Retailers target niche markets, open new stores

by Staff
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ARLINGTON, VA. — According to the Food Marketing Institute report "Facts About Store Development 2006," food retailers increasingly are targeting niche markets by reconfiguring and opening new stores, despite a rise in constructions costs.

The report is based on a survey of retailers operating a total of 6,860 stores. Forty per cent of retailers surveyed operated 1 to 10 stores, 38% operated 11 to 100 stores and 22% operated more than 100 stores.

Retail companies are beginning to offer gourmet products at their stores, with 9 in 10 companies featuring fresh seafood, delis, prepared takeout foods and aisles or sections devoted to ethnic food offerings in new stores. At least half are also including olive bars, sushi stations and separate organic or natural food sections.

Retailers also continue to target well-defined niches, with 14.5% of companies opening at least one niche-focused store in 2005. Of that percentage, 44% were ethnic formats, mostly Hispanic. Retailers are also responding to consumers’ desire for health and wellness products by opening natural and organic stores. Gourmet outlets also are being opened to target high-income shoppers.

"The niche stores and diverse assortment of fresh products show that the industry is responding to the changing and diverse demands of the American consumer," said Michael Sansolo, senior vice-president of F.M.I. "Relentless competition is forcing retailers to maintain a keen focus on their customers and act quickly whenever they see a shift in lifestyles or needs."

Retailers have been enabled to act quickly by the drop in the amount of time it takes to build a supermarket. As recently as five years ago, the time required to construct a supermarket was 40 weeks, but has since dropped to 29 weeks.

"These trends are all the more impressive given the double-digit rise in constructions costs," Mr. Sansolo said.

The rise in construction costs, which include increases of more than 20% in the price of asphalt, steel and electrical construction, led to a 17% increase in the per-square-foot cost of new stores. In 2005, the average food retailer invested $6.5 million, or $146.70 per square foot, to build a store, compared with $5.5 million, or $124.86, in the previous year.

Four in ten retailers opened stores in 2005, the same as in 2004. Remodeling activity declined by 4.5% of the stores represented in the survey, from 5.7% in 2004.

Retailers are reducing costs by converting existing buildings into supermarkets. In 2005, 35.5% of retailers that opened stores retrofitted existing buildings. The cost of retrofitting the existing structures was $8.70 per square foot, 40% less than the cost to build a new store.

Retailers are also cutting costs by becoming more energy efficient, through the use of LED lighting, timer-controlled lights and the use of alternate energy sources.

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