Beer, Pizza, and Nails

JUNE 12, 2018 | THE PALOMAR GROUP

When you forget a crucial ingredient for dinner, where is the first place you go?

What about if you burn your dinner?

Odds are, you’re not going to go online and shop around for the best online option, you are going to get in your car and drive to a nearby grocery store or pizza place. No matter if you are offered 2 day delivery, free shipping and handling, or an easier time, you need to eat dinner tonight. You’re going to go find the most convenient physical retail location and shop there to save the night’s meal from disaster.

What about if you need a haircut or your nails done? While you might be able to schedule an appointment online, you will ultimately have to find a physical location to go to in order to receive the service. If a big weekend is coming up and you need beer for the big game, you aren’t ordering online. You are going to drive to a nearby liquor store and pick up what you want.

While the much publicized “retail apocalypse” would have you believe that anything you need can be ordered online or straight from an app on your phone, the fact remains that there are still many items and services that must done in person out of necessity or just out of practicality. This is the reason that neighborhood retail centers, particularly grocery anchored centers, continue to weather the storm and thrive in the changing retail landscape.  They are close to where you live. They are convenient to get to and the businesses there provide services and items that are not practical to purchase online.

While online sales currently make up approximately 10% of all retail sales, and that trend continues to grow, online grocery sales lag significantly.  Currently, online grocery sales make up less than 5% of total grocery sales.  

Online grocery sales will undoubtedly continue to grow, but given the nature of transporting food, will it ever be a true online play or will it be a hybrid of online and in store sales?  

Many grocery retailers are pushing the hybrid approach where groceries can be ordered online and picked up at the store. This tactic will continue to push customers to visit shopping centers and those customers are likely to visit other store while they are there because of the convenience.

It is this convenience that will continue to make neighborhood centers successful and an attractive asset class for investors, and convenience that will be the largest hindrance to any competition from fully online-sales.