Why California and Texas are dominating grocery store growth

Dive Brief:

  • The latest Grocery Tracker report from commercial real estate research firm JLL shows that grocers opened more than 440 stores in 2016, and that 27% of these openings occurred in California and Texas, according to Chain Store Age.
  • The grocers that drove growth in California were Aldi and Grocery Outlet, while H-E-B and Kroger opened the most new stores in Texas. Nationwide, Whole Foods and Aldi led the industry in number of new locations opened.
  • Following Texas and California were North Carolina, Virginia and New Jersey, which each accounted for 5% of total grocery store space added in 2016.

Dive Insight:

The rapid supermarket growth happening in two of America’s largest states says a lot about Kroger and Aldi's industry ambitions.

In Texas, Kroger has made aggressive inroads in Dallas and Houston, where suburban growth continues to create new opportunities. The company is currently in the thick of a $1.2 billion development project — $500 million in Houston and $700 million in Dallas — to build new stores and remodel old ones. It’s an aggressive expansion that Kroger hopes will give it a competitive advantage against homegrown players H-E-B and Whole Foods. Kroger also has Wal-Mart in its sites, as evidenced by the large-format Marketplace stores its been building, which average 124,000 square feet.

Overall, Dallas and Houston represent two of the biggest retail opportunities in the U.S. right now. According to the Houston Chronicle, the city saw 4 million new square space of retail development last year — up 33% from the before. Dallas, meanwhile, expects to see 6.9 million square feet of new retail space over the next year and a half, per real estate and investment firm CBRE.

So big is Kroger’s opportunity in the Lone Star State that two years ago the company split its southwest division into a Houston division and a Dallas division.

In retail-saturated California, growth comes down to succeeding where others have failed. Aldi thinks it has a winning formula in its high-quality goods and value prices — a focus that distinguishes it from many competitors, not to mention those, like Fresh & Easy and Haggen, that had to pull out of the market. Last year, Aldi built 45 stores in California and has plans for many more.

Despite all the hype surrounding their growth, both retailers face big questions. Will Aldi be able convince U.S. customers to buy its mostly private label assortment? Will Kroger be able to stand out in a Texas market where its brand isn’t as well known as Wal-Mart, H-E-B and other longtime players? And how will both companies continue to navigate growth at a time when e-commerce sales continue to expand? 

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Filed Under: Grocery Corporate
Top image credit: Almonroth