Vacant drugstore sites offer opportunities for natural, organic grocers

A bounty of retail real estate has become available in markets across the country in recent years amid large-scale store closure initiatives at Walgreens, CVS and Rite Aid.

For expansion-minded natural and organic grocers, these sites are often in prime locations, potentially ideally suited for small food retailers. In addition, they are often relatively easy to adapt to grocery use, with the addition of some refrigeration and perhaps some cooking and food prep infrastructure.

Natural and organic grocers that have adapted former drugstore locations include Natural Grocers by Vitamin Cottage, which has converted multiple former drugstores, and Lazy Acres, the Bristol Farms-owned banner that opened a location in a former Rite Aid in Los Angeles, California, last year. In addition, Whole Foods is planning to open a location of its new small-format concept, called Whole Foods Daily Shop, in a former Rite Aid location in Manhattan.

Whole Foods Daily Shop, located on Manhattan, New York's Upper East Side, is slightly less than 10,000 square feet in size.

One of the reasons drugstore sites can be especially appealing to grocery retailers is their proximity to customers. Most grocers tend to draw from a relatively small trade area — up to about three miles — as opposed to hard and soft good retailers, which can draw from much wider area, says Jason Miller, chief investment officer at Grand/Sakwa, a Farmington Hills, Michigan-based real estate firm.

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In addition, drugstore sites generally offer good site access, as they are often situated on corner locations, he says.

Repurposing shuttered drugstores in general tends to be relatively simple, says Mark Scherrer, vice president at BRR Architecture, which is based in Kansas City, Kansas. These locations tend to have minimal interior structures, and at most a few refrigerated cases along the walls, which often translates to minimal demolition, he says.

Among the considerations when eying a former drugstore for conversion is the strategy for keeping shelves stocked. With the minimal space of a former drugstore location, operators could be faced with more frequent shelf replenishment, Scherrer says.

“If you are OK with employees restocking throughout the day, then maybe you don't need as much back stock, but if you're looking to do [your restocking] overnight and you need to store a lot of inventory and wait until then, that’s a different operational strategy,” he says.

A potential hurdle for smaller, independent operators to consider in former drugstore locations, however, is the cost, says Miller of Grand/Sakwa.

“Most communities would be thrilled to see a grocer replace a drugstore, but in many markets–especially rural and suburban areas–the population densities likely would not support the use case,” he says.

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Often drugstores were paying high rent costs for their locations, Miller says, and landlords are unlikely to settle for less. Depending on the offerings planned for the location, and the amount of additional work needed, buildouts can also in some cases make these sites cost-prohibitive, he says.

However, nonprofit organizations and community agencies may provide financial incentives such as subsidies or tax credits to attract grocery tenants and help ease the cost pressures.

In Bridgman, Michigan, for example, the nonprofit Greater Bridgman Area Chamber and Growth Alliance is partnering with a local grocery store operator to develop a former Rite Aid on the outskirts of town as a combination grocery market and food-business incubator. The small lakeside beach town, which gets an influx of tourists each summer, also has a wealth of food start-ups that could benefit from having a place to both produce and sell their products, says Nancy Kiernan, director of the Bridgman CGA, which is seeking additional financing for the project.

“We’re hoping that with the addition of an incubator kitchen, we’ll be helping those cottage food industry vendors that are at our local farmers markets all summer long grow their business and become year-round producers,” she says. Locally produced products include jams, honey, baked goods, and other items, which would be complemented with offerings of produce and other market fare, offered in individual stalls.

“There might be a soup and sandwich shop in there as well,” said Kiernan. “We really want to create a year-round space.” The ultimate goal is to help local food start-ups build up their businesses to the point where they can potentially open spaces of their own in Bridgman and beyond, she says.

Whole Foods Market plans to open a second Daily Shop in a former Rite Aid location on Manhattan, New York's Upper West Side.

Whole Foods readies former Rite Aid in NYC

For Whole Foods Market, the planned Daily Shop store on Manhattan’s West Side—the first Daily Shop opened just a few weeks ago on Manhattan’s Upper East Side—should be a perfect fit for the former Rite Aid on the corner of Eighth Avenue and 50^th Street, says McKenzie Samp, associate at BRR Architecture, which is designing the new banner for Whole Foods.

The Daily Shop has been described as convenience-store-style concept with a coffee station offering beverages and grab-and-go sandwiches and baked goods, as well as a scaled-down assortment of the most popular grocery items. At a little under 10,000 square feet, the Rite Aid is about the right size for the Daily Shop format, Samp says.

Unlike many vacant drugstore sites around the country, the future Whole Foods Daily Shop is in a densely populated urban location with other tenants both above and below it. Urban locations such as this can often require tying into existing plumbing and electrical systems, and in some cases creating multistory ventilation systems for cooking equipment, says Scherrer of BRR.

“It’s a little different than doing a ground-up out in the middle of the suburbs,” says Samp. In any case, Whole Foods prefers to begin construction from what she describes as a “white box”—a retail shell stripped of all its old infrastructure so that the company can start from scratch with newer systems that meet its own standards.

The Daily Shop that is planned for the former Rite Aid location is expected to be similar in terms of offerings to the first Daily Shop on the Upper East Side, which opened in a former Food Emporium supermarket. Both sites are about the same size at just under 10,000 square feet, and both will have a Juice & Java grab-and-go coffee, smoothie and sandwich station with little or no seating.