Urban Grocery Stores Squeezing Into Tight Spaces

November 27, 2018

It didn’t take long for customers to realize they weren’t walking into a conventional grocery store when the Organic Garage’s newest location opened in Toronto’s Liberty Village neighbourhood last month.

With just 13,000 square feet of space situated in the basement of a 100-year-old brick-and-beam building, Organic Garage’s fourth store is very different to a national grocery chain outlet, where one would typically find aisle upon aisle of food stretching out almost as far as the eye can see.

But using a smaller footprint to foster a highly curated shopping experience is exactly what Organic Garage founder Matt Lurie wanted to bring to Liberty Village, home to North America’s largest residents’ association, at more than 10,000 members. As a result, consumers can sample frozen kefir or pour the latest kombucha on tap right on their doorstep.

“I never liked that idea of going to a grocery store and you walk down like a 50-foot aisle, so all our aisles are anywhere from eight to 16 to as much as 20 feet at most,” he says. “So they’re highly defined, highly rationalized.”

While bigger chains, located in the suburbs of many Canadian cities, might look to draw from up to 10 kilometres away from each location, in downtown city neighbourhoods, that radius would be no further than one kilometre, he adds.

“I always say Toronto is becoming very much like New York where New York has all its little pockets,” he says. “For us, we look at the Junction, we look at Liberty Village, we look at the Leaside area. … They’re localized pockets that have tremendous density.”

Mr. Lurie, whose grandfather opened the family’s first grocery store on Toronto’s College Street in 1931, says developers and landlords are starting to back up his opinion. He says there is increasingly a demand for smaller, more focused grocers catering to a younger, more demanding consumer.

“Nobody wants the big-box boys anymore, they don’t like dealing with them,” he says. “… They want a unique grocer that fits any style of building.”

Arlin Markowitz, CBRE’s senior vice-president of urban retail for Toronto, with 14 years of experience in the sector, says he’s starting to see major changes in the way that grocers are approaching the downtown market.

While it used to be that large grocery chains would be asking for 50,000 to 60,000 square feet and treating it like a suburban market, he says those days have passed. “You can’t have a prototype downtown that’s 20,000, 10,000 or 30,000 square feet,” he adds. “You have to be flexible because you’re dealing with different spaces.”
Mr. Markowitz says another sweet spot for grocers is second-floor spaces. He points to developments such as the Loblaws in RioCan’s development at Queen Street West and Augusta Avenue, which customers reach by use of an escalator or elevator. Another will be a national grocery chain – unnamed for confidentiality reasons – that is taking 52,000 square feet on the second floor of the Art Shoppe condos, set to open next year in the Yonge Street and Eglinton Street area of Toronto. Just around the corner from that condo project, on Eglinton, east of Yonge, is a second-storey Loblaws above a Liquor Control Board of Ontario outlet and Orangetheory Fitness gym.

Part of that shift has been that developers are finally paying more attention to the retail spaces under their towers, Mr. Markowitz says. That’s where there are profits to be had, so the savvy developers are thinking about ceiling heights and roughing in space for a kitchen, for instance.

Developers also know that big chain grocers won’t necessarily pay $100 a square foot for 30,000 square feet of space. But by giving them secondary space on the second floor, and then using their marquee name to attract smaller tenants at higher rent prices, developers can maximize their profits.

“You don’t see main storey grocers,” Mr. Markowitz says. “So it’s about going vertical and providing them with the right signage and space to get their customers and [getting] them comfortable with leasing big, second-floor space.”

He also adds that he’s seeing increasing competition for second-storey spaces, particularly from large fitness chains and the rocketing popularity of co-working space companies, such as WeWork or Spaces.

“They’re gobbling up second-floor retail space in the core now at a very fast rate, which is putting upward pressure on rents,” he says. “… It will have an effect on urban grocery because it’s really hard to find that big, prime second-floor space in downtown Toronto.”

Away from Toronto, though, he says that while the Vancouver market is much the same as the Ontario capital, a city such as Montreal, with core residential development still in its infancy, hasn’t yet experienced the boom of a downtown urban millennial population.

That’s a large demographic for a larger grocery chain such as Ontario-based Longo’s, which introduced its smaller, urban-focused Market by Longo’s concept in 2006. The number of those stores now stands at five in Toronto, but there is a specific formula behind their locations.

“If you look at a map, all of our Market by Longo’s are basically within 700 metres of the Yonge subway line, right?” says Joseph Longo, general counsel and vice-president of real estate for Longo’s.

“In order for that format to work, I would personally argue that you need a high daytime population.”

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So whether that’s condo dwellers or workers heading to and from the office, Longo’s is looking to cash in on that foot traffic with more fresh, ready-to-eat meal options that people grab and go while walking through the underground PATH pedestrian system, where two of its Market locations are situated.

While Mr. Longo agrees with Mr. Markowitz that developers are finally trying to put thought into the retail podiums under their towers, he also adds that the cost of setting up urban grocery stores makes the idea of putting a brand-new big-box grocery store in downtown Toronto almost impossible.

“I don’t think you could fit a big-box store in downtown Toronto, right, and if you did find a space for a big-box store, I think the cost would be prohibitive,” he says. “So I think grocers don’t have a choice but to shrink their format to get into these strategic, smaller spaces.”

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by Paul Attfield