Food retail will remain a growth sector well after the pandemic and will continue to drive footfall, experts agreed at Real Asset Media’s European Opportunities – Investing in Resilient Retail briefing, which took place online recently.
“There is a lot of appetite among investors for the grocery real estate sector and a lot of new players coming to the market, including family offices,” said Sascha Wilhelm, CEO, x+bricks. “The sector is very crowded now, but when we started in 2018 we were ahead of the pack and at the time big institutional capital wasn’t interested.”
There’s been a lot of activity in the sector recently, he said, “but being the first specialist in the sector has given us a competitive advantage and we’ve become the number one partner for grocery operators.”
Food is a cashflow-orientated business model that has proved to be extremely resilient in Germany and there is still a lot to be done.
“In Germany institutions didn’t like food even if it always was a good, defensive product, but the situation has completely changed recently,” said Mike Bellhouse, director, head of retail investment international capital, JLL. “In the UK it’s different, as food has long been an institutional product and rents have shot up.”
Yields are 8-9% in the UK and 4-5% in Germany, the two biggest markets in Europe.
“There is huge demand for defensive products like food retail, especially in Northern Europe, but it’s spreading to the South as well,” he said.
Online food sales will give consumers more choice
Digitalisation and omnichannel are key trends that will strengthen, giving consumers more options and more platforms to choose from. But in Germany food has remained quite low as a percentage of online retail.
“Food margins are tight and logistic costs are quite high,” said Angelus Bernreuther, head of investor relationship management, Kaufland Stiftung. “Another factor is that 93% of Germans can reach a food store within five minutes, so it’s more convenient than ordering online.”
Kaufland is providing an omnichannel experience for its customers, but it’s also increasing the number of its hypermarkets of 2,500 sq m and above because they have proved successful across the country.
“We believe in physical retail and we keep expanding with our hypermarkets into new areas,” said Bernreuther. “Many of the new formats will go into shopping centres as well as inner cities where parking is available. Food retail will remain the main anchor to drive footfall.”