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What ALDI’s rapid expansion means for net rental investors

The pandemic has cast a spotlight on essential retailers, and despite a resurgence in almost every retail category, the grocery sector remains a priority for investors. Shopping Center Business recently reached out to Tom Georges, Director of Stan Johnson Co.’s New York office, to discuss current trends impacting the single-tenant and multi-tenant grocery industry and to explore why the European discount grocer ALDI has become a growth leader.

SCB: What is the demand for food retailers in today’s market? Why?

George: Over the past two years, several retail categories have proven resilient to the pandemic, and the essential nature of groceries puts them right at the top of this list. However, with today’s thinly stocked shelves, labor shortages at food processing companies, and rising transportation costs, grocery stores are facing their fair share of challenges. But for investors, the grocery sector generates significant demand. Grocery-rented properties are highly sought-after properties for commercial real estate investors – not only do most customers still prefer to shop in person or have their online orders fulfilled through curbside pickup, but the anchors of groceries help drive traffic to other online retailers. Across the country, we’ve seen stand-alone, single-tenant grocery stores as well as grocery-anchored malls become highly desirable portfolio additions. And in the single-tenant net lease business, one of the most in-demand brands is the ALDI discount grocery store.

SCB: What is driving ALDI’s rapid expansion and what regions are they targeting for growth?

George: With more than 2,150 stores in 38 states, ALDI is one of America’s fastest growing retailers across all industries. In the grocery sector, the company’s current expansion plans put it among the biggest brands by number of stores, already surpassing Ahold Delhaize’s 1,029 locations (Food Lion, Stop & Shop and Hannaford) in the United States, and rapidly approaching Albertsons Cos. Inc. and The Kroger The company’s store counts, which are 2,260 and 2,800, respectively. Germany-based ALDI, with US headquarters in Batavia, Illinois, is a price-driven brand that appeals to the value-conscious consumer. Plus, with their unique brands and quirky features, they’ve amassed a loyal following, with consumers in underserved markets hoping for a grand opening announcement. In addition to wanting to serve its customer base, another driving force behind ALDI’s rapid expansion is looming competition from Lidl, another European grocer who has announced expansion plans for US markets. While Lidl’s rise to power has not been as rapid as originally expected, ALDI has not slowed down. Currently, 20 states have plans to open stores in the near future, with Chicago, Illinois and the Gulf Coast region seeing the most robust activity.

SCB: How does ALDI’s expansion create opportunities for net leasing investors?

George: With its long-term leases of 15 to 20 years, no landlord liability, typical rent increases of 5.0% every five years, and well-located properties, ALDI has become extremely attractive to net rental investors. With its rapid expansion, there are significant opportunities for investors to acquire newly built ALDI properties. Just as a dollar store can enter a market that a Walmart or other big-box retailer cannot because of low population density, ALDI can succeed because of its smaller size and model. low cost shopping. With floor plates typically under 20,000 square feet, roughly the size of a drug store, ALDI is able to efficiently serve markets that its competitors cannot and adequately staff their stores with less overhead. employees. Combined with their one-trolley and no-bagging policies, ALDI-exclusive branded items and shorter hours, ALDI’s cost-conscious business model has been a recipe for success.