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Sunday, 01 March 2015 22:00

Retail market can accommodate Trader Joe’s, grocers say

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Trader Joe’s in Ann Arbor, Mich. Trader Joe’s in Ann Arbor, Mich.

The February announcement that California-based Trader Joe’s would open its first store in the West Michigan market created a social media frenzy and became the instant topic of watercooler conversations throughout the region.

But with two major regional grocery chains headquartered in the greater Grand Rapids area and a plethora of high-end, family-owned stores already established in the market, the excitement over Trader Joe’s begs the question: Why does a national chain opening its first location in metropolitan area of around 1 million people elicit this kind of response?

The chain is known for sharing little on its processes, so the reasoning behind its timing and site selection remains shrouded in mystery.

However, for CWD Real Estate Investment Principal and Managing Partner Scott Wierda, the excitement coupled with the secrecy is part of the store’s magic.

“I think a lot of companies would like to try and figure out their secret sauce,” he said, referring to the way in which Trader Joe’s brands itself.

“From a real estate perspective, they are excellent to do business with,” said Wierda, who’s developing the Trader Joe’s site.

The niche described as the “fresh format” market by grocery industry analysts has been growing in recent years. While the national chains have been slow to come to the market, West Michigan already has a number of locally owned options that offer consumers a similar format.

With choices ranging from Kingma’s Market on Plainfield Avenue NE and Ric’s Food Center in Rockford to G.B. Russo & Son Ltd. on 29th Street and the Grand Rapids Downtown Market, consumers have ample choices for getting fresh food and other nutritious grocery options, sources said.

Additionally, regional chains such as Meijer Inc. and SpartanNash Inc. have also ramped up their selections to include more fresh produce and organic food. Both companies declined to comment or didn’t respond to questions for this report.

For Autumn Horrocks, the co-owner of Kentwood-based Horrock’s Market Inc., the collective excitement that the Trader Joe’s announcement elicited is a bit humorous when she learns that many joining in on the excitement have yet to visit an area store like hers.

“I welcome them to the area, but we do our business different than they do,” Horrocks said of her family’s grocery store located near the intersection of 44th Street and Breton Road SE.

Horrock’s Market offers a selection of fresh meat and produce, grocery items, a floral section and a tavern where customers can get a glass of beer or wine while they shop or fill growlers to take home.

“We have a hands-on approach — and a lot more products,” she said.

Despite West Michigan having myriad options for fresh groceries and serving as a hub for two major regional chains, industry insiders think there is plenty of business to go around for retailers.

Jon Springer, a retail editor at trade publication Supermarket News, told MiBiz that it’s rare for Trader Joe’s not to have some sort of disruptive effect upon entering a new market, but it remains a niche store that will be part of the broader grocery retail community in West Michigan.

“(Trader Joe’s) may take chunks of several small stores,” Springer said, “but it’s not a nuclear bomb dropping.”

GETTING CROWDED?

Reactions to the announcement aside, getting Trader Joe’s to the West Michigan market was no easy task, said CWD’s Wierda.

In fact, Wierda had been courting the company for around seven years before the retailer committed.

When the store opens later this year or early next year, the grocer will operate on property co-owned by Wierda (through his involvement with Jade Pig Ventures LLC) at 3684 28th Street SE that formerly housed a Ruby Tuesday’s restaurant. The store will be on an outlot of a parcel that also features a new Dave and Buster’s chain restaurant, itself a new addition to the West Michigan market.

Joining Trader Joe’s in both the fresh format category — as well as in the general vicinity — will be a Fresh Thyme Farmers Market, which is opening near the corner of Breton Road and Burton Street, across the street from Breton Village Shopping Center, as MiBiz has previously reported.

The new high-end chain, which has received funding from Meijer, expects to open the Fresh Thyme store in the first quarter of 2016. CWD is serving as the project’s developer.

Fresh Thyme is positioned between Trader Joe’s and Texas-based Whole Foods Market Inc. in terms of the fresh format segment, Wierda said.

It also remains unclear when or if Whole Foods will open in the Grand Rapids area. The chain is currently constructing a store in East Lansing, but it has struggled in recent years because of its perceived high cost and the increased competition in the fresh format grocery category. The company’s latest quarterly earnings were up 5.7 percent, but only after it lowered prices on many items, according to a February report in the Wall Street Journal.

SUPERSIZE

Despite the outsized reaction to Trader Joe’s announcement, the physical store the company has planned for Grand Rapids is actually smaller than most of its other locations at around 10,000 square feet, according to reports. By comparison, typical Meijer stores often approach 200,000 square feet.

Whether Trader Joe’s will look to open other locations in the region also remains unclear.

A spokesperson for the retailer would say very little about why the company took its time in selecting a West Michigan location and declined to discuss its site selection process.

“We are definitely excited to be coming to the area,” Trader Joe’s spokesperson Rachel Broderick told MiBiz.

From a financial perspective, Trader Joe’s operates unlike most other grocery chains. According to multiple industry reports, Trader Joe’s stores have revenue of more than $1,700 per square foot. By comparison, its leading competitor, Whole Foods, only generates $930 in sales per square foot, according to a September 2014 report by Chicago-based real estate firm Jones Lang LaSalle Incorporated (JLL).

The JLL report noted that fresh format stores such as Trader Joe’s and Whole Foods will have the strongest expansion plans of any companies in the grocery category, largely because millennials and baby boomers are turning to those stores for more health-conscious food options.

Another trend helping stores such as Trader Joe’s: Consumers are now tending to shop at up to as many as five different stores to accomplish their grocery shopping, according to the JLL report. As a result, traditional grocery stores are shrinking in size, the report said.

“There is definitely a growing interest in local food and there is a huge interest in people wanting to eat healthy,” said Mimi Fritz, president and CEO of the Downtown Market.

Despite the opening of Trader Joe’s in the market, neither Fritz nor Horrocks see cause for alarm related to the national chain.

“I think it’s great,” Fritz said, adding that even the typically slow retail month of January was far better than expected for the Downtown Market. “The more folks that carry healthier and better (and) more fresh local food, the better. It’s just better for the health of the community.”

Horrocks concurred, saying she welcomes the increased competition. Her family-owned store is in the position to adjust its operations in any way possible — should it become necessary — to respond to competitive pressures after Trader Joe’s opens, she said. Her family has Horrock’s Market locations in Lansing and Battle Creek, although each store is under different ownership structures.

 

Read 40854 times Last modified on Sunday, 01 March 2015 16:28

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