The grocery sector of retail real estate has long been volatile, but things seem to be especially ramping up right now.
The latest news is that Germany-based discount outlets Aildi and Lidl are making major pushes into the United States. Aldi already has a pretty significant presence in the country. with 1,400 stores in 32 states, but it wants to pump it up to 2,000 stores by 2018, spending $3 billion, and making a significant push into Southern California.
Meanwhile, Lidl, which currently has no U.S. stores, but thousands in other parts of the globe, plans to enter the market by 2018.
Two two chains have wreaked havoc in the United Kingdom, due to their ability to sell items at very low margins compared to traditional grocers such as Tesco. If their formula works in the United States, it could put significant pressure on traditional national grocers, such as Kroger, Albertsons and SuperValu, which are already feeling pressure from the discount end by Walmart and other discounters, dollar stores and drug stores that are selling more groceries. Whole Foods Market, Sprouts Farmers Market, Trader Joe’s, as well as several successful regional chains are also hurting the traditional supermarkets on higher-end items.
But not every European discount chain that has entered the United States has knocked the ball out of the park. Fresh & Easy, a Britain-based Tesco chain, announced earlier this year it is closing 30 of its 167 units, all of which are on the West Coast. When it came into the country, there were hopes that the concept’s low prices would attract consumers here, and Fresh & Easy would make its way toward the East Coast, but that plan never caught fire.
Meanwhile, other than the squeeze that the Krogers and Albertsons are facing, there is some other volatility happening domestically. When Albertsons merged with Safeway last year, it sold 146 stores, as a result of court order, to Washington-based chain Haggen. Haggen went from a small operation with 18 stores in the Northwest, to a retailer with with nearly 170 stores in those states and California. Now Haggen has closed 27 stores and filed for bankruptcy.
But two companies that own traditional U.S. supermarket chains are now fighting back. Dutch company Ahold is purchasing Belgium-based Delhaize in a deal valued at $28 billion. This is significant because Ahold owns Stop & Shop and Giant, while Delhaize operates Food Lion and Hannaford, and the new entity’s combined U.S.-supermarket units will create a chain with about 2,000 stores, making it one of the largest in the country and giving it significant buying power.
So, there is plenty of activity in the grocery sector right now. It will be exciting to see how things shake out and what the landscape will look like in the next few years.
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