Innovation & Expansion
- May 09, 2008
In the face of a cooling economy, some single-tenant retailers are taking some purposeful and in some cases innovative steps to boost their performance. Real estate investors would do well to evaluate those moves carefully.Fast Food. Higher fuel prices and rising food costs are already driving more consumers to affordable food options, but fast-food market leaders are also generating increased sales by offering diversified menus and extended hours. McDonald’s Corp., for instance, has introduced new salads, snack wraps and breakfast items, a move that is expected to position the fast-food giant for continued growth through 2008. Restaurants. Concerns over discretionary consumer spending have some restaurateurs looking to mergers to weather the storm. Darden Restaurants Inc. recently announced the acquisition of RARE Hospitality International Inc., owner of the Capital Grille and Long Horn Steakhouse national chains, adding 317 stores nationwide to its portfolio. And Applebee’s IP L.L.C. has been acquired by IHop Corp., which could generate the sale of hundreds of company-owned locations. Discount Stores. In response to increased competition and falling sales, Wal-Mart Stores Inc. continues to develop new business models to gain market share. It slowed its expansion of Supercenters to avoid competing with itself and is developing stores one-tenth its traditional Supercenter size, focusing on more affluent locations that were previously off limits to the big-box footprint. It is also establishing in-store clinics that offer basic medical care. Drugstores. Positive long-term demographics and a healthy outlook for pharmaceutical sales support drugstore performance, although the generic drug pipeline will remain sluggish until 2009. Nonetheless, acquisitions have increased the size of both CVS Corp. and Rite Aid Corp., and the new CVS Caremark Corp. is moving ahead with the addition of its MinuteClinics, which should increase both front-end and pharmacy sales. Gas Stations. Escalating fuel prices and higher credit card fees continue to squeeze profit margins for operators of convenience stores and gas stations, so they are looking to other product offerings for revenue. Many companies are adding more breakfast and lunch items, for example. Grocery Stores. The grocery store marketplace is becoming tighter, thanks to additional pressure from discount retailers and organic grocers. Wal-Mart is moving forward with plans to redesign and expand its smaller stores, adding more freezer and bakery space, and 2007’s merger of Whole Foods Market IP L.P. and Wild Oats could make the stores’ pricing more competitive. For more of Bernard Haddigan’s discussion of the performance of the single-tenant retail real estate market, see the May 2008 issue of CPN or search for key words “Singular Focus” in quotation marks.