As Kroger nears deal to buy Walgreens stores and Publix embraces delivery, grocery's future comes into focus

Posted on December 14, 2016

In 2016, the grocery industry’s future began to crystallize.

Several recent developments point toward smaller stores with more space for pickup and delivery of online ordering. Amazon’s first physical grocery store is a tiny fraction of the size of traditional ones, at 1,800 square feet.

Kroger Co. (NYSE: KR) is moving closer to finalizing a deal that could potentially give it hundreds of Walgreens and Rite-Aid stores, reports the Cincinnati Business Courier, a sister news organization. The average Walgreens store is around 14,500 square feet; Rite-Aid stores are an average of 12,600 square feet.

In Tampa Bay, Lakeland-based Publix Super Markets Inc. began to embrace grocery delivery this year. After years of downplaying the idea — Publix was a pioneer of grocery delivery in the late 1990s, but discontinued the service when it wasn’t as profitable as projected — the company launched what it calls a “collaboration” with Instacart, an app-based delivery service.

Publix’s relationship with Instacart is a new era for the company. While Shipt, a similar app-based service, also offers delivery from Publix, there is no formal relationship between the two.

On Monday, the grocer sent out an email blast promoting “Publix delivery,” branding Instacart as “our grocery delivery experts,” which is a marked change in messaging.

A Publix spokesman said the company wouldn’t disclose any performance metrics for the Instacart service.

“Online services are trending. We are continuing our collaboration with Instacart,” spokesman Brian West wrote in an email. “We recently expanded to the Tampa Bay area, and our customers are taking advantage of the service.”

To keep up with its biggest competitors — Kroger in metro Atlanta and the Carolinas and Wal-Mart Stores Inc. (NYSE: WMT) in Florida — Publix had no choice but to get on board with delivery.

“This was the year everyone lined up with delivery,” said Mark Thompson, managing director with Crossman & Co. in Orlando, who specializes in grocer-anchored shoppers.

Kroger offers ClickList, in which shoppers order online and pick up groceries at its store. Walmart offers a similar online ordering service. Both expanded that service in 2016.

But as online grocery ordering and delivery takes off, it could change the grocery store as we know it. The stores could become hybrids of traditional storefronts and warehouses, with space for filling online orders. If more consumers order online than go to the grocery store, grocers could become less valuable as shopping center anchors, because their stores won’t generate the same foot traffic.

And, if Amazon’s new store is any indication, the grocery store of the future is much smaller than the big boxes of today, heavy on technology and light on personal interaction.

But even with those potentially major changes to the business, Thompson says he doesn’t foresee a coming crisis in grocery real estate. He predicts grocers will reconfigure their existing space to maximize online and in-store sales.

“Grocers are the best retailers in the world,” he said. “Grocers adapt better than any other retailer out there.


Ashley Gurbal Kritzer, Tampa Bay Business Journal .