Why Whole Foods, Wegmans are moving into Philly-area malls

Call it a marriage of convenience or basic survival, but malls are again courting supermarkets to fill department store vacancies and appeal to a selective food customer.

A Whole Foods market will open later this year at Exton Square Mall, following another at Plymouth Meeting Mall and a Wegmans at Montgomery Mall. Other chains, such as ShopRite, are scoping out mall spaces long occupied by Macy's, Sears, and J.C. Penney.

Nationally, grocery stores are reentering spaces long reserved for fashion retailers: Jimbo's, a specialty food chain much like Whole Foods, opened at Westfield Horton Plaza in San Diego; Wegmans is replacing a Penneys near Boston; and College Mall in Bloomington, Ind., will welcome 365 by Whole Foods Market this fall.

"There is a lot happening because grocery stores are innovating and really ramping up," said Metro Commercial CEO Tom Londres, whose firm is currently involved in a number of deals at various stages between supermarkets and malls. "Now grocery stores have a full liquor bar and are holding events, like 'Happy Hour at Whole Foods.' "

Liz Mills, 53, a mother of three from Lower Gwynedd, goes at midweek to Plymouth Meeting's Whole Foods for dog food, water, and groceries. She said she appreciates the wine selection, flowers, and prepared foods.

"A grocery store at the mall makes it much more of a destination trip than having to go to two separate locations to shop for groceries and another for clothing, shoes, etc.," Mills said. "I may go to the mall, but I must go to the grocery store."

It's been more than 50 years since malls and supermarkets last joined forces. Malls need replacements for darkening anchor stores as e-commerce, especially Amazon.com, snaps up big chunks of traffic and sales. Mall restaurants have been steadily improving, making high-end grocers a logical next step.

For their part, grocery stores represent one of the more internet-proof sectors in retail. Online U.S. grocery sales for 2016 accounted for less than 1 percent of the $1 trillion U.S. grocery retail market, according to a recent Moody's report.

"Food is not as easy to get online," explained Craig Johnson, president of Customer Growth Partners, a retail consulting firm​. "Most people like to look at meats and produce while shopping."

The grocery sector is also growing — in contrast to malls — as the big markets offer more of a "department store feel," with everything from greeting cards and beauty products to cereal and wine.

The combination can work well, said Steven H. Gartner, managing director for retail services at CBRE Inc., which three and a half years ago acquired Fameco, the real estate firm that handled the deal to put the huge Wegmans into Montgomery Mall in late 2013.

"Before, supermarkets would never go to a super-regional shopping center because it was too congested and inconvenient," Gartner said. "Now it's become acceptable."

The newer supermarkets "have significant eat-in components that work well to serve a surrounding office population," added Gartner, who cited the Plymouth Meeting Whole Foods for its big lunch crowd during the week.

When they began entering malls in the 1960s, large supermarkets were no bigger than 25,000 square feet. Some examples included the Acme at King of Prussia Mall, which opened in 1963, and Food Fair at Cherry Hill Mall in 1961.

But now a typical Wegmans covers 130,000 square feet and includes restaurants, a potpourri of prepared foods, a pub, deli, and bakery, among other things.

Experts say malls can not only accommodate these super supermarkets, but are in locations where major highways intersect. They typically sit near dense populations, and are highly visible with plenty of parking.

Jason Ravitz's family owns five ShopRites and a PriceRite in South Jersey under the Wakefern Food Corp. coop. As vice president of retail operations, he's always scouting for new sites. Lately, he's been getting calls from real estate brokers about new spaces at enclosed malls in Pennsylvania and New Jersey.

"For now, I am taking the tours, looking at everything, and being very meticulous," he said. As deputy mayor of Voorhees, Ravitz is also helping the owner of Voorhees Town Center replace the Macy's that closed last month.

From a landlord's perspective, grocery stores can drive traffic to a property and add elements and experiences.

When mall owner Pennsylvania Real Estate Investment Trust (PREIT) opened Whole Foods as an anchor at Plymouth Meeting Mall in 2010, CEO Joseph Coradino noted the store's influence on the other mall retailers. Sales grew by $69 per square foot the first year, reaching $321 per square foot.

Whole Foods "helps make our property a unique destination," Coradino said.

For the organic grocery chain, the numbers were good enough to try a second center, Exton Square in Chester County. The Whole Foods there opens in late 2017.

The combination shows how consumers are evolving to seek "a diverse mix of experiences at the mall," such as "entertainment, dining, fitness centers, spas, and even grocery stores," Coradino said.

Another factor: More women are working.

Women once were mainstays at malls during the week but now go mostly on weekends, Johnson said. So supermarkets can help fill the gap Monday through Friday.

And it's not just any food purveyors. The early entrants "appear to be specialty food stores like Whole Foods, Sprouts, Trader Joe's, and others, on one end of the spectrum, and superstores, such as Wegmans, on the other," said Phoenix-based retail consultant Jeff Green. "We are seeing less interest from the more traditional supermarkets like Kroger, Safeway, Giant Foods, though that will likely change."

It's already starting to: In 2015 Kroger Co. bought a former Macy's store at Kingsdale Shopping Center, an open mall near Columbus, Ohio.

Wegmans approached Simon Property Group, which owns King of Prussia Mall, in 2010 about moving into Montgomery Mall. And in late 2013, Wegmans took over the space of a two-story Boscov's.

The chain began construction on its second mall location earlier this year at Natick Mall near Boston. That store, which opens next year, will replace a Penneys store.

Ralph Uttaro, Wegmans' senior vice president of real estate, said the closings of Sears, Macy's, and Penneys stores gives the supermarket chain options it didn't have five or 10 years ago: "We build three or four Wegmans a year. We're very selective."

The Montgomery Mall store is "performing as we projected" and has encouraged the company to look at other malls, Uttaro said.

Suburban mother Mills also shops at the Wegmans at Montgomery Mall during the week, often after a trip to Banana Republic for new clothes.

"It is a huge convenience to be able to do one-stop shopping," she said. "The traditional mall seemed to be fading away, but that may be halted by the addition of the necessary to all of us — the grocery store."