How To Invest in Grocery Stores [Buy Real Estate, Not Stock]

No matter who you are or where you live, you need food several times a day to survive and thrive. Luckily, most of us no longer need to go through the daily grind of procuring our food from scratch, thanks to one of modern-day life’s biggest conveniences: grocery stores. In fact, most of us largely take our local grocers for granted. But what if that store could do more for you than conveniently provide food and other home goods? The panic buying in the early days of the pandemic resulted in huge increases in net income for major grocery store chains and reminded us just how critical they are to our communities. This resurgence of interest has also crossed into the realm of investing, with individual and commercial investors looking at grocery stores as a solid investment option. Read on to learn why grocery stores can be a good investment and how you can start investing in them.

Why Grocery Stores Are Good Investments

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There will always be a market for a steady, easy-to-access supply of food. But beyond that, grocery stores historically have also shown themselves to be resilient and adaptable businesses. Let’s take a closer look at why grocery stores are good investments that offer attractive, risk-adjusted returns.

1. Meet Public Need

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Let’s start with the most obvious reason for investing in the grocery space: They fill a need. Some of the most successful businesses provide something that people need, and there is no more basic and consistent human need out there than food, right? However, grocery stores go way beyond selling food items. Many chains offer home goods, gas, clothes, pharmacy services, and other essential items. Some grocers have become huge one-stop shopping centers, like Costco Wholesale, where customers can check off most of their shopping needs in one place. In fact, large grocery store chains fill so many needs that they have put many smaller retailers out of business, especially over the past few years of the pandemic.

2. Can Survive Any Economic Climate

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Almost all goods and services are susceptible to the ebbs and flows of the economy, but not food. Yes, people will tighten their belts by cutting back on non-essentials when things get tough, and they might trade down to cheaper foods, but everyone still needs to eat something. Because food is an enduring necessity for people to survive, grocery stores, in principle, should always be able to navigate any economic climate. Well-run, established chains grow their same store sales (meaning, sales generated at existing stores, not new ones), year after year. The one caveat to this notion are the big-box chains that rely heavily on non-food sales, but they also benefit from their ability to source and distribute goods for reasonable prices, and from their huge market share.

3. Dependable Profitability

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Grocery items will always be in demand, and thus the most compelling argument for investing in grocers is dependable profitability. While investment performance may not continue at the levels we saw during the buying craze of the pandemic, it’s safe to say that groceries will continue to yield reliable profits for stores that keep their costs under control and provide an enjoyable shopping experience for their customers.

4. Remarkably Adaptable

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Another reason to add grocery retailers to your investment portfolio is that they are remarkably adaptable. You need look no further than the pandemic for confirmation of this. As the world shut down and people sheltered in place, technology ramped up to offer digital access to goods and socially distanced ways to get them. Grocers quickly pivoted to meet this demand by implementing or expanding their delivery and online options. Online shopping and delivery services became the norm for a while, but even now that lockdowns have ended, shoppers continue to buy online. These trends are likely here to stay. As the world has reopened, grocery retailers have continued to balance the individual preferences of shoppers by continuing traditional in-store shopping while offering the convenience of online and various delivery options. This balance is a great example of the adaptability of grocers, and there is no indication that these companies won’t continue to pivot and adapt to the food-buying trends of the future.

5. Provide Necessary Distribution

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Last but not least, large companies like Walmart, Costco, and Kroger have the giant scale and market share to provide food distribution quickly and efficiently at a low cost. Farmers markets and local natural grocers do provide important options, but a small grocer lacks the resources to distribute large amounts of food and other goods across the country in an efficient and inexpensive manner. Like it or not, one of the benefits of larger corporations is their ability to provide cost-effective distribution, which results in savings for customers.

Investing in Grocery Stores

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Now that you know your local grocery store can offer compelling investment returns along with all manner of food and other goods, the question becomes: How do you invest? There are three main options for investing in a grocery company that will be discussed below, as well as our recommendation for investing the smart way.

1. Buy Publicly Traded Grocery Stores (Grocery Stocks)

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The easiest and quickest way to invest in this market segment is to buy grocery stocks. They give you instant access to the grocery space with minimal effort. However, not every grocery store can be bought and sold on a public exchange. Some names in the grocery business belong to private companies, making it virtually impossible (or extremely difficult) to invest in them directly. Several stores trade on public markets. Grocery stores you can buy stock in include:

• Kroger
• Walmart / Sam’s Club
• Sprouts
• Weis Market
• Costco
• Amazon / Whole Foods

In addition to buying grocery stocks individually, you can gain some exposure to the grocery store market through index and exchange-traded funds. E-commerce giant Amazon, one of the largest companies in the U.S., is part of the S&P 500 and is included in any fund that tracks it. Walmart is another company belonging to the S&P 500. For a more focused approach, you could invest in an exchange-traded fund that holds sellers of consumer staples, such as Vanguard’s Consumer Staples ETF. Some of its top holdings include grocers like Walmart, Costco and Target. Related: Best Investment Apps and Platforms

2. Investing in Grocers Through REITs and Private Equity

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Another way to invest is through grocery-anchored real estate. In other words, invest in the buildings where grocers are housed. There are two venues for investing in real estate related to grocery stores: REITs and private equity.

REITs

REIT stands for real estate investment trust, a company that owns and sometimes operates income-producing real estate. REITs offer a way for investors to pool their money and invest in property that individuals wouldn’t be able to own, such as hotels, apartment buildings, and other kinds of commercial real estate. There are many publicly traded REITs you can invest in via your brokerage or retirement accounts. Some examples include STAG Industrial, Realty Income, and Slate Grocery.

Private Equity

If you’re an accredited investor, as defined by the Securities and Exchange Commission, another option for investing in real estate is via private equity funds. Private equity involves a firm gathering capital from outside investors and using those funds to buy, develop, and sell commercial properties or other businesses for a profit. This can open up lucrative investment opportunities in real estate that aren’t typically available to individual investors on the stock market. However, these types of investments are typically only open to high-net-worth investors capable of contributing hundreds of thousands or even millions to the fund.

3. Go Into the Grocery Business Yourself: Start Your Own Grocery Store or Buy One

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A final option is to open your own store or to purchase an existing one. After all, what we now know as giant grocery retailers typically started as one grocery store. Whole Foods started after two smaller stores merged in Austin in 1980. However, if you want to start the next Whole Foods, it’ll be important to find a niche and fill an area of need not yet served by big box stores or local grocers. And if you don’t have the capital to buy or launch a store yourself, you’ll have to convince a lender that you’re a good credit risk.

How To Invest in Grocery Stores the Smart Way: First National Realty Partners

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While the above are great options for getting in on the grocery store market, our pick for the smart way to invest is with First National Realty Partners. If you’re an accredited investor with some cash to spend, read on to learn how you can get in on the action through real estate.

• Minimum Investment to Start: $50,000
• Type of Investor: Accredited Investors

First National Realty Partners (FNRP) is one of the fastest-growing vertically integrated CRE investment firms in the United States. It’s also focused on a very particular niche: grocery-anchored commercial real estate. FNRP’s team leverages relationships with top-tier national-brand tenants—including Kroger, Walmart, and Whole Foods—to provide investors with access to institutional-quality CRE deals both on- and off-market. They’ve helped thousands of investors increase their net worth and diversify their portfolios against market volatility through deals that yield steady cash flow. FNRP also progresses from an entire investment lifecycle, from acquisition through disposition, 100% in-house. A large team of professionals filters through thousands of deals to choose a handful they believe will outperform their peers. Unlike a traditional REIT or fund, you have the ability to pick the deals that best align with your investment needs, so you can use FNRP’s various offerings to build your own portfolio. This relative exclusivity does, however, come with a high minimum investment of $50,000. Sign up to learn more about the opportunity and determine whether it makes sense for your investment goals. Read more in our First National Realty Partners review. Related: 7 Best Wealth + Net Worth Tracker Apps [View All Your Assets]

Final Thoughts

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Grocery stores are a staple of every community, and they aren’t going away anytime soon. No matter the future of our food or how we buy it, you can be confident that grocery retailers will adapt and change to fit any economic climate or trend. If you’re looking for a solid market to invest in, consider grocery stores a dependable option for the foreseeable future, with many avenues for investment.