Before the recession, Scranton, Pa., was like many other American cities. It was struggling to regain its hustle and bustle, dealing with shuttered businesses and empty storefronts, trying to rebuild a population that had drained into the land of opportunity: the suburbs.
But as the recession advanced and then slowly retreated across the country, it shifted the population momentum for Scranton and many other areas. Thousands of new residents began to move back into the city.
And these new city dwellers needed a grocery store ...
[Click here to see a slideshow of new urban retail locations.]
“A lot of the larger buildings that were sitting vacant a decade ago or even five years ago have been part of downtown revitalization projects and brought a lot more housing into the cities,” says Christopher Gilchrist, president of Convenient Food Marts of NEPA, Clarks Summit, Pa. “A lot of them are full now.”
So Convenient Food Marts, better known for its traditional c-store franchise of 29 locations across the Keystone State, launched a new urban concept, City Market & Café, a 7,000-square-foot, fuel-free concept that is part c-store, part grocery and part restaurant.
Think large deli with homemade entrees—eggplant Parmesan, lasagna, meatloaf—made-to-order salads, grilled panini sandwiches, pizza, an ice-cream counter, dairy products and organic produce.
“We just felt there was a need for a downtown grocery store in Scranton,” says Gilchrist. “A lot of people were expressing their wants and desire to have one. We had a market study done, and the numbers came back fairly strong. We took a chance on it and it paid off.”
So for c-store retailers such as Convenient Food Mart, it’s summer in the city.
For the first time, more than 80% of the American population resides in what the U.S. Census Bureau defines as “urban areas,” meaning “densely developed residential, commercial and other nonresidential areas.”
What is more significant: The urban population jumped 12.1% from 2000 to 2010, compared to a 9.7% growth rate for the nation as a whole. And in more recent years, the annual population growth rate of large cities (those with 1 million or more) has outpaced that of the suburbs.
What is driving the metropolitan momentum?
- Unable to qualify for mortgages during the recession, many millennials have headed to the city, taking advantage of plentiful rentals, public transportation and greater job availability.
- Baby boomers and “empty nesters” looking to downsize have migrated to urban areas—many in Sun Belt states—for their walkability and ease of living. Historic-low interest rates are spurring a construction boom in many metro markets, sparking new rental high rises, cultural outlets and food offerings.
- The rise of immigrants in urban centers has yielded a rich selection of services catering to new Americans.
The qualities of urban living—walkability, accessible transportation, amenities within reach—are also extending their influence into suburban development.
“Even in the suburbs, there’s a tendency to live in clustered developments, near public transportation,” says William Frey, demographer and senior fellow for the Metropolitan Policy Program at The Brookings Institution, Washington, D.C. “The idea of urbanization takes a different form than just city vs. suburb. It’s the kind of community you’re living in.”
This movement has offered c-store retailers a new outlet for growth, whether on one of the busiest corners of downtown Philadelphia, at the ground floor of a student apartment complex in Madison, Wis., or on the neglected outskirts of a metropolis. And the good news is more urban planners and zoning boards are embracing these convenience entrants with relatively open arms.
“In the last three years, there’ve been more opportunities,” says Jim Fisher, CEO of IMST Corp., a Houston-based retail sales analysis firm. “Since the 2009 economic disaster that hit so many city governments, projects that they never ever would have considered for a c-store, they are wide open to it.”
The challenge is not so much finding the room to grow, but a format that works.
“There are very, very diverse segmented trade areas within every metropolitan and urban area that provides opportunity,” Fisher says. “Can you operate within that environment?”
CONTINUED: Blow Up the Model
Blow Up the Model
One of the most common, although not universal, features of urban retail is no space for fuel. While forgoing a business that generates more than two-thirds of c-store industry sales may seem unimaginable, it can also drive innovation in design.
Wawa Inc. is building a 5,300-square-foot site in Philadelphia’s Center City business district. Slated to open by Thanksgiving, the store will be the first Wawa with indoor seating, and it will sell no fuel, instead spotlighting the chain’s robust made-to-order foodservice program. The site joins three other Center City locations.
“Our main growth strategy remains focused on larger format c-stores with a large fuel presence,” Chris Gheysens, CEO of the 680-store chain, based in Wawa, Pa., told CSP. “However, it’s hard to ignore the growth happening across our large cities. Retailers of all types are making urban pushes and getting creative with store design to enable that growth, as they see the growing opportunity to serve millennials and others who have migrated back to ‘center city.’ ”
In February, Sheetz Inc. opened Sheetz at U Place, a 15,000-square-foot site on the ground floor of a student apartment complex in Morgantown, W.Va., home of West Virginia University. The store features indoor and outdoor seating and focuses squarely on the chain’s made-to-order foodservice and groceries.
It’s what Sheetz president and CEO Joe Sheetz has described as “a giant sandbox,” allowing the
chain to develop a model “in cases where gas pumps or parking don’t make sense.” And it’s a nod to the demographic move—sparked by millennials—toward metropolitan centers.
“There’s definitely been a shift that started last decade ... where people are moving to the cities and living a more urban lifestyle,” says Emily Sheetz, director of special projects for the Altoona, Pa.-based chain, which has more than 500 stores. “Because of that, they need services. Maybe some don’t have vehicles or they’re not using them as frequently. They’re walking more places. We really saw an opportunity there, in particular in locations where there is a 24-hour population.”
By targeting a university setting, Sheetz says, the chain can directly target millennials, a strategy it will repeat in State College, Pa., near Penn State University. A third store is in the works at an undisclosed location.
And in a similar example, Kwik Trip Inc., La Crosse, Wis., opened a 6,500-square-foot location in a new apartment complex on the campus of University of Wisconsin-Madison in August 2014. The site features groceries, prepared foods, beer and a frozen-yogurt bar—and is the company’s first without fuel.
The store relies heavily on foot traffic and business from the apartments, and, for Kwik Trip, reflects “more of an experiment for a campus model than an urban model,” says Steve Loehr, vice president of operations support for the 450-unit company.
Interestingly, because of its grocery expertise, Kwik Trip could have an opportunity to address food deserts in urban markets, he says. And perhaps not coincidentally, both Kwik Trip and Sheetz are members of Partnership For a Healthier America, a nonprofit coalition that aims to offer healthier food choices across much of the country’s landscape, including underserved cities.
And as CSP went to press, Convenient Food Mart announced plans to open another City Market & Café, in Wilkes-Barre, about 20 miles from its Scranton site.
While its success is clear—the Scranton store has rave reviews on Yelp, hundreds of Facebook fans and strong sales since its first day of business—developing the new concept took some courage, Gilchrist acknowledges.
“The fact that there is no parking, there’s no gas—that’s where we differentiated ourselves,” he says.
CONTINUED: Maintaining a Retail Mindset
A Retailer Mindset
Making an urban model work—especially if fuel is not an option—requires vision, says Fisher of IMST.
“Are you a retailer, and can you as a retailer operate a store without fuel?” he says. “Or are you still a marketer and whenever you look at a site, do you already envision it with fuel?”
Two years ago, Ellicott Development Co., a seven-store Buffalo, N.Y.-based chain, opened a fuel-free location on the ground floor of a 119-year-old building renovated as part of an urban renewal taking place in downtown Buffalo.
“Every year the growth [in downtown Buffalo] is at a higher level,” says Denise Gorlick, general manager of retail operations for Ellicott. “It’s really becoming a year-round destination for people of all age groups, all demographics. They come down here for entertainment purposes, concerts, plays and just the waterfront in general.”
The building where Ellicott’s Trading Co. Store resides in also is a draw, for the professionals who work there and for those who visit traffic court or pay utility bills. There’s a bus stop in front of the store, The State University of New York at Buffalo campus is a block away, a baseball stadium is across the street and the hockey arena is just two blocks away.
The 2,200-square-foot store, named Ellicott Square Trading Co., has a proprietary foodservice program anchored in sandwiches, subs and salads, and baked goods made fresh on site. Rotisserie chicken also is a popular item. The merchandise mix aims to make it a one-stop consumption shop.
“You can stay in this building all day while you are working, stop there on your way in for breakfast, come down for your snacks or coffee, and go for lunch. And you can even pick up a dinner meal option on the way out to take home with you,” Gorlick says.
For an urban store to be a success, population density is the first criteria, as well as the consistency of foot traffic throughout the day, says Fisher. One challenge is that some downtowns essentially shut down after 5 p.m., which means that the retailer must capture the bulk of sales in the morning and afternoon day-parts, and this can mean a merchandise mix much different from the c-store norm.
For example, at the Ellicott Square Trading Co., birthday cakes are popular with workers in the surrounding offices. The store also offers cards, holiday gifts, flower bouquets and gourmet chocolates.
“It really is unique,” says Gorlick. “I would say this is the most blended location I’ve ever operated.” That said, the mix seems to work. Although the store has a smaller footprint and limited operating hours compared to other Trading Co. locations, it is already matching the others in store sales, she says.
Sheetz prefers a mix of a residential and commercial population nearby for its new concept, with universities and hospitals especially attractive “because they pull so many people together in one location,” says Emily Sheetz.
“Pedestrian traffic is our first hurdle,” she says. “It [needs to be] a busy location with pedestrian
traffic at different day-parts that could sustain the 24-hour or past just lunch and dinner business.”
“The key seems to be location,” agrees Loehr of Kwik Trip. “A store like this needs to be on the footpath that has the largest student count throughout the day.”
However, even campus locations such as the University of Wisconsin-Madison can pose retail challenges. For example, sales are directly linked to when school is in session. Spring-break weeks can substantially affect sales.
Because of the heightened importance of population density and daytime foot traffic, building in an urban environment is more constrained, especially for retailers who are accustomed to construction on empty lots.
“You will have to say, ‘This works,’ buy something, knock it down and create a new entity,” says Fisher. “You’re not going to find an empty site.”
“We are used to building from the ground up. When you go into an urban environment, you often do not have that opportunity,” says Sheetz. “If you are building from the ground up, you’re often part of a development, so you need to work within the guidelines of your development partner.”
While the Morgantown location was part of a development, the Penn State location is going into an existing building that requires complete renovation.
“We couldn’t even have a standard floor plan for the concept,” says Sheetz. “Each one is going to be different.”
CONTINUED: Where Does Fuel Fit?
Fuel for Thought
Ryan Razowsky, vice president of Deerfield, Ill.-based Rmarts LLC, is no stranger to urban retailing. His chain has six stores, including some in Chicago. And he has a hip new suburban store concept, FillinUp, which targets millennials and women with a fresh, upscale design and quality food options that lean toward the healthy side.
The first FillinUp store is in suburban Carol Stream, Ill., and sells fuel. Razowsky, a millennial himself, is trying to figure out how to bring the concept into the city—but leave the fuel behind. This has proven to be somewhat challenging.
“I’ve never opened a store that doesn’t have gas,” he says, “so for me, it’s a lot more difficult to predict what numbers are going to look like.” Customer counts and traffic across different day-parts become even more critical without fuel, which typically draws in traffic all times of the day, he says.
In addition, a traditional c-store product mix would not be enough of a draw for an urban location, with cigarette sales declining and margins tight on beer and wine.
For Razowsky, the key is foodservice.
“If a convenience store had a really good deli or foodservice option, I would go there for breakfast, grab something quick for dinner on a weekday, and I’d go for lunch on the weekend,” he says.
It’s the kind of proposition more retailers soon may find themselves considering as urbanization grows.
“We expect urban areas to spread,” says John Eichberger, vice president of government relations for NACS and executive director of The Fuels Institute, a nonprofit think tank that studies trends shaping the fuel market. The group is wrapping up a study due out this fall that examines how urbanization will affect future fuel demand.
Take, for example, the D.C. area. “You can live in Northern Virginia, 10 miles outside of D.C., and survive without a car very, very easily, and that used not to be the case,” Eichberger says. He does not see a seismic shift toward fuel-free, urban c-stores, but believes retailers need to reckon with urbanization.
“The next generation is already more integrated into an urban setting,” he says. “Things are more readily available, they don’t necessarily have to have a car if they don’t want one, they have things available 24 hours a day. That’s a generational trend.”
But, Eichberger wonders, “How long will that last? Will it go into the next generation as well?”
CONTINUED: Census Trends
A Trend Still Playing Out?
While population growth in cities has outpaced that of suburbs since the recession, the pace has slowed as the economy has recovered. It’s a development that suggests millennials may not entirely forgo suburban living.
The spate of urban growth should be put in the context of an earlier jump in suburban growth during the fırst half of the 2000-2010 time period, says William Frey, demographer and senior fellow for the Metropolitan Policy Program at The Brookings Institution, Washington, D.C. During this period of easy mortgages, people flocked to fast-growing Sun Belt areas and their suburbs.
“The housing market turned on its head and we had the fınancial collapse. Then the recession put the brakes on a lot of the suburban construction and the ability of young people to fınance a new home. They weren’t getting the jobs, and they were stuck in an early stage of life when they should be moving on,” he says. “That’s continued to some degree.”
However, recent fıgures from the U.S. Census Bureau through July 2014 hint at revived migration into outer suburban counties, says Frey, especially in Sun Belt states such as Florida. Meanwhile, New York and Los Angeles are seeing increased migration into suburban areas. Frey says this suggests that as the economy strengthens, millennials may start following the traditional stage-of-life pattern toward suburbs.
“We’ll have to wait to see the extent to which the economy will pick up and allow them to get on with their lives,” says Frey. “Maybe this particular generation has already decided where they’re going to be.”
And what pattern will Generation Z follow? “The bigger question is for the next generation, who hopefully will have a better time of it economically,” says Frey. “They will have more of a chance to think of what their real preferences are without the constraints to buy a home, finance a mortgage or get on the career track they thought they might have.”
Will they follow the migration moves of their parents and grandparents, or continue in the footsteps of millennials?
Urban Expansion
According to the latest U.S. Census fıgures, more than 81% of the United States population lives in urban areas,which also have been experiencing a greater growth rate than the nation as a whole.
| Year | Urban percentage of total U.S. population | Retail events |
| 1970 | 73.6% | |
| 1980 | 73.7% | |
| 1990 | 75.2% | Wawa opens its first location in Center City, Pa., in 1994 |
| 2000 | 79.0% | Growth rate for suburbs begins to slow after a decade of accelerating. 7-Eleven opens its 25,000th site worldwide in downtown Chicago. |
| 2005 | 79.9% | |
| 2006 | 80.1% | Aggregate population growth in outer suburban and exurban counties peak.. |
| 2007 | 80.3% | |
| 2008 | 80.4% | |
| 2009 | 80.6% | |
| 2010 | 80.7% | Cities with populations greater than 1 million begin growing at a faster pace than suburbs. |
| 2011 | 80.9% | |
| 2012 | 81.1% | Target unveils CityTarget, its new urban prototype, in Chicago, Los Angeles and Seattle. Walgreens debuts two-story flagship store in Chicago that sells sushi, smoothies and more than 700 wines. |
| 2013 | 81.3% | Walmart opens first of two urban stores--half the size of its supercenters--Washington, D.C. |
Sources: U.S. Census Bureau, The Brookings Institution, company reports
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