WASHINGTON -- Average supermarket size declined for the first time in five years in 1999, but store openings continued to outpace closings, according to a study by the Food Marketing Institute here.
opened last year covering 49,000 square feet, the smallest in five years and a significant reduction from 1998's high of 57,064 square feet.
New store openings -- at 5% -- reached a decade high, and openings outpaced closings by a margin of 2.1%, according to the report.
Though major remodeling rates (5%) hit the second lowest point in 10 years in 1999, an increasing number of retailers are undergoing minor remodeling projects. The survey suggests that retailers are trying to accommodate changing consumer demands by adding new services, such as pharmacies, banking centers, take-home prepared foods and dry cleaners.
While building costs -- the largest component of new store development -- rose by 15% to a median of $64 per square foot last year, the overall price of new construction decreased slightly. Excluding fees for land, parking lots, site development, some professional services and financing, total construction costs fell from $106.50 per square foot in 1998 to $103.32 per square foot last year. The report suggested the drop could be partially attributable to greater reliance on relocated equipment, used in 29% of new openings last year.
Major remodeling costs have increased sharply in the last five years, perhaps due to the large number of companies undertaking expensive store expansions. Though companies reported a broad range of capital investment expenditures in 1999, the median reached $1,849,000. Store expansions also hit a decade high at 43 percent of remodels, with the median store size increasing by 7,000 square feet, according to the study.
The competitive marketplace also drove rental rates up last year. Average minimum rental rates for existing stores increased by 25% (to $7.06 per square foot), while the same cost for new stores hit $12.31 per square foot -- a five-year high.
New store construction projects in 1999 concentrated on expanding the convenience of one-stop shopping, according to the report, with banking centers and pharmacy operations being among the most sought after new service departments. More than half of all new supermarkets reported an in-store bank (51%) or an ATM machine (54%). Most new stores (68%) featured a pharmacy and about one-fourth included separate natural foods sections.
As American shoppers consume more meals away from home, supermarkets continue to seek a larger share of that profit pie. Supermarket operators made fresh food for takeout available in 59% of new stores in 1999.
Other services included in new store construction include on-site photo processing (29%), dry cleaning (22%) and in-store childcare (12%).