Bricks and mortar still matter: Rebuilding the future of grocery retail and distribution
Adapting pandemic-hit sector to changing customer needs
Supermarkets and other essential retail-anchored property is an asset class that has come of age during the pandemic.
Troubled by the continued decline in other retail property assets such as shopping centres, and questions over the future viability of city offices if people do not return to the workplace, property investors have switched their attention to some of the more niche property sectors, attracted by the ability of their tenants to continue paying rent throughout lockdown.
Among these, grocery anchored retail has been one of the strongest performers as many mainstream institutional investors have flocked to the sector during the pandemic.
The level of interest has been so intense that NAVs, one of the key metrics watched by property investors, have remained stable or even increased since the beginning of the year.
Physical stores remain vital
It is fair to say that pre-coronavirus, many in the sector were still trying to predict how online food retail would integrate with bricks and mortar stores and click and collect models in an industry where operating margins are notoriously low.
The stress caused by the pandemic has acted like a catalyst, accelerating the rate of change in the sector, which has in turn highlighted several opportunities for bricks and mortar stores and exposed some of the weaknesses in the infrastructure of online delivery models.
Rather than investing in online grocery services and the extra logistical infrastructure to support growth, we are seeing supermarket retailers allocate more in-store space to click and collect services as they evolve their operating models.
These changes are creating yet further opportunities for landlords including the potential to generate additional revenue, while allowing supermarkets to economise in other areas by using the same fulfilment areas, staff and inventory management systems, and so on.
Non-rental income
It is in helping our supermarket tenants to find these efficiencies through the effective collection and use of data that we see a real opportunity to fundamentally change the traditional property investment model.
For example, we have installed beacons across our stores in Germany that collect data about how supermarket customers use the space, helping them to map customer flows, identify dead spots and redundant space that could be turned to alternative uses.
By creating and providing our tenants with a range of data-driven services that enable them to run more efficient omnichannel retail models, we have set ourselves the challenge to generate 5% of our income by 2025 from non-rental items, such as data, sales to customers, additional fulfilment, click and collect and returns services.
Our centres in Germany account for €1bn of grocery sales per year, equivalent to 0.5% of the total German market. While this is a small number, it is not insignificant, and it means we are able to be a small voice in the conversation about the future of grocery retail and distribution.
From this base, we will continue our expansion, rolling our proven model out to other parts of Europe, including France and Benelux.
John Wilkinson is CEO of Greenman Investments
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