August 21, 2025
Grocery is a cut-throat, highly competitive space where the margins are tight and fresh products don’t stay that way. Eroding market share just a bit has an enormous downstream impact on retailer profitability and strength. So that happens to the largest grocers when Amazon begins to shave away market share? Let’s take a lesson from Walmart.
Walmart started selling groceries in its supercenters in 1988. Ten years later, they added Walmart Neighborhood Market and today they have 21.2% market share in the U.S.
Kroger, Albertsons, Publix, H.E.B., and Wegmans each found ways to pivot away from Walmart and play to their strengths. But there were also real estate impacts, through location optimization, new market penetration, and targeted ways to increase frequency.
One of the ways the strongest retailers found more profitability was by owning more of their stores (something Walmart has always preferred).
A retailer with capital available and a 20+ year outlook has a benefit to own their location rather than pay rent. They are more likely to invest in forever-locations, keeping them fresh and modern, and they are significantly less likely to close or relocate an owned store.
The best way for a shopping center owner to keep their grocer and avoid closure or relocation is for the grocer to own their box. A grocer who owns their store is tied to the center for the long run, which preserves traffic, shop space NOI, and tenant health across the rest of the property.
This shift raises valuation and disclosure questions: Should we value shadow anchor rent more highly than the small shop tenant’s credit suggests as a way to reflect the benefits of being adjacent to a grocer? Should we discount grocer rent to account for the risk of relocation or closure?
Investors may begin to favor portfolios where the anchor relationship is secure through tenant ownership, not just lease terms. And there may be pressure (in a good way) for further disclosure around owned vs. leased anchor tenants.
For retailers, the full impact of Amazon’s same-day grocery delivery will take years and possibly decades to play out. But today’s largest grocers have had decades of experience making pivotal decisions to keep up with competition and play to their strengths. Prudent capital allocation and utilizing real estate as a strategic asset will help retailers adjust to this (very large) bump in the road.
