Op-Ed: Innovative Low-Cost Solution to Grocery Store Dilemma?
Irvine is home to brilliant minds, kind hearts, and a positive, problem-solving spirit. Can these qualities be applied to solving a significant problem – the lack of everyday shopping in the new neighborhoods north of the Great Park? I put on a business school hat and have a proposal to spur discussion.
Problem: Developers hesitate to build everyday retail because land is scarce, construction costs are high, and grocery stores are struggling nationwide.
Proposed Solution: FivePoint and Irvine Company provide free delivery of groceries and everyday items to residents’ homes from existing Irvine stores. Developers would negotiate with delivery services and pay a subscription fee – a tiny fraction of the cost of building brick-and-mortar stores, with little financial risk. Residents wouldn’t need to drive to grocery/RiteAid type stores and wander the aisles – the stores do all the work. Overall vehicle miles traveled and emissions may decrease slightly, as delivery vehicles can make multiple deliveries in a single trip.
Stores Cost A Lot to Build and Maintain
Physical grocery stores are in decline across the country. While some shopping centers with grocery stores appear to prosper in Irvine, others such as Woodbridge Village Center have struggled. The Irvine Company was faced with a stark choice at Woodbridge: either close the mixed-use Center due to low occupancy rates (and, presumably, low gross income) or invest heavily to revitalize it. Listening to the desires of nearby residents, Irvine Company chose to keep the mixed-use Center open, investing $30 million to upgrade stores, enhance a playground for children, and create more community spaces outdoors.
But Woodbridge was an existing shopping center. The cost of building new shopping centers is quite high. FivePoint recently sold 41 acres of land zoned for housing in its Great Park Neighborhoods for $218 million, or by my calculation $5.3 million/acre. At this value, a 17-acre shopping center in the Great Park Neighborhoods area would require land valued at around $90 million.
Factoring in the cost of construction and ongoing maintenance, and considering declining sales at grocery stores (CVS/RiteAid-type stores are doing better), the return on investment (ROI) of a shopping center may be low or even negative. A developer may take on considerable financial risk in order to fulfill its promises to residents for easy access to grocery and everyday shopping. This is a possible explanation why FivePoint chose to build a more profitable luxury gym along Irvine Boulevard in hopes the City would absorb the cost and risk of building a grocery store on City land nearby.
Home Delivery of Groceries Could Be Available to Residents at Minimal Cost to Developers
So…Why build a grocery store if in 10 years it may be a bit obsolete and unprofitable? The global consulting company McKinsey explains: “To put it bluntly, much of the $5.7 trillion global grocery industry is in trouble. …both growth and profitability have been on a downward trajectory…[causing] a massive decline in publicly listed grocers’ economic value.”
A proposed solution to consider: FivePoint and/or Irvine Company can use their bargaining power to negotiate a low price for grocery/household item/pharmacy delivery. Then cover the cost for residents in their respective neighborhoods. Residents would order items on their choice of an app or website. Delivery could be same-day or, in some cases, within an hour or two after the resident places an order. A quick sampling of home delivery service costs in the 92603 Zip Code is as follows:
Instacart: Delivery service of items from stores such as Albertsons, Ralph’s, Vons, CVS, Costco, H Mart (Korean focus), Petco, BevMo, Sprouts and several others. Cost: $149/year or $3.99 per order.
Shipt (owned by Target): Similar to Instacart. 50,000 items are available. Fewer stores, but includes Target, CVS, Ralphs, and 99 Ranch Market (Chinese focus). Cost: $8.95/month with an annual contract or $14.95 on a monthly basis.
AmazonFresh: $119/year for Amazon Prime membership and $14.99/month for grocery/household item delivery.
Walmart: $98/year for unlimited, some non-grocery items. (See also this article)
As a hypothetical cost calculation, if a developer negotiates unlimited home delivery for $100/year per household, and 2,000 households sign up for the service, the cost to the developer would be $200,000/year. I expect this is a tiny fraction of the annual cost and financial risk associated with building and maintaining a shopping center.
Benefits: Helping a Nascent Industry to Grow in Irvine
A program such as this would provide a boost to the growing Irvine home delivery business. A high volume of business encourages stores and delivery services to accelerate investment, lower costs, and expand offerings. Typical Key Performance Indicators (KPIs) in this industry may include the number of new customers, customer acquisition costs, and the total volume of purchases. Adding thousands of new customers could improve scores on all of these metrics. The home delivery business would be more likely to succeed and expand, providing all Irvine residents with better service at lower prices. This can all be accomplished without any City funding.
Further, the cost of providing residents in the underserved neighborhoods near the northern part of the Great Park would, to the developers, be a business expense. A developer may gain tax advantages that individual subscribers could not get. In time, as the industry becomes more efficient, the cost of delivery services may drop and the need for subsidies from developers may be reduced or eliminated.
Possible Traffic and Emissions Reduction
Residents typically drive their cars to get groceries and the like. This adds to traffic along heavily traveled streets such as Irvine Boulevard. Having items delivered directly to residents’ doorsteps may reduce this type of traffic.
True, delivery services do put delivery vehicles on the street. But a delivery vehicle can make deliveries to multiple addresses in a single trip. This reduces the total number of trips on the roads, and developers may benefit when the City shifts to Vehicle Miles Travelled (VMT) as a measure of environmental impact.
By reducing the number of trips to the store, home delivery may also reduce emissions a bit. This adds to Irvine’s status as a leading “Green” city. (Developers could go a step further by insisting that delivery services use electric vehicles for at least a percentage of deliveries.)
A New National Model?
FivePoint and The Irvine Company have an opportunity to enhance their reputations for innovation and to gain further goodwill from residents. A developer-subsidized home delivery program could possibly become a national model for new neighborhoods in other cities facing a similar dilemma.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions of Irvine Watchdog or its volunteers. Irvine Watchdog welcomes all views, thoughts, and opinions expressed by Irvine residents and welcomes their posts for the Opinion section. We want to hear from you! If you would like to submit an Op-Ed, please review our guidelines and send it to us HERE.
5 Comments
Scott Hansen
November 2, 2019 at 10:21 amHi, Author’s note: My effort at a free-market way to solve an Irvine problem. Residents don’t need to drive to stores as often, less traffic and emissions. Developers save tens of millions of $. No cost to city. Boosts local business.
As with all Watchdog’s Op-Ed articles, these are the author’s own ideas and opinions.
philfuchs
November 2, 2019 at 7:53 pmScott, I congratulate you on writing such a great OP-ED on just how the Irvine Company can solve their oversight in not building commercial shopping centers within the villages of Portola Springs, Shady Canyon and Turtle Rock. I do however disagree with your statement in paragraph one where you say, “the lack of everyday shopping in the new neighborhoods north of the Great Park.” I am assuming that you’re referring to the Great Park Neighborhoods (GPN) of Pavilion Park, Beacon Park, Parasol Park, Cadence Park and Novel Park which all lie north of the Great Park and not to the Irvine Company villages of Portola Springs and Cypress East.
As a former research engineer, what I found strange is that you seem to be unaware of the recently approved and soon to be started Fivepoint X commercial development. Your research would have informed you that this community shopping district for the neighborhoods north of the Great Park features over 274,000 square feet of community commercial floorspace. It includes a total of 50 buildings ranging between one and two stories. These building will house community commercial uses, which are of the kind commonly found in neighborhood and community shopping centers.
The streets are designed to meet the needs of pedestrians as well as those of automobiles. Neighborhood retail will thus provide surrounding neighborhoods of Irvine the option to walk or bike rather than drive to their favorite coffee shop, restaurant or retailer. However, we are still Californians which means we think car, car, car before we think walk or bicycle, but within this new community shopping district we will be given a choice.
Maybe your proposed solution will resonate with the Irvine Company and they can provide your shopping solution for the residents of Portola Springs, Shady Canyon and Turtle Rock. The Great Park Neighborhoods to the North of the Great Park will have the premier community shopping center within all of Irvine thanks to the planning by FivePont and Heritage Fields El Toro LLC.
Scott Hansen
November 3, 2019 at 8:26 amDear Phil, Thank you for your thoughtful comments. I am impressed with the FivePoint X project and was at the recent Great Park Board meeting that Mr. Haddad attended and spoke. From comments to Planning Commission and others, FivePoint indicated FivePoint X is designed to be a special shopping experience including such features as outdoor dining and cafe’s, possibly cobblestone streets, and what to me is an interesting multiple structure design. But a representative of FivePoint also suggested recently grocery-type shopping at FivePoint X would be very limited – not of the Trader Joe’s, Ralph’s etc. size that most families use to get groceries. Also, no indication a RiteAid/CVS type pharmacy/home goods store will go in FivePoint X. So from what I’ve seen, is GPN residents can go to what looks like a lovely FivePoint X. But to do everyday grocery/household good type shopping, will still have to travel to Woodbury Center or the like. So my thought is, instead of forcing a Ralphs/CVS onto FivePoint X, where maybe it doesn’t fit into FivePoint’s vision for that complex, for a relatively tiny amount of money FivePoint can provide residents of GPN with no-cost grocery delivery from a range of stores – Albertson’s, Ralphs, Gelsons, Trader Joes, CVS…very long list. Even specialty grocery like 99 Ranch (Chinese) and H Mart (Korean). My article here is like a first-draft business pitch. And Irvine Company and FivePoint would likely refine it and do further study. But I hope they’ll at least consider it. The traffic-reduction side of it alone may be worth more to the developpers than what they’d pay on annual delivery fees, is one possibility. Thanks again.
Scott Hansen
November 3, 2019 at 9:09 amAlso, as to your note about Turtle Rock and Shady Canyon – we’ve lived in Turtle Rock for 19 years. There are at least four grocery stores a very easy drive from our block – Albertsons, Trader Joes, Wholesome Choice, and ZionMart. Also, a RiteAid, Target, a pharmacy within the Albertsons, an Ace Hardware, lots of restaurants. In our long experience here, shopping is easy. I’m informed (second hand, pardon me if I’m misinformed) that a FivePoint representative had a home just outside Turtle Rock, along Shady Canyon Boulevard. He would know that from his house, another option is to drive about 2 miles along lightly-traveled Bonita Canyon Drive to the Pavillions. Considering Shady Canyon – it’s is a large, elegant, low-density gated community with a beautiful private golf course. The major shopping center for Shady Canyon is the Quail Hill Center. It’s right outside of the Sand Canyon gate of Shady Canyon.
Scott Hansen
April 20, 2020 at 4:43 pmUPDATE (April 2020): Who would have thought that just a few months after we published this article, home grocery delivery would be a booming business in Irvine? When the coronavirus restrictions are lifted, will residents return to grocery shopping in person at levels as in the past? Or will home delivery of groceries remain very popular? I’d imagine many would-be grocery store developers nationwide are pondering this.
Comments are closed.