LEASING ACTIVITY
In the world of supermarket retailing, two themes emerged in 2002. The first was the continued pace of consolidation within the mainstream, middle-American supermarket segment. Second was the strengthening of specialty supermarkets, offering ethnic, upscale and whole food shopping choices to an increasingly sophisticated customer base, as well as discount chains that are finding a ready market in high density, lower income neighborhoods. These trends, coupled with high demand for superior locations, have made the current climate more dynamic than at almost any time in Metro Commercial's 15-year history. Today, mainstream supermarkets are larger, offer a wider variety of products and operate in an extremely competitive environment. Metro Commercial has worked with all of the strongest regional players in this market and has helped them sustain their growth. According to Colin McKeon, vice president of Real Estate for Acme, "Over the years, Metro Commercial has brought us prime locations and they have been invaluable in executing our expansion strategy." Acme expects to open six to eight new stores in the region this year and expects that pace to continue over the next few years. No one would be surprised if the pace of consolidation also continues over the next few years. In recent history, that consolidation has included Albertson's acquisition of Acme, Ahold's acquisition of Giant and Safeway's acquisition of Genuardi's. Less obvious to consumers are the shifts in strategies of fewer, but much larger players. Part of the strategic shift is the acknowledgement that, despite millions in advertising, there is little brand loyalty among supermarket customers. Rather, proximity is the primary driver of consumer behavior unless very substantial marketing efforts are involved. The structural needs for most mainstream supermarkets begin at about 60,000 square feet and ends at about 70,000 square feet. The business model, as far as products and services occupying that footage, is pretty much universal. There are exceptions, of course. At one end of the spectrum, Wegman's is an extremely sophisticated and successful operator of mega-markets, operating at more than 100,000 square feet. At the other end, there is growing success with ethnic markets, particularly Asian-influenced. They are succeeding by operating outside the strategy of the mainstream chains and because their ethnic offerings are increasingly appealing to wider customer bases. Two prime examples are the 28,000 square foot Asian Food Center, located in the Princeton Meadows Shopping Center in Plainsboro, NJ and the 20,400 square foot Subzi Mandi, opening in the Woodcrest Shopping Center in Cherry Hill, NJ, both leased by Metro Commercial. There is also Fresh Fields, a division of Whole Foods Markets, a natural foods purveyor, thriving in that niche. Metro Commercial represented Fresh Fields in acquiring their Marlton, NJ location, which reports show is doing extremely well. Zagara's, on the other hand, is targeted not solely at the natural foods market, but at the highest end of supermarket shoppers. They complement, rather than compete, with mainstream markets by offering upscale shoppers a place to find prepared meals, gourmet-quality meats, cheeses, produce and other hard to find non-staples. And yet, they do not survive as part of the larger model -- witness Safeway's recent sale of several of the upscale Zagara's markets to employee groups. An entirely different class of operators has found a successful niche at the discount end of the grocery business. Save-A-Lot and ALDI have found a ready market in higher density, urban neighborhoods occupying stores of 15,000 square feet to 20,000 square feet. All these factors have strengthened demand for sites that meet the standard supermarket business model. We've recently completed negotiations for 10 supermarket deals in mainstream categories, including Acme, Genuardi's, Super G and Stop & Shop. We expect continued demand for our services from the supermarket sector in all categories as the pace of consumer preferences continues to alter and accelerate.
