Remodels Up, New Store Construction Down, According to FMI's “Facts About Store Development 2003”

SAN ANTONIO, TX — October 28, 2003 — The proportion of newly constructed stores decreased for the third year in a row last year, yet the rate of remodels increased signficantly, according to a new Food Marketing Institute (FMI) study, Facts About Store Development, 2003. Data from the annual report was unveiled at FMI’s 2003 Retail Store Development Conference being held here.

New stores comprised only 3.4 percent of all stores, while remodeled stores represented 7.5 percent, according to the report. While new store construction continues to outpace store closings ( 2.7 percent of all stores), recent economic conditions may be to blame for an increased percentage in store closings in 2002.     

The report also finds that supermarket operators are expanding one-stop shopping opportunities for customers by including specialty services in more stores. Nearly 99 percent of all new stores now offer fresh seafood, greeting card and fresh bakery departments, and nearly as many contain floral service, deli, prepared foods for takeout and natural foods departments/aisles.

“2002 presented many challenges for the food retail industry and the weak economic climate affected consumer attitudes, sales and profits,” said Michael Sansolo, FMI Senior Vice President. “As a result of the unpredictable environment, companies shifted their efforts toward remodeling, adding numerous services and enhancing the overall shopping experience.”

Retailers Explore Formats to Attract Hispanic Shoppers, Average Store Size Increases

After reaching a five-year low in 2000, the typical new supermarket is again increasing in size, reaching 47,500 square feet last year. The selling area for a typical new store was 33,000 square feet.

In developing new stores, food retail operators are exploring innovative concepts that will attract the fast-growing Hispanic market segment. In 2002, just over two in 10 companies surveyed operated Hispanic-oriented formats, which typically emphasize pricing and focus on strategic ways of merchandising products offered in a traditional store as well as ethnic products that appeal to Hispanic consumers. Although Hispanic-oriented formats represented a small percentage of all supermarkets in operation in 2002, they represented 11 percent of the stores for companies that operate this type of format.

Other notable new store trends:

• Total construction costs per square foot continued to increase to a record high of $124.00.
• The typical building cost was $64.83 per square foot in 2002.
• The typical cost for equipment and fixtures in a new store was $42.29 per square foot in 2002, a decrease of 7.4 percent in the past five years.
• Typical décor costs added $2.61 per square foot for new store construction, a slight decrease from last year.

Remodeling: Store Development Activity of Choice in 2002

The percentage of companies remodeling stores — 62 percent — nearly doubled, supporting the fact that remodeling was the store development activity of choice in 2002. Survey participants reported a three-way split when asked about the primary reason for remodeling. Nearly three in 10 participating companies said their reason for remodeling was that they have a policy in place to remodel after a certain number of years. Twenty-six percent said they remodeled in anticipation of competition entering the market and an additional 26 percent said they remodeled to meet the needs of changing demographics in their trade areas. Close to two in 10 mentioned additional reasons for remodeling not in the survey.

Other findings related to store remodeling:

• The typical total capital investment per major remodel in 2002 was $926,500 — nearly a quarter less than the typical investment of $1,215,000 in 1998.
• The median value for equipment and structural costs was $493,000 and $350,000, respectively.



• Companies invested $74,000 in décor per store remodel.

Specialty Services Expand To Accommodate Convenience-Minded Consumers

Food retail/wholesale companies continue to offer consumers the convenience they need by offering a variety of services and departments in one place. The pharmacy department is one example of how companies are enhancing the one-stop shopping experience — nearly three quarters of newly constructed stores include a pharmacy. Moreover, with more than half of new stores offering pharmacy, prepared food and ATM services, to name a few, food retailers are responding to their customers’ demand for convenience. Most popular services and the percentage of new stores containing them:

   
   


   
   


   
   


   
   


   
   


   
   


   
   


   
   


   
   


   
   


   
   


   
   


   
   

Fresh seafood	99.0%
Greeting cards	99.0
Scratch/bake-off bakery	99.0
Deli (e.g., sliced meats, cheeses, side salads)	97.9
Floral/plant shop	97.9
Fresh, prepared foods for takeout	97.9
ATM	95.9
Separate natural food aisle/section	93.8
Wine	88.7
Space for cooking demonstrations	79.4
Pharmacy	72.2
Self-scanning area	17.5
Pick-Up Area for Online Orders	6.2

     
Survey respondents are also adding more specialty services during store remodeling, with self-scanning checkout lanes the most significant addition. Just over one-third of remodeled stores are rolling out these systems. The most popular additions during store remodels:

   
   


   
   


   
   


   
   


   
   

Self-scanning area	34.1%
Separate Natural Food Aisle/Section	17.9
Fresh, Prepared Foods for Takeout	8.9
Pharmacy	7.3
Floral/Plant Shop	6.5

To purchase Facts About Store Development 2003 ($35 FMI members, $89 associate members, $105 nonmembers), contact the FMI Store (202-220-0723; www.fmi.org/pub).