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Business Observer Friday, Sep. 1, 2017 1 year ago

Doubling down

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Publix Super Markets has bought dozens of its stores in recent years, while looking for 'the next big thing.'
by: Kevin McQuaid Commercial Real Estate Editor

Publix Super Markets Inc. isn't just the dominant grocery chain along the Gulf Coast — it's also a company with a considerable commercial real estate footprint that's growing in size.

Though the majority of its 1,152 stores located in seven states are leased, the Lakeland-based grocer has taken advantage of market conditions stemming from the last decade's recession to bolster the portfolio of real estate it owns.

Since 2010, Publix has more than doubled the number of stores it owns, to about 300, says Brad Crenshaw, one of nine real estate managers in the company.

And momentum is growing. In the past four years alone, Publix has acquired 119 stores, Crenshaw told a real estate conference held last month at Florida Polytechnic University sponsored by Lakeland commercial real estate brokerage Coldwell Banker Commercial Saunders Ralston Dantzler.

“It's a pretty amazing feat,” Crenshaw says. “And we're buying in all seven states we operate in. It allows us to better control our destiny and allows us to control the tenant mix of a property as well.”

Most recently, earlier this summer Publix spent $68.7 million to acquire a trio of shopping centers it occupies in Hillsborough, Pinellas and Polk counties, according to county property records.

The company, which generated $34.1 billion in sales in 2016, isn't only buying existing or new stores, however. It continues to tweak prototypes and plans to roll out a revamped concept with an organic bent next year, the first of an estimated 100 total stores featuring organic foods.

Publix's moves come as the grocery business in Florida has become more crowded than ever before, with the entrance of Trader Joe's, Lucky's Markets, Whole Foods Market, Walmart Neighborhood Grocery, Aldi, Sprouts and others into the market in recent years.

And despite the heightened competition, more chains are likely on the way. By next year, Europe's largest grocer, Lidl, is slated to debut stores in the Sunshine State.

To better compete, Publix often redefines its existing stores, expanding into new markets like Virginia and refining the process by which it selects new sites, Crenshaw says.

“We're constantly looking to refresh our stores and figure out what the next big thing in retail will be,” he says.

To that end, Publix is betting the next big thing will be the continued growth of organic foods. Next year, the company intends to open its first Greenwise market in Tallahassee, the first of some 100 such organic-centric stores the chain is planning to open in coming years.

Unlike typical Publix stores, which measure 45,000 square feet, Crenshaw says the Greenwise stores will be about half that size, and feature scores of unique items for consumers.

Store design will be different, too, with in-house coffee shops and bars serving craft beers. Gone, too, will be the terrazzo floors that have come to be synonymous with Publix -- all in an effort to capture a share of the organic market that is projected to top $118 billion in the U.S. by 2021.

“We see this as a good opportunity to get into that space,” Crenshaw told the conference attendees.

Greenwise stores aside, the nation's largest employee-owned grocery chain — with roughly 190,000 employees — also has honed how it designs new stores and selects where to build.

“We have more flexibility now in regards to prototypes in what we can do,” Crenshaw says. “The days when we had a prototype and one had to build to that prototype seem to be changing. There have actually been a lot of changes to our prototypes of late, and I think that's a good thing.”

The company's site selection process has remained fairly static, however.

Publix, like other chains, seeks high-growth areas with solid road networks, flexible zoning, utilities and the availability of beer and wine licenses. It also evaluates household income levels, potential competition and its ability to provide five parking spaces for every 1,000 square feet of store space.

“The higher the household income level, generally, the better the store performs,” he says.

Crenshaw says that it typically takes three years from the time a site is considered until a new store is delivered.

“We're working to try and cut down that time frame,” he says.

Publix often has either the right of first offer or first refusal on properties it leases, but most of the stores and centers the company has acquired since 2013 have been off-market deals, Crenshaw says.

When developers or landlords want Publix to consider leasing space in their properties, they must undergo a rigorous set of criteria, including demographic information, a site plan, pro forma and a real estate questionnaire. To discourage developers who are simply scouting out properties, they must also prove to Publix that they have a particular site under control.

Perhaps not surprisingly, as Publix's real estate activities have increased in recent years, so has the size of its real estate department. When Crenshaw joined the company a decade ago, he says, real estate comprised roughly 40 employees. Today, about 120 people work in the department.

And while Greenwise and prototype changes may dominate Publix's real estate endeavors in coming years, don't be surprised if the chain begins forming strategic partnerships with other merchants such as Home Depot, Lowe's or cosmetic seller Ulta to anchor shopping centers, Crenshaw says.

“There could be future partnerships,” he says.

- K.L. McQuaid

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