Posted by IN_Grocery_Autumn_2014 on 12th Nov 2014
Tesco’s precipitate fall from grace, the current grocery price wars and the victorious march of Aldi and Lidl are covered elsewhere in IN_grocery. What is perhaps more pertinent, from our perspective at least, is that opportunistic capital is today happy to pay 7.5% for convenience/grocery-anchored secondary shopping assets, despite many town centres still being viewed as in dire need of intensive care.
As secondary shop players, we never subscribed to the popular ‘post-retail’ apocalyptic town centre vision that has been so gleefully painted by many media pundits following the onset of the 2008 downturn: it jarred with our day-today experience of actually managing secondary shopping. We see things rather differently.What is happening is a recessionary shopping evolution certainly, but something that forms part of the normal business cycle – albeit life has been made much more difficult for high streets by the effects of the downturn, e-commerce and out-of-town development.
Town centre shopping is central to our business strategy. We are very picky, though. We invest exclusively in shopping centres that are the sole managed facilities in the town. The centres we buy also need to be the town’s prime retail core,representing at least 30% of total floorspace.They also need to dominate the core catchment.Our centres are positioned to be the first port of call for expanding retailers – centres with the flexible space necessary to accommodate them.
Backed by investors such as Tristan Capital,Avenue Capital and Chenavari, Ellandi has invested nearly £350 million in 12 secondary schemes fitting the criteria described above in locations as disparate as Ashton, Folkestone,Bootle and Stockton. I think it is pretty clear that these assets were oversold. Being able to buy institutional quality assets at 8.75% in 2012 will,in my view, be seen over the investment cycle as being as daft as the 5.00% paid for tertiary assets in 2007 appears to us today.
Which brings me back to Aldi and Lidl. They have certainly given the grocery majors a fright,but from the high street perspective, discounters like Aldi and Lidl have a positive role, fitting in with the generational shift in consumer attitudes.
The biggest themes that have emerged for us since 2008 is the customers’ desire for experience and their need for value and convenience. We appear to be seeing a sea change in secondary shopping as the big one-stop superstore shop of old morphs into more frequent top-up shopping at a variety of outlets. Some shoppers appear to be deserting the old big box hypermarkets and superstores altogether. Whatever is happening to shopping behaviour,we are experiencing a resurgence in much more broadly based convenience shopping –something that benefits our centres directly.
The move of the grocery majors, particularly Tesco and Sainsbury’s, into non-food has been mirrored by the move of hard discounters the other way. For example, most of a family’s weekly needs can already be met at single-price high street retailers. In a typical 99p Store, out of a total of 5,000 lines, 40% will be grocery goods,which are now being augmented with fresh and baked goods. So it is not just Aldi and Lidl that are upping the grocery competition. An array of other discounters are chipping away at the Big Four’s market share too.
For example, within five minutes’ walk of the newly refurbished mall café in the Newlands Shopping Centre, Kettering, you can pick up groceries variously at a Sainsbury’s supermarket,an Iceland, a 99p Store, a Home Bargains and at Poundland, and that’s before you consider that meals can be purchased at chilled counters in Boots et al. Variety is the key.
Taking another example, we are seeking planning permission for a Lidl at Crown Glass Shopping Centre in Nailsea to complement the existing Waitrose, 99p Stores and a quality independent greengrocers, S&R Burchill. That is what community focused shopping is – being able to find the evening meal or washing powder or a pint of milk when you visit the post office in Grays, or the library in Eastleigh, or the cinema in St Austell. It is about blending leisure,convenience and non-food shopping offers.And we know from experience that shoppers like it. It is not a shopping environment that can be created in a superstore.
That is the reason we call our investments‘community shopping centres’ to avoid the stigma of the catch-all ‘secondary’ label, which is apt to be construed as something weak.Convenience-led local shopping is the most frequently accessed shopping that exists. There are two kinds of secondary in this respect.Some secondary schemes provide really potent offers that are extremely successful, some don’t.I like to think that all our centres fall into the former category.
To succeed, you must provide the additional community uses that complement the retail anchoring and overall convenience retailing proposition. There are a lot of fundamentally sound centres around that are failing simply because of decades of neglect and mismanagement – the problem is often self-inflicted rather than something intrinsic to the location. Turning around failing schemes needs a lot of investment, expertise and enthusiasm,but the correct mix of accessible, multi-format grocery anchoring, community assets and local retailers creates a potent investment asset when you get the model right. The mix in shopping centres is everything.