Supermarkets' anchor role at a crossroads

Posted On Wednesday, 19 November 2003 02:00 Published by
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The role of supermarkets as anchor stores in major retail developments is at a crossroads, says Ian Watt, managing director of Old Mutual Properties.

The role of supermarkets as anchor stores in major retail developments is at a crossroads, says Ian Watt, managing director of Old Mutual Properties.

He says landlords and retailers are there to meet the needs of the shopper and to do this they need to work together.

“The advent of more convenience stores, garage shops and free standing food stores is eroding the amount of time required for supermarket shopping. Expect this to be further eroded by etailing as more and more shoppers, with less time on their hands, seek out more pleasurable ways to spend their hours.

“More and more people today eat out more frequently.  Many families where both partners work, do not relish coming home and then having to cook so they go for prepared meals more frequently.

“People are looking for much more convenience when shopping supermarkets for the basics.   They are gravitating to more experiential shopping for the unique experience, particularly in the smaller deli styled operations or farm produce stores which with their value add food offering are changing the face of food shopping.   It's no longer just about the basics.”

Watt says a drop in average visiting times at US supermarkets from 40 minutes 10 years ago to 27 minutes is mirrored by Old Mutual Properties’ exposure to purely supermarket anchored centres in South Africa.  

“In contrast, our regional shopping centres have dwell times of 150 minutes plus.”

“Moreover, the time people start shopping is getting later and later. Our research shows that most of our centres really only start to function after 10 am and reach peak visits later in the day, often after 4 pm. This is in line with the move to later shopping hours and 7 pm is more the norm today with many of the regional centres moving towards 9 pm.

“Entertainment driven centres are finding that this could even be extending to 10 pm. But are these later times conducive to large supermarket shops?   On the contrary, convenience is what it's about.   If you can cater for the big special shop while also catering for the more specialist food shop you have a greater chance of success.”

Watt says the thought that supermarket rentals are in fact no higher in real terms than they were 30 years go is a sobering one. 

“Supermarkets need to consider how efficiently they use each square metre of retail space in higher foot traffic centres where higher turnover should be achieved.   They cannot expect to pay the same rental as on a less efficient or productive location. 

“The concept of passing on costs of fixturing and finishing supermarkets, with ever increasing specifications of finishes, which the landlord is expected to finance with no increase in rental is not sustainable. The pretext that the supermarket draws the feet and should be subsidised by rentals paid by the smaller tenants needs to change. The challenge is for supermarkets to see if they can build freestanding stores, using finance on the terms they are prepared to pay in super regional centres, and see if they work. We have established that fewer than 20% of the visits in our centres end up in the supermarket.”

Watt says the shopping centre is a homogeneous facility requiring all retailers to respond to cater for shopper needs. 

“Today supermarkets are avoiding paying a proportionate shares of rates and taxes. Neither do they wish to contribute to centre security costs nor the cost of providing good and functional unimpeded parking.   They want parking for nothing and expect the smaller tenants to pay for this and more. Occupation costs for supermarkets are almost half what they are in European markets.

“There is a lot of talk about the landlord and the majors not taking an interest in the other's business.   The first interest at all times is the customer and understanding what the customer wants is the most important aspect.   To use the customer as a pawn in playing other games is not what it should be about.   Instead of the retailer thinking that they are the only ones who know what the customer wants by prescribing what they should have, it becomes very important to understand the real needs and wants of customers.   Both the retailers and landlord need to work together to find a solution rather than trying to upstage one another.”

Watt says landlord - retailer co-operation has been successfully demonstrated with Woolworths at Cavendish Square, Cape Town.

“The negative impact of a poorly trading major in the centre was significant on neighbouring small retailers, underlining their dependence on the majors to attract numbers of the right shoppers. Small retailers, on their own, would not have been sufficient to grow sales to maintain the success of the centre. The decision to include Woolworths has seen overall sales volumes in the centre grow by 50% with a growth in foot traffic of 5%. This shows shoppers needs have not previously been sufficiently catered for. The impact on the adjoining shops has also been extremely positive.”

Watt says there is a role for supermarkets in major shopping centres.

“It’s just important to understand their role and ensure that the deal is equitable for all parties. Generally we have found that there is an increasing willingness and understanding to try to work together. However that has not quite worked through to the rental and running costs, but we’re working on it.”




ISSUED FOR Old Mutual Properties

BY Michael Kerkhoff & Associates

INQUIRIES Ian Watt 021-530-4537

                   Mike Kerkhoff 021-424-5280

Publisher: Old Mutual Properties
Source: Michael Kerkhoff and Associates

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