Coexisting Dichotomy

Restaurants and grocery stores typically compete for consumers' finite food dollars and discretionary income.

But these days, both appear to be growing along the Gulf Coast, thanks to updated concepts, new market entrants and heightened consumer interest in what they eat and a newfound appreciation for distinct tastes.

Though counterintuitive, that notion of mutual co-existence between the segments was one key takeaway from this year's International Council of Shopping Centers' annual Florida confab Aug. 21-23 in Orlando.

“From the various restaurants presenting at this year's conference, you would guess that the entire world eats out now, and often,” says Mike Milano, managing director of retail services with commercial real estate brokerage Colliers International Tampa Bay, Central and Southwest Florida.

“New concepts seem to keep coming, and the trend doesn't seem to be petering out.”

Continuing a trend from recent years, so-called fast-casual restaurants — think PDQ, Panera Bread, or Chicken Kitchen — continue to dominate the Gulf Coast landscape.

But their continued growth has been met by the emergence of new grocery chains into the market, from Sprouts to Lucky's and Aldi to Earthfare.

Overall, grocery store space in Florida has grown by 14% in the past year, according to commercial real estate services firm CBRE Inc.

At the same time, legacy grocers like Publix Super Markets Inc. and Whole Foods Market have stepped up their dedication to prepared foods with expanded offerings aimed at capturing consumer dollars.

Many, too, are beginning to install so-called “grocernauts” — cafes and coffee shops — into existing locations, according to a recent Colliers International report.

“People are more focused now than ever before on what they eat and how they eat,” says Mark Chait, director of Florida leasing for Benderson Development Co., one of the state's largest retail developers.

“Food is now more important to people, and as such, that's brought with it more choices. It would appear on the face of it that both restaurants and grocery stores shouldn't grow at the same time, but they are.”

The mutual growth comes against a backdrop of both population and economic expansion in Florida. Last year the state eclipsed New York as the third most populous in the U.S., and tourism also is shattering records. More than 100 million people visited the Sunshine State last year, fueling further retail growth.

Commercial brokerage firm JLL notes that all 14 of Florida's major retail markets grew during the second quarter of this year, with many posting occupancy rates of greater than 90% even as rental rates have edged upward.

Just as significantly, Tampa has had 14 consecutive quarters of positive retail absorption, along with rising rents that in many areas are exceeding those of a decade ago.

That overall growth was on display at the ICSC Orlando confab, which was attended by a record 4,500 people.

“There was tons of activity at this year's conference,” says Paul Rutledge, a first vice president with CBRE and an ICSC panel facilitator. “We had a lot of people there who were interested in penetrating the Tampa and Sarasota markets in particular. People want to get to Florida and do business here.”

But how that business is manifesting itself is, and will likely continue to be, markedly different from a past in which grocery-anchored strip shopping centers were prevalent.

ICSC attendees say pad site development, redevelopment and infill projects — especially in urban areas — will continue to flourish along the Gulf Coast, even as retailers strive to counter online shopping and create experiences for customers.

“There's been a change in the mindset of the public,” Rutledge notes. “That's bringing a change in the vehicle of sale, which is, in turn, changing the retail real estate business. People want experience more than ever -- it's what Costco figured out a long time ago.”

Still, traditional shopping center development isn't likely to go the way of the West African Black Rhino anytime soon, and existing centers have gained value this commercial real estate cycle thanks to a lack of overbuilding throughout the Gulf Coast.

“People continue to like the shopping center model,” Rutledge says. “It works, and there's no longer a stigma associated with having a medical provider next to a pizza place, for instance.”

“The challenge is how to make centers internet resistant,” Milano says. “That's why developers are gravitating toward tenants like dentists, massage therapists, dry cleaners and nail salons.”

And restaurants.

But Rutledge and other ICSC Orlando attendees caution that there is a limit to the growth, despite continued consumer spending habits.

Already, increased construction and land costs are pricing some retailers and restaurateurs out of the market, and opening a door for grocery chains to snare market share.

“In some places, there are way too many restaurant seats out there, and the consumer has way too many choices,” says John Denapoli, vice president of real estate and development for the PDQ restaurant chain.

“Layered on top of that, groceries are trying to chomp away at certain facets of the restaurant industry,” he adds. “But we think we can and will stand on our own. If the consumer is looking for a quality, relatively quick in-and-out experience, they're not going to find that at a grocery store.”