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RETAIL VIEW: Mixed-use projects drawing retailers

In Miami, real estate developers say the location of a Whole Foods supermarket on the ground floor of the 74-story Met 3 condo tower helped drive sales. In San Francisco, Bristol Farms' first entry in that eclectic market is its the basement store in a high-rise shopping mall. Twin condominium buildings towering 20 stories near downtown Atlanta opened last year with a Publix supermarket anchoring the ground-floor retail space.

A luxury condo project in the heart of Minneapolis that hasn't even broken ground yet is pushing the fact that a prize part of the mixed use project is a 76,000-square-foot Whole Foods Market. The same Minneapolis developer is building another Whole Foods-anchored high-end condo project in Seattle. In fact, indications are that about 20 percent of the new stores that Whole Foods currently has on its drawing board are mixed-use projects. These include plans for store/condo openings in Los Angeles, Chicago, a Washington, D.C., suburb and Vancouver, BC. The Whole Foods Market at the Time Warner Center in New York City is the largest supermarket in Manhattan. Safeway has been involved in several projects as well, including one in San Francisco and another in Portland, OR.

Developers say these are win-win opportunities, giving the retailer ready- made access to potentially thousand of shoppers living above the store, and giving the developer a tangible sales advantage over similarly-priced condominiums in the same market. It also is bringing the supermarket back to the inner cities, one of the more underserved real estate sectors in the country.

Speaking of The Marketplace Tower project in Minneapolis, real estate developer Don Milliken told a local newspaper that the combination project "will bring a sense of community and accessibility to a growing, centralized area downtown."

He added, "We are absolutely convinced that we've found the perfect nexus between neighborhood and development."

Ron Shuffield, the Miami condo developer, told a Florida daily newspaper that the addition of Whole Foods "is a huge draw for people to buy in these buildings. We hear it every day from our buyers."

In the San Francisco Chronicle, Ron Bond, president of real-estate developer Bond Cos., which built a 160-unit apartment complex in San Francisco with Whole Foods on the bottom floor, said that the supermarket helped push occupancy higher than the rest of the market. He said that it was the smartest move the company made when designing the project.

While Whole Foods is the acknowledged leader in mixed-use development, the chain has a policy of refusing to talk to the trade press and declined to be interviewed for this story.

But the concept goes beyond Whole Foods; even smaller stores and smaller cities are getting in on the act.

H.G. Hill Stores, which operates about 15 stores in Tennessee, opened its latest store below a 31-floor, 310-unit condo in downtown Nashville on Feb. 6. Mark Maxwell, who is in charge of both produce and deli operations for the chain, said it is only a 5,000-square-foot store, "so I'm sure our format has no relevance to Kroger or Safeway or any of the big stores. Perhaps an independent trying to do something different might find it interesting."

But that comment sells both his experience and that of his company short as the first several weeks of operation have surely been a huge learning experience which is applicable to any mixed-use retail operator in an urban setting.

While 5,000 square feet is small by supermarket standards, Mr. Maxwell said that the company is utilizing a new shelving system that maximizes the space allocated. In the produce department, he started with 172 SKUs and has grown it to over 200 in just three weeks. "Any shopper could do all their weekly shopping within this store," he said. "We've stocked it so they don't have to go anywhere else."

And the pricing is similar to the other H.G. Hill stores.

Mr. Maxwell said that the store is heavy on prepared foods. "The deli business is three times what it is in any of our other stores."

The store obviously caters to downtown residents who live in the condo project, but it has to do more than that to thrive. Mr. Maxwell said that city population numbers show that there are about 5,100 people who live downtown within a few blocks of the store. And of course, there are the thousands of workers who populate the city each day only to travel home to the suburbs at night. The Nashville Predators, a professional hockey team, also play their home games right around the corner, which has proven to be a draw for the store on game nights.

These various shoppers have created a traffic pattern different than a typical store. "We have tons of business around lunch and again as people are leaving work and buying something to take home for dinner," Mr. Maxwell said. In the early going, the daily weekday shoppers had a fairly small ring total, indicating that they were fulfilling their immediate needs. But the nighttime shoppers and the weekend traffic had ring totals more typical of someone buying to stock the refrigerator.

Some anomalies have occurred early on. Mr. Maxwell said that his typical Nashville shopper is fairly well defined as a meat-and-potatoes person. "In some of my other stores, potatoes make up as much as 18 percent of produce sales, but in this store, I can't give a potato away," he said.

On the other hand, apples and packaged salads are flying off the shelves. "But not Iceberg lettuce. They are looking for the spring mixes or the Caesar kits." He is also doing big business with fresh fruit juices and smoothies from companies such as Naked Juice. "And we are selling a whole lot of sushi [in the deli]. I can't believe how much we are selling. A local restaurant is making it for us and delivering two or three times a day. And he tells us that the sushi sales in his restaurant haven't been hurt at all."

That restaurant and others have also become customers for the H.G. Hill store and Mr. Maxwell. The restaurant owners and chefs are coming in on a daily basis and leaving with an armful of cooking vegetables such as broccoli, celery and cabbage.

While the store itself seems to be proving that it can stand on its own with regard to sales, Mr. Maxwell said that the good public relations it has given to the firm is priceless.

"There is no way we could have bought that kind of publicity," he said. "Since day one, we have been front-page news in the local paper and on the radio and every little paper in the area. No grocery store has opened in downtown Nashville in 40 years."

While he can't yet quantify a boost in sales in the other stores, Mr. Maxwell said that the good will has been immeasurable. He said that the H.G. Hill chain changed hands not too long ago, with two of the original stores staying in the hands of the original owners. Those two stores were recently closed to make room for real estate development, which left some people with the impression that the chain was closing. This new-found publicity squelched those rumors and put H.G. Hill back on the map for many potential customers.