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Center City San Antonio

Supermarket Study

December 27, 2012

3

HR&A Advisors, Inc. | Center City San Antonio Supermarket Study 2

Table of Contents

I. Introduction______________________________________________________

II. Demand Analysis______________________________________________

III. Competitive Supply____________________________________________

IV. Opportunities and Challenges____________________________________

V. Store Format Options_____________________________________________

VI. Precedents of Urban Grocery Stores_______________________________

VII. Potential Operators________________________________________________

VIII. Potential Site Analysis ____________________________________________

IX. Economics of Development_______________________________________

X. Recommendations_____________________________________________

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Executive Summary In 2011, HR&A completed a Strategic Framework Plan for Center City and introduced a

comprehensive vision and plan for achieving new growth in Center City. The Strategic Framework

Plan identified four neighborhoods as priority areas for growth:

1) River North– Midtown – Brackenridge

2) Urban Core

3) HemisFair and the Cesar Chavez Corridor

4) Near River South

As part of the plan, 7,500 new housing units would be added to Center City.

In order to achieve this goal, it is critical that there are amenities that support residential and

office growth. Beyond the unique shopping and dining that brings character and vibrancy to a

downtown, it is equally important that there be an ample supply of convenience retail, the

neighborhood stores and services that people rely on for their daily needs. Of these, none is more

critical than the supermarket. A supermarket creates value and supports economic growth for a

downtown:

A supermarket provides critical goods and services to residents, workers, and visitors.

A supermarket anchors further retail growth.

A supermarket will unlock the residential growth potential of downtown.

A supermarket brings legitimacy to an untested market.

HR&A conducted an analysis of the feasibility of attracting a grocery operator and developing a

grocery store in Center City. This analysis included an assessment of potential retail spending

demand for groceries in Center City, competitive supply, store format options, potential operators,

potential locations within Center City, and the financial feasibility of grocery store development in

Center City. The report also provides additional guidance regarding specific challenges of

developing a grocery store in the urban context in San Antonio and best practices and lessons

learned from urban grocery stores in other comparable cities.


Demand Analysis

HR&A estimated that current residents, workers, and visitors in Center City1 have unmet spending

potential for grocery items of $10.1 million annually, which could support nearly 15-20,000

square feet of grocery store space, based on standard industry spending ratios. When Center

City reaches its goal of adding 7,500 new households by 2020, capturable grocery store

spending potential could reach more than $18.4 million, which may support an additional 16,000

square feet of grocery retail and raise the total supportable grocery square footage to

approximately 30-36,000 square feet.

Competitive Supply

Within a three- to five-mile radius of the center point of Center City, residents have a wide

variety of choices for grocery needs, including several HEB stores and HEB’s Central Market,

Whole Foods, and several La Fiesta markets. River North and Midtown neighborhoods are the

most well-served of the Center City neighborhoods, particularly with HEB’s Central Market at

4821 Broadway. A large portion of middle and upper income Center City residents do their

primary grocery shopping at this store. Additionally, a portion of Center City workers who live in

the Alamo Heights area or further north of Center City do their primary shopping at this store on

their way home from work. Because it is an easy three-mile drive along Broadway from the multi-

family residential development cluster around River North, we believe it will be difficult for any

operator to gain a viable market share on the northern side of Center City.

Also to the North of Center City within the 410 Loop are five HEB’s, one La Fiesta at Flores and

Young, a Whole Foods at the Quarry, and a Walmart Supercenter and Target with a large

grocery component on Austin Highway. In the fall of 2012, Trader Joe’s opened its first regional

store in the former West Elm site at the Quarry Village2.

1 The geography for analysis in this study follows the boundaries of Center City as defined in the Strategic

Framework Plan. The Study Area is roughly bounded by Josephine Street on the north, Colorado Street on

the west, Interstate 10 and Highway 90 on the south and Monumental Street on the east. Note that this

differs from the retail study recently conducted by HR&A Advisors, for which the demand analysis was

conducted using the West Commerce District geography. 2 http://www.mysanantonio.com/default/article/Grocer-takes-prime-spot-for-1st-S-A-store-3421662.php


Grocery options within Center City are limited. There are several small grocers and delis that

provide prepared foods and small convenience needs, such as Main Plaza Market, Delivery

Market, and Hippo’s Grocery and Deli.

Store Format Options

While the average supermarket in the US is now around 46,000 square feet and the average

store size in the San Antonio region is even larger at 65,000 square feet, a smaller store could still

provide the grocery needs of local residents, workers and visitors.3 However, at a smaller size, an

operator will need to offset the rules of economies of scale with superior service, targeted

merchandising, and special offerings. Additionally, the store’s operator will need to carefully

cultivate its product mix and offerings to attract all three customer segments, including high-quality

prepared food options for workers, residents, and visitors, products that serve the Latino feed

market, and deli and bakery offerings.

Despite its urban location, Center City maintains a largely automobile-oriented character, and

current density levels suggest that customers who walk or take public transportation to grocery

shop will be limited, although a larger share of tourists may walk to a well-sited store. As a result,

grocery operators are likely to require higher levels of parking compared to more dense urban

locations in other markets. For a 15-20,000 square foot store, this translates into a need for

between 60 and 100 parking spaces. This would result in an additional 20,000-35,000 square

feet of parking lot or garage space, in addition to roughly 20,000 square feet for truck turning

and unloading. In total, a Center City store operator would likely require between one and two

acres, or more, of surface area for parking and loading.

Potential Operators

Critical elements of success of a Center City grocery operator are having a regional presence that

allows an operator to tap into an existing distribution network and leverage brand familiarity,

3 HR&A Advisors and CoStar research of supermarket stores located within a 20-mile radius of downtown San Antonio.


ability to operate an “urban” size store, and offering products and services that are appropriate

and attractive in the Center City marketplace. An ideal operator would be a regional operator

that has an existing store model that can be appropriately sized for Center City and that can

accommodate the needs of Center City’s various customer types. Potential operators in the San

Antonio market include HEB, La Fiesta, Sprouts Farmers Markets, Greenfields Market, Super S

Foods, and Walmart Express.

Potential Site Analysis

HR&A evaluated a range of vacant and underdeveloped sites within Center City for their

suitability for grocery store development, based on a range of criteria that would make a

particular site attractive to a grocery operator and to contribute to the City’s objectives, including:

Alignment with Center City Strategic Framework Plan goals, including the ability to

catalyze further growth and alignment with the Growth Zones in the Strategic Framework

Plan

Physical and locational suitability for a grocery store, including:

o The site’s size and its ability to accommodate parking and shipping

o Adjacency to major streets and intersections / traffic counts

o Freeway access and regional accessibility

o Presence of surrounding retailers

The lack of area grocery retail competition. For a store to succeed in Center City, it will

need to capture a large portion of the area’s spending potential

Proximity to potential consumer demand, including residents, workers, and visitors

Potential to leverage public ownership

Based on this analysis, HR&A identified three potential sites that provide the greatest potential to

support a new Center City supermarket: HemisFair at 601 East Cesar Chavez, the San Antonio

Independent School District (SAISD) property at 600 East Cesar Chavez, and the Univision

property at 411 East Cesar Chavez. Of primary importance in selecting these three sites was the

ability for a future store to catalyze surrounding growth.

All three selected sites are located within the Strategic Framework Plan’s HemisFair Chavez

Corridor. They are also located on corners with high traffic counts and provide adequate access to


the mix of residential, worker and visitor populations. All sites are large enough to accommodate

at least a 20,000 square foot store and the associated parking and loading space. Furthermore,

each site offers the opportunity to catalyze development in the surrounding area, a burgeoning

mixed-use residential community, anchored by a corridor whose population could grow to more

than 13,200 by 2035 if the growth rates in the Strategic Framework Plan are realized and

maintained.

There is significant grocery store spending potential from existing residents alone within the typical

trade areas that grocery store operators examine. Within a 1-mile radius of the intersection of

South Presa and Cesar Chavez Boulevard, there is approximately $9.9 million in total annual

grocery store spending potential from residents and within a 3-mile radius that figure increases to

$116 million.4

Economics of Development

HR&A’s analysis found the ten-year net present value of the difference in real estate costs to

operate a Center City grocery store to be between $1.1 million, with land costs of $30 per

square foot, and $2.7 million, with land costs of $70 per square foot. Costs would most likely

trend closer to the high end of the spectrum based on prevailing land costs in Center City.

In addition, an operator in Center City will pay incrementally higher taxes than an operator

elsewhere in the City to the extent that land values and the value of development are higher in

Center City. To offset the annual cost differential and to further mitigate the increased risk of

operating in Center City, the City should offer a real estate tax abatement.

Recommendations

Site Control and Developer/Operator Solicitation

HR&A recommends that the City of San Antonio first work with the owners of the recommended

store locations to either determine the viability of having them partner with a store operator to

develop a 15-20,000 square foot store. As an alternative, the City should gain site of control at

4 Total grocery spending potential is not presented net of existing sales, and does not project the spending

that a grocery store in Center City could actually capture.


one of the preferred sites, develop a conceptual site plan that provides a base level logistical site

configuration, and then produce a Request for Information (RFI), followed by a Request for

Proposals (RFP) for the development and operations of a supermarket at that site.

Preference should be given to respondents who propose a development that would catalyze

further growth in Center City. Mixed-use development that combines retail space with residential

should be heavily favored as it maximizes the value of land and adds to overall area density, a

critical component to the future of a vibrant Center City.

Alternative Approach without Site Control

In the event that site control of the preferred sites is unlikely, HR&A recommends the City draft a

Request for Expressions of Interests (RFEI) to solicit interest from grocery operators, real estate

developers, and local land holders in the development of a grocery store or a development that

includes a grocery store on any site within the Center City Study Area.

Necessary Subsidy for Development

In order to attract a developer and/or operator, we recommend that the City provide a subsidy

that will fill the net gap that results from increased costs associated with Center City real estate

and development for a ten-year period. This would result in approximately a $2.5 to $3.0 million

subsidy. After that time, substantial residential development in Center City, as well as increased

sales, will have reduced the risk to the grocery operator and the subsidy should no longer be

required.

In addition to the subsidy, we recommend that the City provide a 10-year real estate tax

abatement to cover the net-increase in property taxes. We believe that after a ten-year period

of catalyzed Center City growth, an urban grocery store should be able to operate self-

sufficiently.


I. Introduction

In 2011, HR&A completed a Strategic

Framework Plan for Center City and introduced

a comprehensive vision and plan for achieving

new growth in Center City. The Strategic

Framework Plan identified four neighborhoods as

priority areas for growth:

1) River North– Midtown – Brackenridge

2) Urban Core

3) HemisFair and the Cesar Chavez Corridor

4) Near River South

As part of the plan, 7,500 new housing units

would be added to Center City.

In order to achieve these goals, it is critical that

there are amenities that support residential and

office growth. Beyond the unique shopping and dining that brings character and vibrancy to a

downtown, it is equally important that there be an ample supply of convenience retail, the

neighborhood stores and services that people rely on for their daily needs. Of these, none is more

critical than the supermarket.

A supermarket can create value and supports economic growth for a downtown in a number of

different ways:

A supermarket provides critical goods and services to residents, workers, and visitors.

People now rely on supermarkets for a wider array of products than ever before. In

addition to basic food products, people increasingly use supermarkets for prescriptions,

personal care products, household needs, and prepared foods.

Figure 1: Strategic Framework Plan Growth Zones


A supermarket anchors further retail growth. Co-location with a grocery store is an

attractive proposition to a variety of other retailers, ranging from dry cleaners to

restaurants and specialty shops. A grocery store has the unique power to catalyze new

retail vitality in a location that other retailers otherwise would not consider.

A supermarket will unlock the residential growth potential of downtown. A grocery

store is essential for the success of future residential development in Center City. As

suggested, supermarkets are a critical amenity for both residents and developers that can

greatly influence – both positively and negatively – decision-making.

A supermarket brings legitimacy to an untested market. In downtowns, the presence of

grocery stores sends a strong positive message to residents, workers, and other businesses.

A supermarket can demonstrate the commercial viability of downtown to other businesses,

bring new vibrancy and activity, and establish it as a safe, convenient, and attractive

place to live.

II. Demand Analysis

Study Area Definition

The geography for analysis in this study follows the boundaries of Center City as defined in the

Strategic Framework Plan. The Study Area is roughly bounded by Josephine Street on the north,

Colorado Street on the west, Interstate 10 and Highway 90 on the south and Monumental Street

on the east. Note that this differs from the retail study recently conducted by HR&A Advisors, for

which the demand analysis was conducted using the West Commerce District geography.

To estimate demand for a supermarket in Center City, HR&A evaluated the spending potential of

the three existing consumer groups: residents, workers, and visitors.

Residents

To determine grocery store related spending potential for residents, HR&A collected data from

the ESRI Business Analyst Online Retail Marketplace Profile Report, which agglomerates consumer

expenditures data from the US Bureau of Economic Analysis. We looked specifically at the


grocery category of spending which is typically associated with the product mix in a supermarket.

This data showed that as of 2010, the approximately 7,000 households in Center City represent

approximately $15.2 million in grocery spending potential. We assume that a grocery store

located centrally will capture approximately 85% of the spending potential or $12.9 million

(capturable spending).

Workers

To determine worker spending, HR&A used data from the 2004 National Downtown Worker

Spending Patterns Report, published by the International Council of Shopping Centers (ICSC). To

normalize this data, HR&A adjusted spending potential reported in the study based on the

Consumer Price Index (CPI) for the San Antonio Metropolitan Statistical Area (MSA) and for 2012

CPI. This data shows that workers in downtowns with a limited existing supply of retail spend

approximately $1,775 per year on groceries. For the approximately 69,000 workers in Center

City, this translates to an estimated $29.5 million in grocery spending. To these total spending

potential estimates we apply a capture of 33%, based on results of the ICSC report. This yields

total capturable grocery spending of $9.75 million.

Visitors

Last, to determine visitor grocery spending potential, HR&A analyzed data collected by Dean

Runyan Associates and the Texas Office of the Governor, Economic Development and Tourism. This

data shows that visitors to the San Antonio MSA spend approximately 3% of their money at food

stores. Data also shows that visitors to the City of San Antonio spend approximately $5.5 billion

annually, which translates to $166 million in food store sales per year, or approximately $6.40

per visitor. HR&A estimated the number of Center City visitors based on the number of occupied

hotel room nights in Center City, which is equal to approximately 6 million visitors. This translates to

total grocery spending potential of $38.8 million. The analysis assumes that half of grocery

spending for visitors could be captured, which yields a capturable grocery spending potential of

approximately $19.45 million.


Figure 3: Capturable Grocery Spending Potential, Existing Sales, and Unmet Spending Potential by Category in Millions

Spending Potential

Existing

Sales

Unmet

Spending

Potential

Residents Workers Visitors Total

Grocery $ 12.9M $ 9.75M $ 19.45M $42.1M $ 32.0M $10.1M

Source: ESRI Business Analyst Online, ULI, ICSC, HR&A Advisors, Inc., 2010

To translate unmet spending potential into supportable square footage for new grocery space,

HR&A used sales productivity numbers collected by the Urban Land Institute and published in their

Dollars and Cents of Shopping Centers report. Based on a presumed sales-per-square-foot

estimate of $509, there is market support for a Center City supermarket of approximately 15-

20,000 square feet. However, it should be noted that neither the feasibility of developing a store

Visitors $19.45M

Residents $12.9M

Workers $9.75M

Figure 2: Capturable Spending Potential by User Group


nor the potential capital subsidy that would be required to support development has been

factored in to that estimate. That consideration is discussed in section IX of this report.

Figure 4: Unmet Spending Potential and Supportable Square Footage of Retail

Unmet Spending

Potential ($M) Sales PSF Supportable SF

Grocery $ 10.1 $ 509 19,800

Source: ESRI Business Analyst Online, ULI, ICSC, HR&A Advisors, Inc., 2010

When Center City reaches its goal of adding 7,500 new households by 2020, capturable grocery

store spending potential could reach a total of $18.4 million, which may support an additional

16,000 square feet of grocery retail and raise the total supportable grocery square footage to

approximately 30-36,000 square feet.

III. Competitive Supply

Within a fifteen-minute drive time of Center City, there are several grocery stores that may serve

as competition to a new store.

North: Most notable is HEB’s Central Market at 4821 Broadway. A large portion

of middle and upper income Center City residents do their primary grocery

shopping at this store. Additionally, a portion of Center City workers who live in

the Alamo Heights area or further north of Center City do their primary shopping

at this store on their way home from work. Because it is an easy three-mile drive

along Broadway from the multi-family residential development cluster around

River North, we believe it will be difficult for any operator to gain a viable

market share on the northern side of Center City.

Also to the North of Center City within the 410 Loop are five HEB’s, one La Fiesta

at Flores and Young, a La Michoacana meat market at Blanco and Basse, a

Whole Foods at the Quarry, and a Walmart Supercenter and Target with a large


grocery component on Austin Highway. In the Fall of 2012, Trader Joe’s opened

its first regional store in the former West Elm site at the Quarry Village 5.

East: There is only one supermarket of significance on the East Side of Center

City, an HEB store at New Braunfels Avenue and Houston Street. There are also

multiple convenience stores and micro-grocers on the east side.

West: On the west side of Center City, the historic center of the City’s Spanish-

speaking community there are several supermarkets. HEB operates two stores

whose offerings cater to the surrounding community. There is also a La Fiesta on

the west side about four miles from the center point of the Study Area. Many

small independent convenience stores and bodega-style micro-grocers populate

the west side neighborhoods.

South: There are two La Fiesta stores on the south side within a few miles of the

Study Area (5103 South Flores and 6103 Pecan Valley). There are a total of five

HEBs on the South Side within the 410 Loop including two 120,000 square foot

HEB Plus! stores located at South New Braunfels Avenue and South Cross

Boulevard and at Zarzamora Road and South West Military Drive.

Lastly, within Center City there are several small grocers and delis that provide

prepared foods and small convenience needs, such as Main Plaza Market,

Delivery Market, and Hippo’s Grocery and Deli.

5 http://www.mysanantonio.com/default/article/Grocer-takes-prime-spot-for-1st-S-A-store-3421662.php


Figure 5: Regional grocery store locations inside the 410 Loop


Advantages of the Suburban Model: The Competition

The perceived lack of spending potential in Center City has been the primary hindrance to the

opening of a grocery store in that area. In addition, competition from suburban supermarkets (see

Figure 5 for locations) has further hindered Center City’s ability to have a viable supermarket.

The multiple advantages and efficiencies of the suburban supermarket make it challenging for an

urban store to compete in a regional market place. This is especially true in San Antonio where the

City’s physical form is predominantly suburban. For a Center City grocery store to compete, it will

need to shift the operational paradigm so that it can take advantage of Center City’s multiple

advantages. While a store developer cannot build a more urban store as cost-effectively as in a

suburban area, a store operator could create a different business model which attract a wider

array of customer types, leverage different spending patterns to increase sales, and cover the

resulting increased real estate and operating costs associated with Center City retail space.

Figure 6: Suburban Supermarkets’ Advantages over Urban Grocers

Development Advantages Operational Advantages

• Low land costs / large parcels result in: • Ability to cater to the needs of a

• Lower operational costs per SF homogenous demographic

• Ample parking • Supermarket rents subsidized by

• Ease of delivery adjacent inline tenants

• Cheaper rollout store design • Vehicles allow for high per-customer purchases

• Access to residents’ shopping behaviors

IV. Opportunities and Challenges of Attracting an Operator

Overall Challenges of the Grocery Industry

The supermarket industry is well-known for its razor thin “penny” margins and hyper-competition.

Breaking into the business is often difficult. Customers typically have a heightened sense of brand

loyalty which disadvantages a new operator. Similarly, startup costs that include store fixtures,

regional advertising and employee recruitment and training limit the ability for new stores to open

or operators to expand into a new region.


Development costs are also a hindrance to establishing a new store. Large land area is needed

for customer parking and shipping/receiving. Similarly, a store is often not welcomed by local

residents as the convenience they offer is outweighed by the fact that a store has “three bad

sides,” is out of scale to its surroundings and brings unwanted truck traffic. As a result, store

developers are often forced to endure a lengthy community design review processes and

increased development costs to make the store façade architecturally appealing to surrounding

residents.

Center City San Antonio Specific Challenges

While developing a supermarket anywhere is difficult, developing in an urban setting, specifically

Center City San Antonio, presents an additional set of challenges.

Store Size: As discussed in the demand analysis, area spending supports a store

that is at most 20,000 square feet. This size is about half the national average of

46,000 square feet and a third of the San Antonio region average store size of

65,000 square feet. As a result, a Center City store cannot achieve the economies

of scale of other retailers.

Development Costs: In addition to a smaller store size and implied higher

development costs through a higher land basis and increased construction costs,

many potential sites for a Center City store face additional regulatory review as

part of the Historic Design and Review Commission which has jurisdiction over much

of Center City.

Access: A difficult-to-navigate street network encumbers the receiving of goods

and limits the potential of attracting non-Center City customers.

Non-homogenous customer base: Individual grocery stores tend to cater to a

homogenous majority demographic. Center City’s population is demographically

and economically diverse, making merchandising more challenging. While a multi-

tenant market venue could address the diverse needs of Center City’s customer


base, the complexity of upfront organizational requirements and additional costs

of support space put this potential model outside of the realm of this study.

Center City San Antonio Specific Opportunities

While there are many challenges to establishing a grocery store in Center City, the area does

have many strengths that when capitalized upon could support a new operation.

Regional Population Growth: The most notable strength is recent growth in

residential population. San Antonio’s regional population grew by 75% from

1990-2010.

Recent Center City Development: Growth has occurred in both the River North

area where four new multi-family projects are under development including 1221

Broadway, Pearl Brewery, the Mosaic and 1800 Broadway, as well as in the

central and southern parts of the study area where projects like the Vistana and

Cevallos lofts have noticeably added to the area’s residential base. In total,

developers have built or are currently building over 2,100 residential units in the

Center City Study Area. These new projects, which have attracted a higher income

demographic than is typically found in Center City and others in the development

pipeline, add to the spending potential that will support a new supermarket.

Future Growth: The Mayor’s SA2020 plan calls for 5,000 new households in

Center City by 2020. HR&A’s Strategic Framework Plan recommends the City

increase that goal by 50% to 7,500 units and encourages that growth through a

system of incentives as well as infrastructure and open space investments.

Worker and Visitor Spending: Additionally, a well-positioned supermarket could

capitalize on the spending potential of the 68,000 workers in the Study Area and

the City’s 26 million visitors, a large portion of which stay in the Center City Study

Area’s 13,000 hotel rooms.


Regional Access: Lastly, Center City is situated at the nexus of four of the

region’s major freeways: Interstates 10, 35, and 37 and State highway 281.6

This access would allow for easy truck access as well as the ability to capture

evening worker traffic flows out of Center City.

Figure 7: TexDOT Center City San Antonio Highway Traffic Counts, 2007

Highway Average Daily Traffic Count

Interstate 35 180,000



State Highway 281 129,000

V. Store Format Options

Store Size and Offerings

The Center City marketplace, which is currently void of a true supermarket, could support a 15-

20,000 square foot store based on current spending patterns of residents, workers and visitors.

That demand could grow in the next eight years to 36,000 square feet if the residential growth

targets of the Strategic Framework Plan are fulfilled. While the average supermarket in the US is

now around 46,000 square feet, a smaller store could still provide the grocery needs of local

residents, workers and visitors. However, at a smaller size, an operator will need to offset the rules

of economies of scale with superior service, targeted merchandising, and special offerings.

Additionally, because the store will be reliant on the array of needs of residents, workers and

visitors, its operator will need to carefully cultivate its product mix and offerings to attract all three

customer segments. For example, a well-situated store near employment centers could offer a

large selection of prepared lunches. A store accessible to the downtown tourism population could

offer an increased selection of foods and goods that cater to the short term needs of visitors. A

6 ftp://ftp.dot.state.tx.us/pub/txdot-info/sat/traffic/2007/sat_sheet_6.pdf


store will need to balance the merchandising space requirements of these goods with the standard

grocery offerings that cater to a residential population.

Adding to the complexity of a Center City store layout are the multiple demographics and related

dietary habits of Study Area residents. Most San Antonio grocers offer a sizeable Latino grocery

section including fresh tortillas and increased fresh produce. A growing Anglo population in Center

City would probably require some form of a deli, bakery and other food offerings typically

associated with that demographic group’s dietary and shopping habits.

Parking Requirements

Despite its urban location, Center City maintains a largely automobile-oriented character, and

current density levels suggest that customers who walk or take public transportation to grocery

shop will be limited, although a larger share of tourists may walk to a well-sited store. As a result,

grocery operators are likely to require higher levels of parking compared to more dense urban

locations in other markets. HR&A estimates that the parking requirements for a grocery operator

will be between a more typical urban parking ratio and a more typical suburban parking ration –

between three and five spaces per 1,000 square feet of store space. For a 15-20,000 square

foot store, this translates into a need for between 60 and 100 parking spaces. This would result in

an additional 20,000-35,000 square feet of parking lot or garage space. Furthermore, parking

will need to be easily accessible and understandable to the customer. A store plan will also

require roughly 20,000 square feet for truck turning and unloading. In total, a Center City store

operator would likely require between one and two acres, or more, of surface area for parking

and loading.

While a surface lot is the most desirable configuration from the perspective of ease of mobility

and access for the customer, it may be cost prohibitive and undesirable from an urban design

perspective in Center City. Multi-storied customer parking for grocery stores has proven successful

in other markets including the Whole Foods on 6th Street in Austin, the Randall’s in Midtown

Houston, and the Ralph’s in Downtown Los Angeles.

Until Downtown San Antonio grows into a pedestrian-based community, at least in the initial years

of store operations, at least 300 square feet of store space should be provided either as


dedicated parking or in shared facilities like at Schnuk’s Culinaria in St. Louis and Walmart

Express in Presidential Towers in Chicago’s West Loop.

VI. Urban Grocery Store Precedents

As the suburban retail market over-saturates, supermarket operators have been looking for

alternative areas in which they can continue to grow their business. Urban cores, with their growing

population of higher income residents, have proven to be a fruitful realm in which to operate.

Provided below are summaries of four urban supermarkets that have opened in cities with

emerging downtown residential populations. Three of these four stores (Ralph’s, Schnuck’s

Culinaria, and Rouse’s) are operated by established regional grocery store chains. The fourth,

Dallas’s Urban Market, is owned and operated by an independent operator. Rouse’s is located in

a converted car dealership building. The other three are located on the ground floor of mixed-use

residential properties.

Ralph’s Fresh Fare, Los Angeles, CA

Ralph’s is a regional grocery brand owned by the

Kroger Company. In 2007, the chain opened their

first downtown location, a more upscale

supermarket concept that is branded as Ralph’s

Fresh Fare. The 50,000 square foot store is located

on the ground floor of a mixed-use, residential

development just a few blocks away from the

Staples Center in a rapidly growing residential

community. The store is the result of a successful

public-private partnership between Ralph’s,

developer CIM Group, and the City of Los Angeles. The development also includes 125 subgrade

parking spaces.

In addition to standard grocery store offerings, Ralph’s Fresh Fare offers a wide array of other

products and services including a florist, a pharmacy, a liquor department, a full-service café,

catering, and extensive prepared foods. The store offers fresh sushi, a salad and soup bar, made-


to-order sandwiches, carving station, and other prepared dishes. Ralph’s has also created

partnerships with local businesses including banks, pharmacies, and dry cleaners that they

leverage to offer customers a variety of neighborhood services all “under one roof”.

In addition to the progressive store format and location in a mixed-use development, another

critical element of Ralph’s success has been the brand itself. Ralph’s is a Los Angeles-based chain

that was established in Downtown Los Angeles in 1873 and they currently operate over 2,500

stores across California. The Ralph’s brand is one that customers recognize as a reputable, quality

grocer across the state. The downtown Ralph’s store immediately brought legitimacy to an area of

downtown Los Angeles that was beginning to see some nascent revitalization, but was still a

largely unproven market.

San Antonio takeaways: A mixed-use facility can allow for the retail component to increase the

marketability of the residential component as it provides a needed amenity for residents.

Additionally, by offering services outside the normal context of a grocery store, through varied

product offerings and ancillary shop-in-shop operations, Ralph’s has increased customer foot

traffic and provided atypical revenue streams for the retailer.

Schnuck’s Culinaria, St. Louis, MO

In 2009, Schnuck’s, the preeminent grocery brand in St.

Louis, opened their first downtown store. The store, called

the Culinaria, is a new gourmet grocery concept and is

located in downtown St. Louis’ loft district. The 27,000

square foot store occupies the ground level and second

floor of a large downtown parking structure. The Loft

District neighborhood is leading St. Louis’ downtown

renaissance, where an abundance of manufacturing

buildings have been converted into luxury loft apartments

and attract young professionals and young families. The

neighborhood is also adjacent to downtown St. Louis’ central business district.


The Culinaria model combines affordable grocery shopping with higher-end prepared foods. The

traditional grocery space only occupies approximately one third of the space, but offers

approximately 22,000 products. The prepared foods section of the store offers made-to-order

salads and sandwiches, a pizzeria, pasta, a grille station, Mexican food, sushi, and other

prepared meals. The Culinaria also has a coffee café operated by Kaldi’s, a widely respected

local coffee roaster. The mezzanine of the store holds a high-end wine and liquor “shop”, plus café

seating for those that wish to eat their meals in the store. The store also offers catering and a

pharmacy that delivers.

San Antonio takeaways: Leveraging regional brand loyalty but adapting the stores identity and

business model to meet the needs and shopping habits of the urban community can create an

increased connection between retailer and customer.

Rouse’s, New Orleans, LA

Rouse’s, a grocery brand that operates 37 stores

across Louisiana, opened their first downtown

store in New Orleans’ Arts District neighborhood in

2011. The downtown Rouse’s occupies a 40,000

square foot converted car showroom. Conversion

of existing space allowed Rouse’s to save

significantly on development costs and also

encouraged them to do a larger store then they

otherwise would have done. The store has parking

on the roof of the building as well as surface

parking.

Rouse’s has been one piece of a larger revitalization movement underway in the area, with

substantial residential development recently completed, under construction, or planned. Rouse’s

actively chose to “lead” the residential population downtown, rather than “waiting for the

rooftops,” based on the belief that the presence of a grocery store now would ultimately lead to

an even stronger residential base in the future.


The new Rouse’s in downtown dedicates approximately half of its 40,000 square feet to

traditional grocery store space. The store also has substantial prepared foods such as pizzas,

burritos, paninis, pastas, salads, and soups, as well as a coffee shop. Rouse’s has also dedicated

some of its space to commercial kitchen space, which they use to cook and prepare food items that

are in turn transferred to other stores that do not have the space to prepare them in-house.

San Antonio takeaways: A regional operator with established brand identity has reaped the

benefits of investing in an area devastated by natural disaster and previous decades of

disinvestment. Rouse’s now has a monopoly on the urban grocery market and has catalyzed

additional retail and residential growth in the surrounding blocks which has increased store sales.

Urban Market, Dallas, TX

In 2005, Downtown Dallas’ first full-service grocery store, Urban

Market, opened on the ground floor of the Interurban building.

The store occupies a 20,000-square foot space in a downtown

residential building that used to be a trolley terminal. When the

store opened, 13,000 square feet was used for traditional

grocery and 5,000 square feet was a café. Since then, however,

the café has closed due to lagging sales.

Urban Market is not as well amenitized as other urban grocers. In

addition to traditional grocery, they offer some prepared foods

and a large salad bar. The café offered a more extensive menu

of made-to-order and prepared foods, but as mentioned has

since closed. One compelling amenity offered by Urban Market is

a Personal Shopper Program, through which the customer can send in a shopping list to the store

and then have the order delivered to his/her home.

Urban Market has encountered several challenges during its time operating in Downtown Dallas. It

has faced criticism for not offering the range of products needed to fully meet the grocery needs

of its customers. Further, pricing has not been competitive enough to woo shoppers away from

more established (and affordable) brands. In the same vein, Urban Market does not have the


benefit of an established and trusted grocery brand. Last, while the Downtown Dallas residential

market is growing (2010 population estimates of 5,230 residents within the Interstates 35 and 10

loop)7, it is too small to support a 20,000 square foot store on its own, and workers are not

making up the gap, despite there being approximately 114,000 workers in the same area.

Due to significant operating shortfalls, other entities committed to the store’s success have had to

step in to provide support. In its first year, the Interurban Building ownership group provided $1.2

million to cover the store’s operating shortfall. The following year, the City of Dallas provided

$100,000 through the City’s retail improvement program, which the Interurban Building matched,

to cover the second quarter shortfall. Further, the City pledged as much as $550,000 over 2 years

in additional support through TIF financing. This financial support was made available contingent

on City Council approval and had to be matched by private funding.

San Antonio takeaways: It is important for an operator to clearly understand its customers’

needs and be able to adapt to meet demand shifts. Additionally, this store lacks regional brand

recognition and cannot benefit for cost-efficiencies associated with a regional operator. As a

result, it has proven difficult to become the retailer of choice for locals. Dallas has 6,600 hotel

rooms within 2 miles of downtown, less than half of San Antonio’s Center City8. Urban Market has

not been able to leverage the spending potential of visitors as well as a potentially well situated

store within walking distance of the core of San Antonio’s hospitality industry.

VII. Potential Operators

HR&A reviewed a wide selection of potential supermarket operators and selected five as having

the potential to run a successful store in Center City based on the following criteria:

1) Regional presence. An existing regional operator has a greater chance of

success in a very competitive regional market than does an operator new to

the region. Key to a store’s future success is the need minimize startup costs.

7 ESRI Business Analysis; 2010 US census 8 http://www.visitdallas.com/travel_trade/


The ability to tap into an established regional distribution network and

leverage resources of other local stores creates cost efficiencies. .

Additionally, a regional presence will allow a store to get over the initial

challenge of lack of brand familiarity.

2) Ability to operate an “urban” size store. A store will need to operate

efficiently within a footprint of 15-20,000 square feet. Operators that have

perfected a store model within this size range have the greatest chance of

success. Conversely, an operator that traditionally operators on a smaller

footprint may find it difficult to scale up and provide the array of goods and

services associated with a full service grocer.

3) Product and service offerings. While a store operator can adjust its

merchandise-mix to best met its customers’ needs, a store layout and services

provided are not as easily adaptable to market demand. The operator will

need to accommodate the needs of a non-homogenous residential population,

local workers, and visitors.

In summary, an ideal operator would be a regional operator that has an existing store model that

can be appropriately sized for Center City and that can accommodate the needs of Center City’s

various customer types. We believe the following operators could succeed in the Center City

market.

HEB

The San Antonio supermarket industry is dominated by one

operator, HEB. Founded in 1905 in Kerrville, Texas, and now

headquartered in San Antonio, HEB operates over 300 stores in

Texas. The retailer produces revenue in excess of $15.5 billion per

year, making it the second largest privately-owned retailer in the nation. HEB has stores as small

as their 20,000 square feet legacy stores in small towns and as large as their 145,000 square

foot HEB Plus! superstores. While HEB does not have a true urban store model in its portfolio, it has

recently opened new stores in the densely populated areas of Houston in the Museum District and

West University neighborhoods.


HEB’s regional dominance is a result of multiple factors including:

Strong brand and established customer loyalty

Ability to match prices on an item-by-item basis

Strong supply network and established relationship with vendors

Popular store-brand products

Ability to defensively purchase land to limit competitor market penetration

HR&A visited several HEB stores in San Antonio and found that operator adjusted its store layouts

and product offerings to meet the needs of the local population. All stores visited were well-lit,

clean, and well-stocked.

HR&A also visited Central Market on Broadway, HEB’s upscale brand. HEB operates eight Central

Market stores in Texas and all are located in wealthy neighborhoods such as San Antonio’s Alamo

Heights, Houston’s River Oaks, and Dallas’ University Park. While we were impressed with Central

Market’s store layout offerings and services, we do not see a second regional Central Market as a

viable option for Center City. However, we do see Central Market as impacting the viability of a

store on the north side of Center City as it is less than three miles away and a straight drive along

Broadway from the residential cluster developing in River North.

La Fiesta

A subsidiary of Houston-based Foodarama, La Fiesta

operates eight stores in San Antonio. This small chain caters

to San Antonio’s Hispanic population base as most of its

stores are on the City’s West and South sides. The majority

of their stores occupy space formerly occupied by now-defunct supermarket chains or chains that

have left the region such as Handy Andy and Albertson’s. HR&A visited the La Fiesta at 4107

Blanco Road. We estimate the store size to be approximately 15,000 square feet. The store was

clean and well-lit. Shelves were well-stocked and produce was fresh and visually appealing.

Merchandise offerings skewed towards discount and economy brands. There were no on-site

services offered (ex: bakery, butcher or deli) and all meat products were pre-packaged. The store

offered an array of non-perishable items such as cleaning supplies and paper products.


For a La Fiesta to succeed in the Center City market, it would need to expand its offerings to cater

towards a more diverse customer base. La Fiesta would need to introduce to its product mix

prepared foods geared towards workers and visitors that are not part of the stores standard

models. Branding the store under a new name or perhaps using the Foodarama brand would help

increase brand acceptance with non-Hispanic customers.

Sprouts

Sprout’s Farmers Market is a western US chain of 110 grocery

stores with 20 stores in Texas and three in San Antonio, all on

the City’s north side. Sprout’s specializes in organic offerings

and fresh produce. In many ways, Sprout’s is analogous to a

small Whole Foods. HR&A visited the Sprout’s at 2502 Nacogdoches Road, just north of the 410

Loop, an operation we estimated to be roughly 12,000 square feet. We found the store to be

clean, well-lit and well-stocked. Fresh produce occupied nearly a third of the floor space, a much

larger portion than a standard grocery store. Product brands skewed towards the organic and

independent. For example, the store did not sell Kellogg’s or General Mills cereals. Instead, it

offered brands such as Kashi and Nature’s Path. Similarly, personal care products from brands like

Tom’s and paper products from Seventh Generation were offered. Sprout’s price points were

surprisingly low, significantly lower than those at Whole Foods. Costs are probably kept low by

limiting expensive services like a butcher, deli counter, or bakery and thus reducing employment

overhead. The store did not offer any prepared foods.

Sprout’s could do very well in Center City particularly if it expands its offerings to include

prepared foods and other convenience items to capture the worker and visitor spending potential.

We believe that the natural foods theme of the store would play well in both the emerging

residential cluster in River North as well as near the established area of Lavaca and King William

where there is a growing “foodie” scene.


Green Fields Market

Green Fields Market is a single store operator located at

19239 Stone Oak Parkway, on the City’s far north side.

The store is a full-service, 15,000 square feet supermarket

that offers a deli, bakery, prepared foods and a wide

selection of perishable and non-perishable food items. The store did not offer any household

goods and the personal care section was small. HR&A visited Green Fields Market and found the

store to be clean, well-lit, and well-stocked.

Because there is only one Green Fields Market store, it may be a challenge for the operator to

expand into the Center City Market. However, the current business model, with its established

prepared food offerings and diversity of products, would do well in Center City.

Super S Foods

Super S Foods, until 2011, was a San Antonio-

based chain of 53 small discount stores catering

towards small and medium sized Texas markets.

In 2011 Super S was acquired by Florida based Lowe’s which increased its store count to 143 with

the Super S acquisition. For now, Texas-based stores have kept the Super S Foods brand. Stores

vary in size from under 10,000 square feet up to 30,000 square feet in large markets. HR&A did

not visit any Super S stores as part of this study but HR&A staff are familiar with Super S store in

Comfort, Texas. Staff reports that the store is well stocked and clean and offers an array of

perishable, non-perishable, and household merchandise. Prices trend towards discount but some

items are more expensive than similar goods offered in larger stores in more competitive markets.

Super S Foods does not operate any stores in the City of San Antonio. Its closest stores to the City

are in Castroville and Somerset.

While Super S Foods tends to operate only in small markets where there is limited or no

competition, the store’s standard model could be a viable operator for Center City San Antonio. Its

diversity of goods and ability to scale up or scale down based on the market make it a strong

option for Center City. Additionally, its established regional distribution network allows for easy

expansion in San Antonio. The greatest hurdle to expanding in Center City is the implied


completion that HEB could impose (Super S Foods typically does not operate in markets where

there are HEB stores).

Walmart Express Stores

Walmart, the nation’s largest retailer, recently launched two new

Walmart Express stores in northwest Arkansas and four in Chicago.

The Walmart Express test stores average 15,000-square-feet and

offer groceries and general merchandise, including an assortment of

fresh produce, dairy and meat, dry goods, consumables, personal care products, and over-the-

counter medicines. This store provides 30 dedicated parking spaces. One of the Chicago stores is

located in an existing, mixed-use building. Similarly, Walmart opened a 27,000 square foot

“Neighborhood Market” store in the Presidential Towers apartment complex just west of the City’s

Loop district. This model is a divergence from its typical one store, tilt-wall construction type and

could be a promising alternative for Center City San Antonio. This store does not offer any

dedicated parking spaces but has shared parking with the mixed-use towers’ parking garage and

validates parking for free for up to one hour.

Walmart has an established presence in the San Antonio region with several dozen stores located

on all sides of the City. The closest Walmart to Center City is four miles south of the Study Area at

1200 SE Military Drive. Many of the region’s stores have full grocery offerings. As a result, the

retailer is positioned to expand in the market and could apply one of its smaller store formats to a

well-positioned site in Center City. According to a Walmart press release, the retailer is looking to

open 30-40 new Express stores in the next two years.9

Existing Center City Offerings Center City has an assortment of retailers that in some ways are filling the void of a true

supermarket. There are at least six convenience stores and two national chain pharmacies,

Walgreens and CVS, in the Central Business District. While this collection of operators does

provide some of the needed goods of local customers, they do not provide enough of the range in

9 http://www.walmartchicago.com/wp-content/uploads/press_releases/cegp.pdf


products and services associated with a standard supermarket. Customers want to know that if

they go to a store they can get an item and not need to visit another store in order to purchase the

desired merchandise. Customers will drive further to stores which are guaranteed to have the

desired item. In short, these stores are not viewed by shoppers as being a destination in which all

grocery needs will be met. Furthermore, their business models are limited in the ability to expand

into the competitive grocery business.

Pharmacy-Based Retailers: CVS and Walgreens

Walgreens and CVS have existing stores in Center City

with very limited food offerings: mostly pre-packaged

snacks and beverages. While a larger pharmacy with

increased food offerings could meet some of the local

demand for groceries, those stores have yet to fully

break into the grocery business as they tend to offer

only snacks and a limited amount of staples.

Additionally, it would be a challenge for those operators to expand to a larger grocery format as

their current business model is not geared towards groceries. However, both Walgreens and CVS

do provide a good array of home goods and personal care products, two components of a full

service supermarket. In short though, a store that is traditionally a pharmacy does not offer the

breadth of food goods needed to meet the demand of local residents and thus should not be

viewed as an acceptable solution to Center City’s supermarket issue.

Local Convenience Stores

As part of this study, HR&A considered the potential for an existing Center City retailer to modify

its business model into a traditional supermarket format. In Center City, specifically in the Central

Business District, there are six food retailers that offer some grocery products. These stores include:

1. Delivery Market SA

2. Continental Green Produce

3. Hippo’s

4. Main Plaza Market

5. Big’s C-Store and Deli


6. Dollar General

HR&A visited all of these retailers. While these stores do offer a limited amount of food goods

and are supported by the residential, worker, and visitor populations, and they do fill a void in

the market for convenience goods, their size and operations do not seem scalable to be a true full-

service grocery store. The increased offerings, distribution processes, employment and training

needs are all hurdles to scaling up to meet the supermarket needs of the Center City community.

Lastly, Chico Boy’s Fruit, a small fresh fruit stand located at 1631 South Laredo Street just outside

of Center City, offers fresh produce at competitive prices.

VIII. Potential Store Locations

HR&A began its store location site analysis by visually searching online aerial images and using

first-hand local knowledge of Center City to identify sites that are either vacant, occupied by a

temporary use such as parking, or contain a building that could house a supermarket. We

complemented this review with an analysis of a public land database to identify publicly-owned

parcels that may be of an appropriate size to accommodate a supermarket. Based on these

criteria, we identified thirteen sites for further analysis.

1 1. 1200 Broadway at 12th Street


3 3. 501 East Quincy Street, at McCullough

4 4. Fox Tech - 720 North Flores Street at Romana Street

5 5. Alamo Automotive - 401 West Martin Street, at N. Flores Street

6 6. Callahan Building - 400 West Martin Street, at N. Flores Street

7 7. St. Marks Parking Lot - 251 Broadway at 3rd Street

8 8. 457 South St. Mary's at Nueva

9. HEB Property - 201 East Cesar Chavez at S. Main Ave.

10 10. Univision Site - 411 East Cesar Chavez

11 11. HemisFair - 601 East Cesar Chavez

12 12. SAISD Property - 600 East Cesar Chavez

13 13. Victoria Commons - 800 East Cesar Chavez at Labor Street


Figure 9: Potential Center City Supermarket Locations



3 3. 501 East Quincy Street, at McCullough

4 4. Fox Tech - 720 North Flores Street at Romana Street

5 5. Alamo Automotive - 401 West Martin Street, at N. Flores Street

6 6. Callahan Building - 400 West Martin Street, at N. Flores Street

7 7. St. Marks Parking Lot - 251 Broadway at 3rd Street

8 8. 457 South St. Mary's at Nueva

9. HEB Property - 201 East Cesar Chavez at S. Main Ave.

10 10. Univision Site - 411 East Cesar Chavez

11 11. HemisFair - 601 East Cesar Chavez

12 12. SAISD Property - 600 East Cesar Chavez

13 13. Victoria Commons - 800 East Cesar Chavez at Labor Street

8


On April 16th, we visited all thirteen sites and evaluated them based on the following criteria:

1) The ability for a store located at that site to catalyze further growth including

residential, retail and general economic growth.

2) Alignment with the Growth Zones in the recently released Strategic Framework Plan.

Similar to the first criteria, it is important for the Supermarket to not only be supportive

of existing populations but also symbiotically support future growth and have that

growth support the store.

3) The site’s size and its ability to accommodate parking and shipping. Parcels need to be

able to not only house a store but also the parking needs associated with a

supermarket.

4) The lack of area grocery retail competition. For a store to succeed in Center City, it will

need to capture a large portion of the area’s spending potential.

5) Proximity to existing residential populations. A store is reliant on this population as its

base of customers.

6) Proximity to Center City worker populations. Center City workers add an untapped

source of spending both at lunchtime and on their commutes to and from work.

7) Proximity to hotels and visitor patterns. Visitors to San Antonio have a sizeable spending

potential. Leveraging some of that spending on grocery goods would provide a non-

traditional source of spending potential that is unmet at most supermarkets.

8) Adjacency to major streets and intersections / traffic counts. Store operators consider

traffic counts as one of the key criteria for site selection.

9) Freeway access and regional accessibility. Tied to traffic counts, regional access which

could increase a store’s capture of spending potential beyond just local shoppers and

enable the store to capture worker spending on their homeward commute.

10) Potential to leverage public ownership. The City of San Antonio or another public entity

could subsidize a new supermarket by providing discounted land.

11) The presence of surrounding retailers. Existing retail is not only an indicator of a future

store’s potential success, it is also essential to creating a critical mass of retail offerings

that establish an area as a retail district and thus heighten its ability to compete

regionally.


Figure 10: Supermarket Site Analysis


Based on the preceding analysis matrix, we identified three sites that provide the greatest

potential to support a new Center City supermarket: HemisFair at 601 East Cesar Chavez, the

San Antonio Independent School District (SAISD) property at 600 East Cesar Chavez, and the

Univision property at 411 East Cesar Chavez. Of primary importance in selecting these three sites

was the ability for a future store to catalyze surrounding growth.

All three selected sites are located within the Strategic Framework Plan’s HemisFair Chavez

Corridor. They are also located on corners with high traffic counts and provide adequate access to

the mix of residential, worker and visitor populations. All sites are large enough to accommodate

at least a 20,000 square foot store and the associated parking and loading space. Furthermore,

each site offers the opportunity to catalyze development in the surrounding area, a burgeoning

mixed-use residential community.

As part of the Center City Transportation Study, HR&A analyzed current and future population

growth throughout the Study Area. We found that collectively the Transportation Analysis Zones

along the Chavez Corridor (an area roughly analogous to ¼ mile north and south of Chavez from

Interstate 35 to Interstate 37) will grow from 4,600 to 8,800 residents in the next nine years if the

City is able to meet the benchmarks set forth in the Strategic Framework Plan. If the corridor

maintains that growth rate through 2035, the population will rise to 13,200.

HemisFair (601 East Cesar Chavez Boulevard)

The much-publicized plan to redevelop HemisFair

Park into a vibrant mixed-use neighborhood

provides an excellent opportunity to include a

supermarket as part of the development. Current

preliminary plans for the 68-acre redevelopment

include the potential for as many as 2,000

residential units and nearly 200,000 square feet of

retail space. This is in addition to a variety of

commercial and civic uses and myriad of public

open spaces. The population that will reside at


HemisFair will strongly increase the area’s spending potential. A supermarket located in HemisFair

will allow the store to serve as a community anchor for a new neighborhood -- a neighborhood

that HPARC, HemisFair’s redevelopment organization, anticipates will have a cool vibe.

Leveraging that neighborhood identity could lead to increased sales by creating a more personal

relationship with local residents.

The southwest corner of HemisFair, the northeast corner of the intersection of Alamo Street and

Cesar Chavez Boulevard, is an ideal location for a supermarket. In supermarket industry-speak, it

is the “100% corner” and is at the intersection of “Main and Main.” The site is located at a prime

corner with high traffic counts (see Table 11 below) and peak traffic flow in the evening which is

ideal for a supermarket. It is proximate to two major interstate highways and it is adjacent to an

established residential population base in Lavaca and King William. Furthermore, this site can tap

into the spending potential of the worker and visitor populations in the Urban Core.

Figure 11: traffic counts at Alamo/Chavez Intersection

Street eastbound westbound total count peak hour peak hour

count

Chavez (east of Alamo)

7,749

9,512

17,261 5pm 983

Chavez (west of Alamo)

8,787

10,010

18,797 5pm 697

northbound southbound

Alamo at Chavez 4,406 4,131 8,537 4pm 311

Source: Downtown San Antonio Transportation Study, Pape-Dawson, 2012

While preliminary plans for HemisFair have suggested a public market space that occupies

multiple existing structures, we believe that an urban format grocery store could also anchor the

new neighborhood and create a draw for residents, workers, and visitors. A public market could

be accommodated elsewhere nearby with a less food-intensive focus. For example, La Villita, with

its existing infrastructure, could support a more robust market with a significant tourist orientation

that also provides amenities for residents. Potential site constraints, including historic buildings and

infrastructure, could limit the ability to build a grocery store at this location. The nearby La Villita


could accommodate that proposed business model, given its existing infrastructure and

management. Additionally, public markets tend to rely on visitor spending and La Villtia’s location

adjacent to the San Antonio River allows it to better tap into visitor flows than a site within

HemisFair could. Therefore, we recommend that the City of San Antonio consider the potential of

HemisFair to create a physical space that would meet the needs of a traditional supermarket. Key

considerations include how to design a grocery store that supports, and does not detract from the

place making on the rest of the HemisFair site.

SAISD Property (600 East Cesar Chavez Boulevard)

SAISD owns a parcel of land at the southeast corner

of Alamo Street and Cesar Chavez Boulevard that

is large enough for a supermarket. This site shares

many of the same advantages of the HemisFair site:

it is located at a prime corner with high traffic

counts (see Table 11 above); it is proximate to two

major interstate highways; and it is adjacent to an

established population base in Lavaca and King

William. An additional advantage of the SAISD site

is its ability to tap into the existing “foodie” culture

of Southtown. Several well-received restaurants have opened in Southtown in the past few years

including Monterey, Feast, Roast, Liberty Bar, La Frite and Friendly Spot. These restaurants add to

the area’s identity already established by neighborhood stalwarts such as Rosario’s. Since this

area is known throughout the region as a food destination, a well-positioned supermarket could

leverage this identity to support its own brand and increase customer flow.

Developing this land would require an agreement between the City of San Antonio and SAISD.

Because SAISD will most likely seek market value for the land, though it is currently underutilized,

the City will need to incentivize development on this site or otherwise encourage increased density

through a mixed-use development to cover a high land cost basis.


Univision (411 East Cesar Chavez Boulevard)

KCOR-TV, the local affiliate of Univision and the

first Spanish language television station in the

United States, owns a 4.3-acre parcel of land at

the northwest corner of Cesar Chavez Boulevard

and South Saint Mary’s Street. The owner of this

site has expressed interest in selling this parcel for

several years so that the station can build a new

studio facility elsewhere in the City. The site offers

many of the same advantages as the SAISD and

HemisFair sites: it is located at a prime corner with

high traffic counts (see Table 12 below); it is proximate to two major interstate highways; and it is

proximate to an established population base in Lavaca and King William. An added advantage

of this parcel is that it backs up to the San Antonio River, which would allow a supermarket to tap

into the visitor traffic flow along the River Walk. To this end, an in-store café could be designed

along the River and would generate a higher profit margin that other shelf-based merchandise.

Central Market in Houston and Whole Foods on 6th Street in Downtown Austin have both perfected

this model. Alternatively, the site could be developed with other retailers along the river and thus

have their premium rental rate subsidize a supermarket’s rent.

Figure 12: traffic counts at S. St. Mary's/Chavez Intersection

Street eastbound westbound total count peak hour peak hour

count

Chavez (west of Alamo) 8,787 10,010 18,797 5pm 697

northbound southbound

St. Mary's at Chavez 3,921 3,693 7,614 5pm 467

Source: Downtown San Antonio Transportation Study, Pape-Dawson, 2012


River North Sites

While several sites in the River North section of the Study Area could support a supermarket, we

have not recommended those sites for two reasons. First, the area has already seen development

momentum and the germination of a community. The addition of a supermarket in this area, while

providing a much-needed amenity, would not serve to catalyze as much growth as it would in

areas where development has yet to take place. In particular, the City is investing substantial

capital in creating a residential mixed-use neighborhood with attractive amenities in the Chavez

Corridor, and a grocery store would help them maximize the returns from their investment. Second,

Central Market, a very well-run supermarket located three miles to the north of the area provides

too strong a level of competition to any newcomers. Our thoughts are that most vehicle-based

shoppers would be willing to drive the 6-8 minutes it takes to get to Central Market from River

North to take advantage of the store’s full offerings.

Conclusions

Based on HR&A’s assessment of the marketplace, we see strong potential for grocery store

development in the southern part of Center City, near HemisFair, La Villita, and Southtown. Taking

the intersection of South Presa and Cesar Chavez as a center point, data shows that there is

significant grocery store spending potential from residents alone within the typical trade areas

that grocery store operators examine. Within a 1-mile radius there is approximately $9.9 million

in residential grocery store spending potential and within a 3-mile radius that figure balloons to

$116 million. Within a 10-minute drive time there is $396 million. Note that the total grocery

spending potential is not presented net of existing sales, and does not project the spending that a

grocery store in Center City could actually capture. (It should be noted, however, these are the

crucial data points that grocery store operators consider in the site selection process.)

IX. Economics of Development

The grocery business is one of high volume and low profit margins. Operators are extremely risk

adverse and only establish new stores where economic fundamentals strongly suggest profitable

operations. For Center City, there are two primary costs that are higher than the cost of

developing elsewhere in the region: annual rent expense and real estate taxes. As a result, while

there is market support for a 20,000 square foot grocery store, the financial viability of


developing a store will only work if capital costs are held constant in comparison to surrounding

real estate and industry averages. Additionally, the risks associated with increased capital costs

for urban development and higher land values resulting in additional land taxes need to be

mitigated for a store of any size to be viable.

Rent Expense

HR&A undertook two methods to estimate the cost differential between a grocery store in the

Center City and one located elsewhere in the City: a development cost approach and a rent

comparable approach.

Development Cost Approach

To determine the cost differential between a store built in a suburban setting and one built in

Center City, HR&A estimated the development costs and required rents to support development in

both locations. We held the store size constant at 20,000 square feet. Using RS Means construction

cost estimator, we found that average supermarket construction costs (hard costs plus soft costs)

average $128 per square foot in the San Antonio region. We then applied a 20% premium to

construction costs in Center City to account for difficulty of construction and likely mixed-use

development, which can add cost and complexity to development, compared to suburban

standalone locations.

Using online databases of regional land sales, we found the average cost of land to be $16 per

square foot for prime retail sites adjacent to major roads or highways in San Antonio outside of

Center City. Land in Center City, however, is significantly more expensive. Through our work on the

Strategic Framework Plan, we documented Center City land costs from $30 to $70 per square

foot, or more, depending on location and proximity to the urban core. Using these land values, we

calculated total development costs for a 20,000 square foot store to be $3.6 million in a non-

urban setting and between $5 million and $7.5 million in Center City.

Assuming that a developer would expect an 8% annual return on costs in a stabilized year, they

would need to achieve rents between $14-$16 per square foot for a grocery site outside Center

City and between $20-$30 for a Center City location.


Figure 13: Grocery Store Development Scenarios. Regional Model vs. Center City Scenarios

Comparing the required rental rates between the regional model ($14.23 per square foot) and the Center City model we found a resulting ten-year gap in rental revenues of between $1.1 million and $2.7 million.

Figure 14: Ten-year gap in rental rates between regional model and Center City models

Center City

Model (A) Center City

Model (B) Center City

Model (C)

Resulting rental gap / sf

$ 5.57 $ 10.61 $ 15.65

Annual gap

$ 110,000 $ 210,000 $ 310,000

10 year rental gap NPV

$ 1,100,000 $ 2,100,000 $ 2,700,000

10 http://www.meanscostworks.com/

Regional Model

Center City Model (A)

Center City Model (B)

Center City Model (C)

Store Size (SF) 20,000 20,000 20,000 20,000

Construction Costs/SF $ 12810 $ 153 $ 153 $ 153

Construction Costs $ 2,550,000 $ 3,060,000 $ 3,060,000 $ 3,060,000

Land Area 63,000 63,000 63,000 63,000

Land Costs/SF $ 16.00 $ 30.00 $ 50.00 $ 70.00

Land Cost $ 1,008,000 $ 1,890,000 $ 3,150,000 $ 4,410,000

Total Development Costs $ 3,558,000 $ 4,950,000 $ 6,210,000 $ 7,470,000

Return on Cost 8% 8% 8% 8%

Required Rent $ 284,640 $ 396,000 $ 496,800 $ 597,600

Required Rent/SF $ 14.23 $ 19.80 $ 24.84 $ 29.88

Source: HR&A, RS Means, Loopnet


Rent Comparables Approach

HR&A vetted these rent assumptions by reviewing listings for available space and speaking with

local real estate brokers including Reata Real Estate Services, a leading San Antonio-based real

estate brokerage that specializes in retail leasing. Throughout much of the San Antonio region,

spaces that could accommodate a 20,000 square foot supermarket command an annual triple-net

rent (NNN) of approximately $15 per square foot, or $300,000 per year. Areas such as the

Quarry and Quarry Village command higher rents of approximately $20 per square foot as they

are the retail hub for the upper income Alamo Heights district.

Retail space in Center City, however, commands an even greater premium. While retail rents

along the River Walk skew higher and rents in Southtown trend lower, a well-situated store built

specifically to accommodate a grocery store would rent within the $20 to $30 per square foot (or

more) triple net price range given that the recommended rents for a Center City grocery are in

highly visible and highly traffic locations. Using the high end of this range would result in

$600,000 annual rent for a 20,000 square foot space.

Holding all operational costs constant, in a comparison between a regional supermarket that

leases space for $15 per square foot and a Center City supermarket that leases for $30 per

square foot, there is a difference of $300,000 per year in rent. Assuming that a ten-year lease,

with a $30 per square foot rent, the net present value of the gap between the Center City and

the regional models is $2.64 million.

Figure 15: Rental Gap Analysis: Center City vs. Regional Strip Center

Store Size Center City NNN

Rent

Regional Supermarket

NNN Rents

Annual Gap in

Rental Rate

NPV of 10-Year

Gap

$30 /SF $15 /SF

20,000 SF $600,000 $300,000 $300,000 $2,640,000

Required Subsidy

In Summary, by comparing both methods of analysis, development and rental comps, we found

that the ten-year net present value of the difference in real estate costs to operate a Center City


grocery store to be between $1.1 million under the $30 per square foot land cost scenario and

$2.7 million under the $70 per square foot land cost scenario. Costs would most likely trend closer

to the high end of the spectrum based on prevailing land costs in Center City.

Real Estate Taxes

An operator in Center City will pay incrementally higher taxes than an operator elsewhere in the

City to the extent that land values and the value of development are higher in Center City. To

offset the annual cost differential and to further mitigate the increased risk of operating in Center

City, the City should offer a real estate tax abatement.

X. Recommendations

Next Steps

HR&A recommends that the City of San Antonio first work with the owners of the recommended

store locations to determine the viability of having them partner with a store operator to develop

a 15-20,000 square foot store. As an alternative, the City should gain site of control at one of the

preferred sites, develop a conceptual site plan that provides a base level logistical site

configuration, and then produce a Request For Proposals (RFP) for the development and

operations of a supermarket at that site.

Preference should be given to respondents who propose a development that would catalyze

further growth in Center City. Mixed-use development that combines retail space with residential

should be heavily favored as it maximizes the value of land and adds to overall area density, a

critical component to the future of a vibrant Center City.

In the event that site control of the preferred sites is unlikely, HR&A recommends the City draft a

Request for Expressions of Interests (RFEI) to solicit interest from grocery operators, real estate

developers, and local land holders in the development of a grocery store or a development that

includes a grocery store. The RFEI should not indicate specific sites for development but instead will

allow respondents to propose development anywhere within the Center City Study Area, as

defined in this report and the Strategic Framework Plan. Preference should be given to

respondents who propose a development that will be catalytic to further urban growth in Center


City. This report, or an abridged portion of this report, should be included as an attachment to the

RFEI.

Incentives

In order to attract a developer and/or operator, we recommend that the City provide a subsidy

that will fill the net gap that results from increased costs associated with Center City real estate

and development for a ten-year period. This would result in approximately a $2.5 to $3.0 million

subsidy. After that time, substantial residential development in Center City, as well as increased

sales, will have reduced the risk to the grocery operator and the subsidy should no longer be

required.

In addition to the subsidy, we recommend that the City provide a 10-year real estate tax

abatement to cover the net-increase in property taxes. We believe that after a ten-year period

of catalyzed Center City growth, an urban grocery store should be able to operate self-

sufficiently.

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