Normal Grocery Study 2013

Town of Normal Uptown Normal Grocery Feasibility Study

May, 2013


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Table of Contents

Section One: Introduction and Overview..………………..………….………………………….3

Section Two: Market Assessment and Analysis………………..……………..……………….4

Section Three: Site Evaluations……….…………………………………………………………13 Site Overview Site Evaluations Development Budget Operating Statement

Section Four: Next Steps – Implementation Strategy…..……………………………………21

Section Five: Appendix………..…………………..………………………………………………22

Grocery Study Overview Demographic Profile Source of Sales Source of Sales Map Development Budget


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Section One: Introduction and Overview Introduction DKMallon (DKM) was hired by the Town of Normal, Illinois (Town) to determine the feasibility of a grocery store in Uptown Normal. The study included performing grocery store studies including market analysis, site evaluation and sales forecasting. This study and findings could lead to the Implementation Strategy which is discussed in further detail in Section Four. Study Process

The assignment consisted of three phases. The first phase was the Fact Finding Review. DKM had several meetings with the Town staff and other stakeholders to help develop an understanding of the local and regional market area as well as the history of Uptown. DKM met with members of the Green Top

Grocery Cooperative to

discuss their vision and plans for a cooperative grocery store within the market. A study of a proposed cooperative grocery store was commissioned, however was unavailable for DKM’s review at this time. The second phase was a Market Assessment and Analysis to determine what type and size (if any) of grocery store is supportable in Uptown Normal. The analysis encompassed the entire grocery store landscape for the Bloomington – Normal metro area and then focused on three potential locations in Uptown Normal, IL near the Illinois State University campus. The last phase was the Site Evaluation. DKM working with Town staff identified three potential site locations for an urban – type grocery store in Uptown Normal. These locations included the College Avenue Parking Deck located at the NWC of College Avenue and Constitution Boulevard, the Ace Hardware store at the NEC of College Avenue and Linden Street and the Town parking lot at Linden Street and Parkinson Street. This phase included evaluating the sites and providing an estimate of construction and development costs. A proposed grocery store operating statement for years 1 – 3 was developed to determine the viability of the store based on the proposed sales and development cost.


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Section Two: Market Assessment and Analysis

Market Overview The Bloomington-Normal metro area encompasses approximately 64 square miles and has an estimated 2012 population of 130,835 residents. Within the metro area there are 17 national or regional retail outlets that sell food as their primary or a principle component of their business and two smaller independent markets that are more significant than the average convenience store. Dollar stores, drug stores, gas stations or very small convenience oriented stores that sell food items were not included in the study. The Bloomington-Normal metro area is the primary retail destination within McLean county as there are only three other communities within the county that have a grocery store, Heyworth, Leroy and Lexington and none of these stores based on sales tax receipts from the Illinois Department of Revenue generate any substantial business.


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On a macro level the Bloomington-Normal metro area actually generates more in grocery sales than the total potential dollars available within the metro area. The following 2012 market share table documents the average weekly sales by store and the combined total amount of sales. Using a standard formula of total population multiplied by the Per Capita Weekly Expenditure (PCW)∗ (130,835 X $44.30) the total weekly sales potential for the Bloomington-Normal metro area is $5,795,991. The total for McLean County (172,281 X $44.53) is $7,671,673. Based on the sales tax receipts for the year 2012 from the Illinois Department of Revenue the 17 primary grocery stores within the market a total combined sales of $7,296,000. For all of McLean County the total sales were $8,092,813. In both instances the amount in sales was greater than the total potential based on population. This indicates that the grocery stores in the Bloomington-Normal metro area draw 20% to 25% of their business from rural areas and some of the other surrounding counties. Therefore if an additional grocery store were developed in the ∗ PCW is the estimated potential dollars that a person has available on a weekly basis to spend on food. The number is derived by the combination of household size, income, ethnicity and spending patterns from the Census of Retail Trade.


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Bloomington-Normal metro area it most likely wouldn’t increase the amount of overall sales coming into the marketplace but rather capture its business from the current base of existing stores. Although the Bloomington-Normal metro area captures more in sales than its total potential the overall supply of grocery stores is sufficient but not overwhelming. To calculate the supply versus demand, a logical method is to calculate the amount of retail square footage dedicated to food divided by the population (per-capita square footage). The general rule is to use the gross square footage of an establishment, sales area plus backroom and prep area, to calculate the ratio. When accounting for supercenters, the gross square footage used is the sales area plus 25% of the backroom space and not the entire size of the facility. The total square footage of the 17 regional stores and the two smaller stores combined is approximately 794,435 square feet. Divide that number by the population of the metro area (130,835) and the per-capita square footage for the Bloomington-Normal marketplace is 6.1 square feet per person. Generally a market or trade area with a per-capita square footage of less than 4.0 is considered underserved or non-competitive. A grocery store that is located in an underserved area will typically generate strong sales regardless of how well the store is operated. It will most likely charge higher prices due to the lack of competition. A per-capita square footage of 4.0 to 8.0 depicts a trade area with an adequate amount of competition and

consumer choice. The grocery stores are typically more price competitive and will be more inclined to provide good service and a clean shopping environment. A per-capita square footage greater than 8.0 depicts a trade area that is over served or over saturated with competition. Oversaturated areas initially benefit consumers as the stores must maintain low prices in order to attract customers. Long-term, an oversaturated area can be detriment to the community. Weaker stores will close and the community can be left with a number of vacant stores and shopping centers. At the present time there are a few shopping centers within the Bloomington-Normal metro area that are mostly vacant or less than 50% leased. Since the current demand ratio of per-capita square footage (6.1) is at a competitive but not overly competitive level, the need for another large grocery store is limited. According to the U.S. Department of Agriculture, there is a ‘food desert’ within the Uptown Normal Area. A food desert is a low-income census tract where either a substantial number or shares of residents has low access to a supermarket or large grocery store. “Low income” tracts are defined as those where at least 20% of the people have income at or below the federal poverty levels for family size, or where median family income for the tracts is at or below 80% of the surrounding area’s median family income. The “food desert” in Normal is outlined in green on the attached page. The low access


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to grocery stores would support the need for a grocery store to serve the immediate trade area.


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The balance of grocery stores in the metro area in relation to where the population lives is rather poor. More than 70% of the total grocery square footage and total sales within the marketplace are concentrated in two

sections along

Veterans Pkwy on the east side of the metro area. The section of

Veterans Pkwy between Fort Jesse Rd and Vernon Ave accounts for more than 40%. The section along Veterans Pkwy between Empire St and Oakland Ave accounts for a little more than 30%. As a result the population in the western half of the metro area does not enjoy the convenience, quality or numbers of options are provided with. Stores located in the western half of the metro area don’t perform as well as their counterparts on the eastern half. The stores aren’t as large and lack the additional retail synergies of the stores along Veteran’s Parkway. However, the data suggests that even if a new store were to open on the west side of the metro area, west side residents may still travel to the east side to shop. A good example of the current situation is Schnuck’s #729 located at Main St and Raab Rd on the north end of the City of Normal. The store is only five years old and a modern state of the art facility but does $100,000 a week

less in sales than the other Schnuck’s in Bloomington. The additional retail shops that were developed with store are still mostly vacant. Therefore, a large retail development on the west side of the market would probably be a bad investment at this point in time. The only exception would be if a complete interchange were built at College Ave and I-55/74. A development near that interchange would have good regional access and the potential to be successful in future years.


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Competitive Environment Based on the sales of each grocery store in the metro area Wal-Mart is the market share leader with a 20.9% share followed by Jewel/Osco 14.3%, Kroger 13.3%, Meijer 11.2% and Schnuck’s 10.6%. In total, these five operators capture 70% of the market dollars while the remainder is captured by the specialty grocers or other small grocery stores. Based on format the traditional food & drug stores (Cub Foods, Jewel/Osco, Kroger and Schnuck’s) capture 42.6% of the market, supercenters (Wal-Mart, Meijer and Target) 34.4% and the limited assortment operations (Aldi, Fresh Market, Sam’s Club, etc…) capture the remaining 15.1%. A detailed review of each grocery store is included in Section Five – Appendix. Although the traditional food & drug stores combined capture the most market share, on an individual store basis the numbers could be of concern. Kroger, Jewel/Osco and Schnuck’s all operate a store that performs well but also operate one or two stores that would be considered mediocre or poor in terms of sales. In comparison the three supercenters do more in sales than any of the other traditional food & drug stores by a rather wide margin and on a sales per square foot basis some of the limited assortment operators also do much better. The numbers aren’t that surprising. The decline in the traditional food & drug stores and the growth in the supercenters and

limited assortment type stores has been increasing most noticeably in the past five years. Based on the current trends one shouldn’t be surprised if one of the traditional food & drug stores ends up closing in the next few years. Again, the lower performing stores are mostly located in the areas that are not as well served.


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Trade Area / Estimated Sales The Town of Normal has proposed three locations near its downtown and the Illinois State University campus. The three sites are all in very close proximity to each other so one common trade area was defined for all three locations. The trade area outlined in blue encompasses 24 square miles and includes the entire Town of Normal and the northern half of the City of Bloomington. The trade area boundaries extend north 1.9 miles to I-55, east 2.3 miles to Hershey Rd, south 2.5 miles to Oakland Ave and west 2.3 miles to I-55/74. The trade area has a 2012 estimated population of 73,835, is predominantly Caucasian (78%) and has a rather low average age due to the influence of the University and its student population. A detailed demographic profile for the trade area is included in Section Five – Appendix. It should also be noted that close to 10,000 of the trade area residents live in dormitories or some other form of group housing and that the household income levels are very evenly dispersed across all spectrums, wealthy, middle class and poor.


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The estimated sales were derived using a gravity model

which projects the sales of a future store within a trade area based on a variety of factors. In order to build the model a trade area needs to be defined. The population, PCW and total potential within the trade area are estimated and then, based on the current amount of sales being generated at the existing stores serving the trade area the model can calculate how much of the total current sales within the trade area the new store will capture. The estimated amount that the new store will capture is based on four variables the size of the store, how strong of a draw it will have across the trade area

(curve), how much business it will capture from within the trade area (percent explained) and how well received the store is amongst the trade population (image). For example the Kroger store on Main St in Bloomington, Kroger #856, has a limited draw due to its small size and location in a congested area. As a result it has a high curve of 92 (75 is average), a high percent explained of 85% since its located in the center of the trade area and won’t attract much business from a far distance and a lower image of 90 (100 is average) since it’s an older store that does not provide the amenities that many other stores in the trade area provide. In comparison Meijer #500 located on College Ave has a lower curve of 60 since it’s a very large store and has a regional draw location, a lower percent explained of 40% since the store is on the periphery of the trade area and a higher image of 132 since it offers a wide selection of specialty departments and is assumed to have lower prices. In summary a large store, low curve, low percent explained and a high image will yield a high sales estimate, while the opposite of those variables will yield a lower sales estimate.

Trade Area 1 mile radius 2 mile radius

3 mile radius

POPULATION2012 73,835 25,640 54,407 87,910

2017 est. 75,761 26,424 55,960 91,454RACE & ETHNICITY %

White 78.3% 85.6% 81.8% 78.6%Black 11.0% 6.1% 8.8% 9.9%

Hispanic 5.4% 4.3% 4.5% 5.0%Asian 2.7% 1.9% 2.4% 3.9%Other 2.6% 2.1% 2.5% 2.6%

HOUSEHOLDSTotals 27,424 7,625 18,907 32,828

INCOMEMedian HH. Income $46,085 $44,860 $46,346 $48,471

GROCERY DOLLARSGrocery PCE $43.97 43.35% 43.86% 44.06%Total Potential $3,246,525 $1,111,494 $2,386,291 $3,873,315


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The estimated sales for the proposed Ace Hardware site assumed a higher than average curve of 80 since the store is located in a higher density Uptown location and is smaller in size than the majority of stores within the trade area. A percent explained of 85% and, since we don’t know exactly what type of format the store will be an image rating of 105. Based on these factors the site

yielded a sales estimate of $267,000 per week. Assuming your average neighborhood grocery store it would be safe to assume that the store could do between $250,000 and $300,000 a week in sales. DKM believes that a full line grocery store would be the ideal format for the proposed location. The store might be limited in size to approximately 25,000 to 30,000 square feet; however it could carry most products that you might associate with this type of format. Given the limited size, DKM doesn’t believe that a pharmacy would be included.

There are a few other issues that could affect the proposed site that a gravity model does not take into account. First a large majority of the Illinois State student population, those living in the dormitories, wouldn’t really patronize the store since most of their meals are provided for. Outside of soda, snack foods, microwaveable items and health and beauty aids the population living in the dorms wouldn’t have much need for the remaining items in the store. The second issue would be how to effectively merchandise the store to attract both the University population and the permanent population. The student population not living in the dormitories would benefit from having a convenient grocery store. However, since most students are on a limited budget the store would have to offer lower quality, lower priced items or provide a student discount in order to attract that business. On the other hand the store wouldn’t survive on the student population alone so it would also have to balance to the wants and needs of the resident population as well. Finally the store would experience what are considered seasonal shifts in sales. Essentially when the University was in session sales could be anywhere from 20% to 30% higher than when the University is not in session especially during the summer and winter breaks.


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Section Three: Site Evaluations

Overview DKM considered three potential sites for an urban – type grocery store in Uptown Normal. The locations were based on discussions with the Town staff and DKM’s review of the Uptown market. DKM has not had any conversations with any of the current property owners other than the Town owned properties. The three potential sites are as follows: SITE “A” NWC College Avenue and Constitution Boulevard SITE “B” NEC College Avenue and Linden Street SITE “C” Linden Street and Parkinson Street


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Site Evaluation – Site “A” NWC College Avenue and Constitution Boulevard Site “A” is the 13,000 square foot retail site under the College Avenue Parking Deck located at 101 Mulberry Street. The property is bounded by Mulberry Street on the north, Constitution Boulevard on the east and College Avenue on the south. The location provides an excellent site given its proximity to the University and street network however the size of the retail space is limited and wouldn’t permit a full line grocery store. The size might accommodate a “limited assortment” store however the sales would be limited. The site has also been mentioned as a potential site for a food co-op. The store of this size might generate sales of approximately $75,000 to $100,000 per week or $400 per square feet. The site has several development constraints that would affect the operation and viability of the store. Parking and loading at the proposed store would present some challenges to the customers and operators of the store. It is generally felt that open surface parking and rear loading/delivery is the preferred option for this type of store. Benefits:

• Excellent Location • Low development costs • Property owned by Town of Normal • Good access/visibility

Challenges:

• Limited size • Parking challenges for some customers • Loading restrictions


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Site Evaluation – SITE “B” NEC College Avenue and Linden Street Site “B” is the Ace Hardware store located at 204 East College Avenue. The oblong site is bordered by Mulberry Street on the north Linden Street on the west and College Avenue on the south. The entire parcel is approximately 68,802 square feet that might be expanded to the west. Site “B” is a viable location within the Uptown Area given its size and access to the trade area population. The site could accommodate a 25,000 to 30,000 square foot grocery store with adequate parking. A number of grocery store types/formats would be ideally suited for this site. This size store would be recommended given the immediate trade area population. There are a number of regional/independent grocers that offer this size and type of format. Based on the sales projection model it is anticipated that the sales would be approximately $250,000 to $300,000 per week or $520 per square feet. Benefits:

• Relatively large site • Great access/visibility • Available surface parking • Best sale projections of options studied • Anticipated store size fits the trade area • Availability of grocers of this type and format

Challenges:

• Development costs • Privately held • Site is current location of Ace Hardware and

warehouse


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Site Evaluation – SITE “C” Linden Street and Parkinson Street Site “C” is the Town parking lot located south of the railroad tracks and west of Linden Street. The parcel is approximately 46,025 square feet. The site doesn’t provide much of the type of access that the other two sites do. The site lacks adequate east – west access as Parkinson Street dead ends a few blocks in each direction and the railroad crossing immediate to the north forms a barrier to providing access. Based on our analysis the site could support a store size of approximately 20,250 sqft. The size would limit the type of format and would not permit a full line grocery store. Based on the sales projection model it is anticipated that the sales would be approximately $125,000 to $150,000 per week or $385 per square feet. Benefits:

• Property owned by Town of Normal • Site could be expanded if additional Town property

is allocated to grocery site Challenges:

• East/west access is limited • Rail lines to the north may be a barrier to some of

the anticipated trade area • Limited store size unless site is expanded


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Site Evaluations Overview


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Estimate of Development Costs DKM has prepared an estimate of development costs for the three potential sites. The estimates assume a market value for land and a typical grocery store exterior and interior build-out. DKM has not conducted any due diligence of the sites other than site visits. The estimates should assist the Town in evaluating the sites and in the potential Implementation Strategy. The following chart outlines the costs and a more detailed budget for each site is included in Section Five – Appendix.


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Proposed Grocery Store Operating Statement


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Section Four – Next Steps

Next Steps – Implementation Strategy Based on the findings from the Grocery Feasibility Study DKM would recommend that the Town consider moving forward with the next step on bringing a grocery store to Uptown Normal. Site B is the most viable grocery store location given its size, visibility and proximity to the Uptown Trade Area. Sales projections of $250,000 to $300,000 per week with proposed development costs of $8.6 million will provide for a grocery store to operate within the Uptown Normal Market. Implementation Strategy would take the findings from our study to develop specific recommendations on development options and identify specific grocery store chains and operators. The tasks could include:

1. Identification by name and contact information of specific local, regional, or national grocery store operators to locate in Uptown Normal.

2. Preparation of marketing materials for attracting a grocery store to Uptown Normal.

3. An outline of various financial, policy, and development incentives to facilitate the development of a grocery store.

4. A list of potential county, state, federal, and non-profit funding sources for the grocery store.

DKM is prepared and excited about the possibility of executing on our findings and looks forward to talking further with the Town of Normal about the next steps on bringing a viable grocery store to Uptown.


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Section Five – Appendix

Grocery Store Overview Demographic Profile Source of Sales Proposed Grocery Site Source of Sales Map Development Budgets


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Normal Grocery Study 2013