food and beverage industry

Last year, F&B delivery grew 10 times faster than the rest of the retail market in the UK, for example, supported by ‘aggregator’ brands such as Deliveroo, Just Eat, Hungry House and UberEATS. Meanwhile, Amazon’s £10 billion takeover this year of US upmarket grocer Whole Foods underlines that a hitherto pure play online retailer has conceded that local experiences still have their place.  

“No doubt some will see the buyout of a major retail chain by the world’s largest etailer as another nail in the coffin for the high street. In reality, nothing could be further from the truth,” said Darren Yates, head of EMEA Retail Research & Insight at Cushman & Wakefield. “The traditional retail model is certainly undergoing a revolution, but physical products will always need physical space and, in many cases, a space to display them.” For now, it’s the humble grocery shop which looks most likely to keep tethering consumers to reality. 

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