Attention shoppers: Grocery stores in New York City are undergoing a major transformation as large, upscale supermarkets like Whole Foods, Fairway and Trader Joe’s are becoming the new standard destinations for food shopping. As a result, smaller, traditional supermarkets, unable to pay rising rents (and, in some cases, compete with the newcomers’ broader selections), are closing or changing in order to survive.
Whole Foods, Trader Joe’s and Fairway now have a dozen stores opened or planned in the city, whereas there were zero a decade ago. These retailers are now conquering the food store scene by anchoring major commercial developments as well as new residential projects — and by expanding to the underserved outer boroughs.
Since 2001, when it opened its first New York City store at 250 Seventh Avenue and 24th Street, Whole Foods has opened three other locations in Manhattan. And plans are in the works for the chain to open a store in Tribeca, another on the Upper West Side, and its first store in Brooklyn. Its new store in Tribeca will be part of a new residential building at 101 Warren Street. Trader Joe’s, which is newer to the city (its first store, at 142 East 14th Street near Union Square, opened in 2006), has plans to expand to Brooklyn and Queens. Fairway added its third store in New York when it opened in Red Hook, Brooklyn, in May 2006.
Meanwhile, many supermarkets that have long been household names for New Yorkers are experiencing more closings than openings, largely due to rent increases. Those losses mean fewer options for shoppers in areas that are often already underserved by supermarkets.
According to the New York State Department of Agriculture and Markets, of the 11,662 stores in New York City that sell food, only about 5 percent of those qualify as traditional supermarkets (stores that have square footage greater than 10,000 square feet). That leaves residents in many areas dependent on small stores with limited selections (in the Bronx, for example, about 92 percent of stores are under 5,000 square feet) and sometimes higher prices. The United Food and Commercial Workers (UFCW) Local 1500, the union that represents retail food workers, is hoping to turn that situation around.
Pat Purcell, director of special projects for UFCW Local 1500, is working with City Council members to make opening new stores economically feasible for supermarket owners, with possible tax breaks or incentives. Purcell estimates that “over the past 10 years, between Key Food, D’Agostino, and Gristedes, we’ve lost approximately 50 stores,” and that A & P, Waldbaum’s and Food Emporium have shut down “at least a dozen stores in Manhattan in the past five years.”
Gristede’s recently closed eight stores in Manhattan. D’Agostino closed a store in Brooklyn Heights in 2005 (a Garden of Eden gourmet grocery store took its place) and closed its Chelsea location in 2006. Another D’Agostino in Park Slope closed this past April (soon to be a Bank of America branch).
“A few years ago, rents were $50 to $60 [on average] a square foot, and every supermarket could afford those economics,” says Darrell Rubens, managing director at Winick Realty. “Now rents are more like $100 per square foot in Manhattan, and some markets have trouble with that.”
While smaller stores are struggling with higher rents, larger stores are shrugging them off.
Whole Foods and Trader Joe’s, which have been very well received by New York shoppers, can withstand New York’s high retail rents because of their substantial sales volumes here. “The sales they do in New York are a lot higher than in the rest of the country,” says Ariel Schuster, senior managing director at Robert K. Futterman & Associates. “The larger tenants do a lot more volume than they do anywhere else. Volumes in Manhattan are far superior, so it makes it worth their while to open up here.”
Often, the main difficulty that big retailers — particularly Whole Foods — face in New York City is finding spaces large enough to accommodate their stores, most of which require upwards of 40,000 square feet.
Schuster brokered space for a Whole Foods Market at 101 Warren Street, a condominium and rental building with 180,000 square feet of retail space on the ground level, 70,000 of which will go to Whole Foods. The building is set to open in early 2008.
“Whole Foods definitely has trouble finding spaces that are big enough,” Schuster says. “But this space came up, and they wanted to be down in Tribeca, where there is an unmet demand for a supermarket. Both Dean & DeLuca and Food Emporium were interested, but we went with a larger user.”
Whole Foods will also open a store at 808 Columbus Avenue in 2009; Jeff Winick, CEO of Winick Realty, which represents the owner of 808 Columbus, said the chain had been “searching in all areas” before they found this location.
Supermarkets are also finding themselves competing with banks and drugstores for space.
“We’re constantly looking for space in Manhattan,” says Morton Sloan, president of Morton Williams Supermarkets, which has eight stores in Manhattan. “Rents have become, to some extent, unaffordable in neighborhoods we’d consider suitable for supermarkets, and banks and drugstores are often willing to pay more,” he says. “We’re seeing the disappearance of conventional supermarkets from Manhattan.”
“If you’re asked to pay $100 per square foot to sell milk and bread, you can’t make those numbers into reality,” says John Catsimatidis, chairman and CEO of Gristedes and the Red Apple Group, which runs 43 Gristedes stores throughout New York City. Catsimatidis said that his company recently sold eight Gristedes supermarkets in Manhattan to Duane Reade.
Catsimatidis owns 1.3 million square feet of space covering three blocks at Myrtle and Flatbush avenues in Downtown Brooklyn. He is planning a mixed-use residential and commercial development for the space. Duane Reade will be taking over a portion of the 250,000 square feet of commercial space included in the project, and Catsimatidis says he also plans to put in a Gristedes supermarket. “We’ve been in business in the city for 37 years,” says Catsimatidis. “We have flexibility, and we want to do business and stay in business.”
Many smaller supermarkets are able to be flexible with space in a way that larger ones are not. Gristedes signed a lease for a 7,500-square-foot store at 90 Maiden Lane. The store will be the chain’s first one in the Wall Street area, which Jeff Winick, the broker for the deal, describes as a neighborhood that is “underserved in every category.” Part of the reason Gristedes was able to make the space work for them is that “they’re flexible; their stores range from 7,500 to 20,000 square feet,” says Winick.
The newer megastores also vary in their space requirements. At the smaller end of the scale, Trader Joe’s New York stores range from 12,000 square feet to 14,500 square feet at the future location in Brooklyn, whereas most of Whole Foods’ stores require upwards of 40,000 square feet. Fairway’s original Upper West Side store is 25,000 square feet, but its Red Hook location is twice as large at 52,000 square feet.
“If you have a successful chain that’s used to doing business in Manhattan, you learn to compromise with size,” says Rubens. “It’s harder now for any retailer to find their ideal space in the city because of prices.”
Sloan cites his stores’ size adaptability as a plus for doing business in New York. “In Manhattan, we like 10,000 to 19,000 square feet, but we can take a store with as little as 5,000 or 6,000 square feet,” he says. “We can build a small store; we’re flexible.”
The presence of a large, specialty supermarket like Whole Foods in close proximity to a more traditional market is not always a competitive showdown. “We have two stores near Whole Foods, one uptown and one downtown, and our business is above where it was prior to Whole Foods opening,” says Sloan. “The products from those markets are not a substitution for the things that a supermarket sells.”
Sloan says Morton Williams stores “made efforts to stock healthy products and organics before Whole Foods ever opened their stores,” and that perhaps that strategy has paid off. “That’s the reason why we haven’t been hurt so much,” he says.
In the outer boroughs, large supermarkets tend to be few and far between.
“There are lots of neighborhoods in need of markets, but not the space to house them,” says David Rosenberg, executive vice president at Robert K. Futterman. “Unless a development is built that has several hundred thousand square feet of space and parking, I don’t think you will get many of those large markets any time soon.”
Rosenberg adds that “the outer boroughs are substantially underserved” and retailers should have “faith that shoppers will travel to get to their stores.” That appears to be the case with the popular 52,000-square-foot Fairway in Red Hook. Grocery executives are hoping for a copycat performance at the 68,0000-square-foot Whole Foods (including a parking lot) being built at 3rd Street and Third Avenue on the border of Gowanus and Park Slope. That area, like Red Hook, is not convenient to subways.
“When Fairway, which is well-versed in New York City customers, opened in Harlem, everyone thought they were crazy,” says Rosenberg of the chain’s second store at 132nd Street and 12th Avenue. “But they’re very successful, and the store in Red Hook is very busy.”
Even in some of the hot spots where new developments are rising but that still lack services, many brokers share the opinion that the population must be there before retailers will open.
Williamsburg, with its rapidly expanding housing market in areas that were previously industrial, is one example of a burgeoning area that lacks supermarkets. “When the three projects from North 3rd to North 7th streets open, that will add 2.5 million square feet of residential units,” says Rosenberg. “Then there will be a reason for retailers to go there.” He adds: “There are buildings going up in Long Island City, Greenpoint and Queens West, all formerly industrial areas being transformed with mid- to high-rise development. As they continue to take shape, the population grows and creates a greater demand for retailers. But I’m not sure if the population is there yet to warrant a large-format market.”
The new mega-retailers have realized that some of their typical needs — like parking lots — are not necessarily required here. California-based Trader Joe’s, whose stores outside New York City usually include parking, was at first slow to show interest in Brooklyn, despite the wild success of their Manhattan store on 14th Street. But about a month ago, the chain signed a 15-year lease for 14,500 square feet in the Sovereign Bank building at 130 Court Street, which is owned by Two Trees Management. The store is scheduled to open in 2008.
“The urban model is different than what they’re accustomed to,” says Brooklyn Borough President Marty Markowitz, who enthusiastically petitioned Trader Joe’s to open a store in Brooklyn. “They had to change their mindset to see that parking isn’t essential here.” Trader Joe’s will also open a 10,800-square-foot store on Metropolitan Avenue in Forest Hills, Queens, sometime this year.
A lack of supermarkets is also a perennial complaint about Long Island City, which is gradually transforming itself from an industrial area to a residential one. “Long Island City is behind in terms of development, but quickly catching up,” says Aaron Grumet, director of development at DY Realty in Long Island City. “But the lack of infrastructure is a big problem.”
Many Long Island City residents shop at Costco on Vernon Boulevard or order from grocery delivery service Fresh Direct. In spring 2008, they’ll have another option: the Amish Market, which currently has four other Manhattan stores, will open on the ground level of 47-05 Center Boulevard, one of seven luxury rental buildings that Rockrose is developing.
A spokesperson for Rockrose said that the company had sought out smaller grocery chains with the hope that they would want to expand to fill the 20,000-square-foot space and add to the mix of retail in the neighborhood, which includes both smaller stores and brand-name chains.
Grumet compared the scarcity of supermarkets in Long Island City to the housing and services situation in Williamsburg, where “developers can’t find a big enough site that isn’t having condos built on it. You need 5,000 to 15,000 square feet to have a supermarket, and a developer would rather sell part of the ground floor as a condo than have a supermarket.”