Grocery Wars – Development and Demographics

Part 2 of a 3-Part Series on Grocery Wars

Grocery Store Logos

Too many grocery stores! And the traffic! These complaints have circulated on social media and in conversation for months. Little wonder as Wake Forest now has 11 grocery stores, including low-cost German grocery store chain Lidl that recently broke ground at the corner of the N.C. 98 Bypass and South Main Street.

“One of the things I want to underscore is grocers are extraordinarily strategic about where they place their investments,” said Jason Cannon, Wake Forest Director of Economic Development. “With technology as it is today, the way they’re able to analyze data and how they look at the demographics of a community and the strengths and weaknesses that they bring, they’re able to input the targets that they’re looking for and easily find where they can be successful. They’re smart, savvy, strategic investors.”

Basic retail wisdom says companies are after customers who are willing to invest their dollars in the store’s location. The goal of a Publix or a Lidl is far less to put everything on the line to see if they can beat out a competitor than it is to know that they will be successful in a given market.

According to the Food Marketing Institute, retail segments fall under two umbrellas. Traditional grocery stores are divided into traditional supermarkets (Publix, Kroger), fresh format (Whole Foods, The Fresh Market), limited-assortment stores (Aldi, Trader Joe’s), super warehouses (Cub Foods, Food 4 Less) and small grocery (such as a small corner grocery store that carries a limited selection of staples and other convenience goods). Non-traditional grocers include wholesale clubs (Sam’s, Costco) and supercenters (Walmart Supercenters, Super Target).

Certainly, competition plays a part of the decision to open in a specific community, but Lidl and Aldi can coexist as direct competitors in the same town because the investors’ strategic site selection teams believe there’s enough business there for them both to be successful or they wouldn’t invest. Their market share and profit model even when a direct competitor is down the street are, as Cannon put it, “much stronger in that swell of people than it is out in a satellite area where there’s less competition.”

No retailer is going to give the consumer all of the details of what they look for in site selection, but there are some hints if searched for. Aldi’s market requirements include a dense trade area population within 3 miles and a traffic count in excess of 20,000 vehicles per day. One thing Publix, which is less forthcoming about its requirements, looks at is the demographic breakdown within 1-, 2- and 3-mile radii for any new site selection. Whole Foods looks for, among other things, 200,000 people or more in a 20-minute drive time, a large number of college-educated residents and a site located in a high foot and/or vehicle traffic area. Food Lion prefers a community/neighborhood shopping center site with a population density to 100,000.

There’s a joke many people make that there’s a mattress store on every corner in Wake Forest, and it certainly seems as if that’s true for supermarkets, too. But what does that mean, whether it’s a mattress store or grocery store?

“People are saying we’re saturated with grocery stores,” Cannon said. “That might be the on-street perception. It isn’t the market perception at this point. It’s all about what that community can support. I can’t tell you what our saturation is, but I can tell you in terms of what we see, we’re nowhere near the ceiling for retail and clearly not in the grocery label either.”

There is a point where an area reaches retail saturation, and every community is different. When asked if Wake Forest has any imposed saturation limits for businesses, Charlie Yokley, Assistant Planning Director-Development Services, said, “We’re not allowed to have those. The way that North Carolina’s set up is towns can do what the state says they can do, and the state says you can’t do that. Or they don’t say that you can, which means that you can’t.”

So what does a developer or a commercial retailer see in Wake Forest that’s so attractive? There are two big answers that go hand in hand. The town has, according to the Wake Forest Economic Development website’s Community Data page, a population of 39,012, with growth by 2025 expected to reach 47,700. But more importantly, Cannon says it’s all in the demographic profile of that population.

“We have an incredibly well-educated population of incredibly well-compensated people,” he said. “We have an incredible housing value here that people are sustaining successfully, an incredibly low number of foreclosures, and every indicator is that the trajectory for this town is nothing but up. That would stand for any retailer.

“We are competing with a very high demand for residential and retail. And those are easy developments for property owners because the people who come to those developments are well-heeled, well-capitalized, and they can expect a very quick return on their investment.”

— Jeanne E. Fredriksen • • October 2016

Next Month: Traffic and the Price of Progress