Key Takeaways:
- Grocery store investment is compelling due to their consistent demand for essential goods, adaptability to modern shopping trends, and recent surge in profitability.
- Investors can gain exposure to the grocery sector through various methods, including publicly traded grocery stocks, companies that lease space to grocery stores (CRE investments), and direct ownership (feasible for well-capitalized investors only).
- Publicly traded stocks offer easy access and liquidity but can be volatile. CRE grocery store investments provide exposure to both the grocery business and the underlying real estate, but come with additional risks.
Grocery store investment is no longer a mundane prospect. A confluence of factors – technological advancements, new players, and the global pandemic – has ignited a renewed interest in this essential sector. This article explores why grocery stores are attractive investments and unveils three ways to gain exposure to them.
Why Grocery Store Investment is Smart
The allure of grocery store investment boils down to four key factors:
- Necessity Reigns Supreme: People need food, regardless of economic climate. This inherent demand shields grocery stores from economic downturns and fosters market share resilience against online competitors.
- Adapting to Modern Demands: Grocery stores are embracing shopping trends. The pandemic highlighted this adaptability, with stores rapidly implementing services like home delivery, curbside pickup, and personal shopping to prioritize customer convenience and safety. While groceries remain essential, the buying experience continues to evolve.
- “Nearly every grocer has adopted an omni-channel strategy, and we believe grocery is poised to continue to evolve to shifting consumer preferences in the future,” Edison says.
- Profitability on the Rise: The grocery industry, known for tight margins, has witnessed a surge in sales and profitability due to efficient supply chain management and pandemic-driven buying habits. This growth spans fresh produce, non-perishables, and household items.
- The Last-Mile Advantage: Grocery stores’ ubiquity makes them ideal hubs for managing the often-challenging “last-mile” deliveries in e-commerce. Recognizing this, large non-grocery retailers have partnered with, or even acquired, grocery chains. The classic example is Amazon’s purchase of Whole Foods.
According to Jeff Edison, Chairman and CEO of PECO, “Nearly every grocer has adopted an omni-channel strategy, and we believe grocery is poised to continue to evolve to shifting consumer preferences in the future,”
WealthManagement.com
Grocery Store Investment: How-To
Given these compelling arguments, how can investors capitalize on this opportunity? Here are three approaches:
Investing in Publicly Traded Grocery Stocks:
While beloved chains like Publix and Trader Joe’s are privately held, several successful publicly traded grocery store options exist. These can be categorized into pure-play grocers (Kroger, Sprouts) and diversified retailers (Costco, Walmart, Amazon with Whole Foods and Amazon Fresh).
Pros: Liquidity, ease of purchase, readily available information for analysis.
Cons: Stock price volatility, lack of diversification (investing in one company).
Investing in Companies that Lease Space to Grocery Stores (CRE Investments):
For investors seeking exposure to both grocery store performance and the underlying real estate (CRE), two options exist: REITs and private equity firms.
- REITs (Real Estate Investment Trusts): These companies pool investor capital to acquire income-generating properties, including grocery-anchored shopping centers. REITs can be publicly or privately traded.
- Private Equity Firms: These firms raise capital from investors to purchase commercial assets, including grocery-anchored properties.
Pros: Exposure to both grocery business and real estate, steady income stream, potential capital gains.
Cons: Not a pure grocery play; additional risks from real estate market fluctuations and creditworthiness of other tenants.
Direct Ownership (Grocery Store or Anchored Property):
While this approach offers the most control, it’s likely out of reach for most investors. It requires significant capital and expertise to navigate the competitive grocery landscape and manage a store or shopping center.
Concluding Thoughts: Grocery Store Investment
The recent surge in grocery store investment is fueled by necessity, adaptability, profitability, and the last-mile advantage. Investors can gain exposure through publicly traded stocks, companies that lease space to grocers (CRE investments), or direct ownership (a less practical option for most).