703 Weld County Road 37 JOINT WATER/WASTEWATER AUTHORITY and BOARD of TRUSTEES

703 Weld County Road 37 JOINT WATER/WASTEWATER AUTHORITY AND BOARD OF TRUSTEES

WORK SESSION September 11, 2017 6:00 p.m.

Members of the public are welcome and encouraged to attend all Town of Lochbuie meetings.

Michael Mahoney, Mayor Jacob Lofgren, Mayor Pro-Tem Mardi Early, Trustee Grant Doherty, Trustee David Ott, Trustee Mike Morris, Trustee Larry Strock, Trustee

AGENDA

A. Katy Press Presentation – Retail Viability Analysis

B. 2019 Budget Discussion

Please understand that Board of Trustees members use electronic devices of various kinds to access the materials relevant to the matters before us. Be assured, however, that, by mutual agreement and common practice of this Board of Trustees, these devices are not being used for texting, emailing, or other communications during public meetings.

RETAIL VIABILITY ANALYSIS

County Road 2 & North 50th Avenue, Lochbuie, 4/10/2018 Colorado

Review and analysis of the retail opportunity associated with the 22 acre parcel located at the northeast corner of CR2 & North 50th Avenue, Lochbuie, Colorado.

County Road 2 & North 50th Avenue Retail Viability Analysis Retail Viability Analysis

COUNTY ROAD 2 & NORT H 50TH AVENUE, L OCHBUIE, COLORADO

Introduction

The Town of Lochbuie is interested in understanding the retail viability of a the development site located at the northeast corner of County Road 2 and North 50th Avenue. Anticipated development by the Town is a grocery anchored retail center.

Annexed into the Town in 2000 as part of the Silver Peaks PUD, a predominately single family residential project, the northeast corner consists of approximately 22 acres set aside for Commercial zoning.

Katy Press of KP & Associates has been asked by the Town of Lochbuie to review the assumption that the site can be developed (in part) as retail and make a determination on the viability of that development direction. Additionally, this analysis takes a current assessment of retail trends and retailer movement in light of those trends.

The assessment of the site was completed by an in depth review of industry trends, contact with Colorado based retail brokers and retailers associated with the targeted retailing concept.

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This analysis will evaluate the following:

1. Determination of what concept of retail is appropriate for the intersection characteristics at County Road 2 and Interstate 76.

2. Market trends affecting that particular concept.

3. Review of the retail anchors available for that concept.

4. Determination if the subject site can accommodate the concept and/or the retail anchors associated with it.

5. Suggest development strategies appropriate to the site that could be successful based on all site characteristics considered.

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What concept of retail is suited to the intersection of County Road 2 & North 50th Avenue?

Retailing fits into specific classifications or concepts. Retailing is far more defined than consumers perceive. Development concepts are dictated by the real estate itself. The trade area size, demographics, accessibility all determine what retail concept can be supported. Retailers generally stay within the concept that best delivers their target customer to them. Each retail center concept has specific elements that relate to the retailers within that genre. There are differences between the concepts that distinguish the centers and the retailers that are part of them. The attributes of each development concept are designed specifically to meet the trade area needs of the retailers the center is comprised of. Scale of the center, location of the center, design of the center are all dictated by the concept.

Retailing fits into specific classifications or concepts. These concepts are specific in type, scale and retailer makeup. Each concept of retail has specific characteristics associated with its targeted opportunities. Not every site works for each of the retail concepts, regardless of market capacity.

Sq. Ft. # of Concept Description Type (w/Anchors) Anchors

Neighborhood 30,000 - 1 or Convenience Supermarket Center 150,000 more

Discount department store; supermarket; Community General Merchandise; 100,000 - 2 or drug; home improvement; large specialty- Center Convenience 350,000 more discount; apparel

General Merchandise; Full-line department store; junior 400,000 - 2 or Regional Center Fashion (mall, typically department store; mass merchant; discount 800,000 more enclosed) department store; fashion apparel

Similar to Regional Center Full-line department store; junior Super Regional 3 or but has more variety and 800,000+ department store; mass merchant; fashion Center more assortment apparel

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th Characteristics of CR2 & North 50 Avenue The retailing concept designation for the intersection of County Road 2 & North 50th Avenue will be dictated by the characteristics of the intersection itself, defining the retailing concept.

 Lacking direct visibility and accessibility to major arterials limits the intersection to pull from a larger geographic area which designates this intersection as “secondary” within the larger trade area.  The “primary” intersection within the trade area will be CR2 & Interstate 76 which can deliver a broader customer base needed by larger scaled retailers – making that area more attractive to that scale of retailing.  Access to the existing and emerging residential areas is good from CR2 & North 50th Avenue making it a candidate to support neighborhood / community based retail.  Opportunity sites exist at the intersection to support anchored retail.

Matching these characteristics to the concepts noted above, this type of higher profile Interstate site is best suited to support regional retail.

Pairing the intersection characteristics with the trade area, the concept appropriate for the intersection is Neighborhood Center.

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Neighborhood Center

Neighborhood Center Convenience 30,000 - 150,000 1 or more Supermarket

Neighborhood Center is generally recognized as “needs based” retailing which is “designed to provide convenience shopping for the day-to-day needs of consumers in the immediate neighborhood”. Ranging in size from 30,000 – 150,000 SF these centers are anchored by a supermarket.

Characteristics normally associated with this scale of retail are -

 Store sizes range from 40,000 SF to 123,000 SF.  2 Mile Trade Area  15-25 acre project size (includes ancillary retail).  Prefer to have other convenience retail included in the development area.  Development “style” defined – little variance in the“ prototypical center”.  This is a destination oriented shopping trip for the customer base.  Need to be highly accessible to the residential base.

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Grocery Retailing – Trend Forecast

Food inflation is expected to average 1.5% over the next five years. We believe that Traditional Supermarkets sales will not keep pace, and they will continue to lose market share as consumers choose to shop other formats for grocery needs. Willard Bishop 2016

Grocery continues to be one of the most dynamic retail concepts. The growth in the number of grocery retailers has had a profound impact on food shopping. The added competition coupled with newer trends in consumers approach to food has the grocery genre in a state of chaos. Consumers have permanently shifted the way they chose to get their food.

Conventional food retailers, King Soopers and Safeway have been the most impacted by the entrance of new food retailing concepts. Once the only significant grocery opportunity, they enjoyed holding the majority of the available “food dollars”. These conventional grocers have been impacted first by the entrance of “value” grocers like Walmart, then the proliferation of specialty grocers like Whole Foods, Sprouts and Trader Joes and now lastly by online grocery providers such as Amazon.

Evaluating how ot best address factors of value and alternative/healthy conscious consumers has required all grocers to evaluate how to remain relevant to this emerging “new” grocery consumer.

Trends such as delivery meal kits (Blue Apron, Plated) which puts fresh ingredients at your front door, expansion of online shopping in the food and non-perishable categories and the frequency of eating out are all impacting the traditional grocery store. As other types of retailing are looking to transition, so is the concept of the “grocery store”. Expectations are high that the next few years will be more transformative for the concept of grocery than any time in recent retailing history.

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Eating Out Americans are taking the concept of eating out to an extreme. From 2015 to 2016, for the first time in history, Americans spent more money at bars and restaurants ($54.857 billion) than they did on groceries ($52.503 billion). According to the Bureau of Labor Statistics, in 2014, the average American household spent $2,787 on restaurant meals and takeout, compared to $3,971 on groceries. But in 2015, the average amount spent on restaurants and takeout jumped $221 to $3,008. Grocery spending, by contrast, increased just $44 per household to $4,015. What this tells us is that dining at restaurants and ordering takeout aren't just luxuries anymore. Rather, they're becoming the norm. Fox Business

Delivery Meal Kits The success of these services is drawing “a small but noticeable bite” of business away from traditional supermarkets, Cardlytics said in its report. Customers who use these services spent 2.8% less at supermarkets in the first half of 2016, compared with the first half of last year, the study found. These customers also spent 2.2% less on eating out at restaurants in the first half of 2016, compared with the 2015 period. Business Insider

Online Grocery Shopping Research estimates that online grocery sales will grow at a 20 percent annual compound rate over the next five years. Amazon, which is currently the ninth largest grocer in the U.S., according to the firm, will likely move to the number three slot by 2021. Separately, the Food Marketing Institute and Nielsen project consumer spending on online groceries may reach as high as $100 billion or 20 percent of total dollar grocery purchases by 2025. That is equivalent to 3,000 grocery stores, based on volume. Retail Wire 2017

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Conventional Grocers Traditional food retailers, King Soopers, Safeway and Walmart Neighborhood Market are all impacted by the entrance of new food retailing concepts. Once the only significant grocery opportunity, traditional grocers enjoyed holding the bulk of the available “food dollar”. King Soopers and Safeway have been evaluating how to best address factors of economy and alternative/healthy trends which has required these grocers to re-position themselves to remain relevant to an emerging “new” grocery consumer. Walmart Neighborhood Market is a “value” grocer and is focused on that aspect of grocer retailing versus chasing the new food trends. Still the most convenient grocery options, the traditional grocers store networks are far more extensive than any of the new concept grocery retailers. These grocers may be modifying their concept but they are still desiring to be the “neighborhood grocery option”.

King Soopers Kroger had made a transition to larger stores. Their new store formats were 123,000 square feet with a combination of food and non-food related items. As they expanded into this new store size, customers saw a broader selection of kitchen related items, casual living merchandise and specialty products. Bucking the industry trend towards to smaller store formats, it is a question whether Kroger will continue to position themselves to compete with all grocery store formats including the mass market merchandisers (Walmart, Target) or return back to stores smaller than 100,000 square feet. Kroger’s expansion into organic/natural foods has placed them as one of the largest retailers in that segment of the marketplace. Safeway / Albertson’s Safeway had just completed conversion of the majority of their stores to a “lifestyle” format just prior to the downturn in the market in 2008. The “lifestyle” format focuses on more gourmet, natural and organic offerings with a more modern look overall. Acquired by the same operating company owning Albertson’s – efforts have been non-existent to combine the chains and reposition their stores with a new format. The direction of Safeway is an enigma to the grocery world with little to no discussion about future plans for the chain.

Walmart Neighborhood Market Walmart Neighborhood Market is another grocer entrant into an already crowded field. Walmart has had this concept since 1998 but in 2015 focused on expanding nationally with this smaller format store. Meant to be a complement to the Super Walmart store system, these stores are directly geared toward the “value conscious” consumer. There are very little “bells and whistles” in a fairly plain looking store. As is the case with Walmart overall, expansion plans have been mostly put to the side to focus on their online presence.

Walmart said it plans to open fewer than 10 Neighborhood Markets across the entire US in 2018. Supermarket News

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Alternative Grocers The concept of alternative food stores is the most dynamic within the grocery market. Whole Foods, Sprouts, Natural Grocers, and Trader Joes’ have all “staked a claim” in the Colorado marketplace. Site selections for these grocers vary by retailer with each having a “target customer” in mind when looking at the demographics. Consumers are evolving in their food sophistication, caring about sustainability, organics, farm to table, etc. – with no one retailer in this sub-category carrying the full gambit of products, consumers are shopping multiple stores.

Characteristics of these stores is different from the traditional/conventional grocer. With fewer stores in the marketplace overall, they require broader trade areas and higher profile sites. All of these grocers continue with store expansion as their concepts are gaining in popularity in comparison to the traditional grocers.

Whole Foods Whole Foods was once the only retailer in this category. Pressure has been mounting for them with the traditional grocers expanding their “alternative” perspective and new national and local grocery concepts entering the market to compete with this “iconic” retailer. These grocer off shoots are perceived to be more value conscious and in some cases more representative of the “local” food trend. About to be purchased by Amazon, conjecture is rampant as to how Whole Foods will evolve under this new dynamic ownership. Expectations are high that the Amazon acquisition will not only breathe new life into the chain but will dramatically re-conceptualize their store format.

Sprouts Sprouts operates 25,000 SF stores and markets themselves as “affordable healthy” focusing on healthy, fresh and/or organic food selections. The value pricing aspect helps to separate them from Whole Foods. Their “farmers market” décor is not has “hip” as Whole Foods appealing to a broader consumer base that might not see themselves as a true alternative food consumer.

Natural Grocers Natural Grocers is slightly different than the other stores in this category, mainly by size. At 13,000 +/- square feet, they present a much more selective offering than their competitors. They carry many of the same health type of food and products but also have an expanded bulk food component.

Trader Joe’s Trader Joe’s is a bit in a category all its own. They have so many different store formats throughout the country it is difficult to define their proto-type. In Colorado, they have opted for smaller stores (mainly due to the inability to include liquor due to the state liquor laws). Described as quirky, aspirational and cult-like they have embraced the values important to today’s consumers. Trader Joe’s is unparalleled due to their unique retailing format.

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Silver Peaks

The Silver Peaks PUD has the site designated as “Commercial”. The size and configuration of the commercial parcel seems to indicate that the site was anticipated for a neighborhood or community retail center.

At 22 acres the site is capable of supporting almost 190,000 square feet of retail development which is somewhat larger than needed for a neighborhood shopping center. Aside from Kroger who wants to compete with mass-market retailers such as Target and Walmart, the current trend in grocery is more towards stores in the 50,000 square foot range. A smaller grocery anchor would put the development scale more in line with a site in the 15 acre range to accommodate the grocer and ancillary retail. Some grocers are considering stores even smaller than 50,000 square feet which would impact the overall size of a neighborhood center to something smaller than the 15 acre range.

The scale of a neighborhood center at Silver Peaks will be dictated by the size of the grocery anchor and the amount of ancillary retail that follows that anchor.

No proposed plans have been developed for the site – development focus by the owner has been directed towards Lochbuie Center at CR2 and Interstate 76 which they also own.

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Competitive Influences

Brighton has an estimated population base of 38,000 people, coupled with The Town of Lochbuie - the combined market area is just over 43,000 people. The trade area is somewhat influenced by the outlying areas surrounding the 2 cities, but given the rural nature of the extended trade area, those outlying areas do not significantly influence the trade areas from a population perspective.

Brighton grocers serving the combined market area are:

 Super Walmart (1)  King Soopers (2)  Safeway Stores (1)  Super Target (1)

The smaller trade areas associated with neighborhood retailing limit the competitive influences to a smaller area (unlike regional retail where centers 5 miles away have influence). Unless customers have a specific retailer preference, consumers do their “needs based” shopping within a relatively close perspective to where they live.

Brighton has been the dominant shopping area for Lochbuie residents. Although grocery selection in Brighton is somewhat limited to traditional grocers, it is broad enough to maintain the interest of most consumers.

King Soopers opening at Bridge and North 50th Avenue in 2014 was a game changer for Lochbuie and grocery retailing. It placed a major grocery store center within arm’s reach of Lochbuie dramatically increasing the convenience for Lochbuie residents. Located just 1 mile to the south of the intersection, most of Lochbuie is well within the trade area boundaries for this King Soopers.

Lochbuie Center Lochbuie Center could be attractive to a grocer if elements of the development move towards a scale more in line with neighborhood retailing. The interstate location could be a negative as it tends to not be as convenient for “needs based” retailing as a true neighborhood location is. Given the current population density in the area, it is unlikely that both Lochbuie Center and Silver Peaks could support grocery – it will certainly be one site or the other.

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Factors that will influence the neighborhood center development potential are:

 At 22 acres, the site is somewhat larger than needed to accommodate a grocery anchored neighborhood center.  Configuration of the parcel is conducive to site planning for a grocery anchor and ancillary retail.  Lack of residential density surrounding the intersection and north of the intersection will limit any significant retail development until such time as population numbers can be met to support a development.  Competitive influences within the trade area syphon interest away from the intersection and potentially other sites along County Road 2 (Lochbuie Center).  Impacts from online grocery shopping may further extend the development horizon for the site.

Population density is the key factor in determining regional retail development at CR2 &North 50th Avenue. With the current population,there is no gap in services based on the density surrounding the intersection. The trade area will have to evolve and mature to provide the population base needed to warrant new grocery retail. Bottom line– the area surrounding CR2 & North 50th Avenue must significantly grow residentially to build a trade area for new grocery retailing to develop.

Of the factors noted…the only factor preventing development is the lack of residential density in proximity to the site.

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Potential Grocery Anchors…

There are several grocery anchors capable of locating atCR2 & North 50th Avenue when market maturity is at a level to support new development. Here is a closer look at potential“ target” grocers….

Walmart Neighborhood Market The Walmart Neighborhood market was conceived as a new growth concept for Walmart. Smaller in scale, it complimented the Supercenter stores by infiltrating smaller more neighborhood oriented sites. Demographically, the Walmart Neighborhood Market is a good match for the Brighton / Lochbuie trade area and could find this site an interesting opportunity to serve the trade area from. Currently, Walmart is not extensively expanding this concept with only 10 new store openings nationally this year. This slowdown in development may work as an advantage for the site which still needs significant residential maturity before being deep enough to support a new grocer to the trade area. Optimally, the site could be closer to maturity at the same time that Walmart returns to a more aggressive development perspective.

Safeway Stores Safeway has been quiet with new store expansion for a number of years both nationally and within Colorado. The lone Safeway Store in Brighton is old and outdated – nowhere near representing a modern proto-type store. Efforts to replace this store have continually stalled out and Safeway seems to be stagnant in the trade area. Now outflanked by the new Kings Soopers at Bridge and 50th Avenue – Safeway will likely need to evaluate opening a second store or replace the existing store to maintain market share. Safeway is expected to not remain stagnant and once again expand with new or relocated stores. Depending on their return to the market, timing may be advantageous if trade area maturity is getting closer at CR2 and North 50th Avenue.

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Save A Lot Save A Lot is a “value” grocery chain that has a presence in Colorado. Demographically, Save A Lot is a good match to the Brighton/Lochbuie trade area. They typically look for existing vacant boxes to locate in but economic incentives could potentially offset the additional cost of new construction. Save A Lot does not have the extensive store networks of King Soopers and Safeway but they are active in the marketplace and could be a candidate when market maturity is reached.

Why not me?

These grocers, although smaller in stature than the traditional grocers, actually require larger trade areas than King Soopers or Safeway. Their smaller scale prohibits them from carrying the product selection extensive enough for customers to complete a shopping trip. These grocers cater to the fresh food aspect of grocery shopping but fall short on staples and household products. Consumers shopping these grocers must supplement their shopping with either online or traditional options. For this reason, their trade area requirements are larger in scale both geographically and population wise– more in line with regional retailing sites that have the ability to draw a larger population base versus neighborhood community sites.

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Conclusion

Opportunity The good news is that the site is appropriate for neighborhood retailing. Once the area is fully developed, it will have good access into the residential growth areas in northern Brighton and Lochbuie making it attractive to a future grocer. Scaled appropriately at 22 acres (if not a little big), it is capable of supporting a grocery anchor and the ancillary development that usually accompanies a grocery store. The site itself has no real faults for this scale of retailing.

The bad news is that the trade area is not mature enough to attract that grocery component. The Town of Lochbuie shares its grocery focus with the City of Brighton – they are linked together due to their combined size and close proximity to each other. Retailers view the 2 communities as one marketplace. Combined, Lochbuie and Brighton has a wide complement of grocery retail including the scale and type of retailers that are associated with neighborhood retailing. To the retailers mind, today, there is no gap in services to this area.

Timing Traditional grocers seek a population base in the 20,000 range. Competitive influences within the direct trade area (such as King Soopers) extend that base threshold higher to compensate for the competition. The growth in northern Brighton will significantly help the trade area approximate those numbers but Lochbuie will need to significantly grow as well. Growth north of CR2 is perhaps more important to a potential grocer as customers north of the site would find CR2 and North 50th Avenue more convenient than the King Soopers at Bridge. The current residential growth rates would have this site ready in about 10 years.

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Summary

CR2 and North 50th Avenue has the basic elements necessary to support neighborhood scaled retail. Competitive influences from Brighton and specifically King Soopers have influenced and extended the development horizon for the site significantly into the future.

Patience is the key component for future development. The site wants to be a neighborhood center – there just has to be enough people in proximity to the site for that to materialize.

There will be pressure to develop this site outside of the grocery component with the focus shifted to convenience retail users such as convenience stores with gas, fast food, etc. Allowing this smaller convenience focused retail before the grocery concept is viable becomes the “tail wagging the dog”. The Town will need to resist attempts to develop the site in pieces- rushing to develop outside of a thoughtful development plan will likely lead to less than dynamic development, a factor growing in importance in the changing retail environment.

Continued master planning of the area and commercial parcels along with the patience

to let it materialize, will ensure that the site remains an attractive opportunity for a neighborhood center. This is the best location for a grocery anchored center within the Town of Lochbuie – maintaining that aspect is very important if the Town is to ever provide that type of service to its residents.

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Katy Press

KP Consulting & Associates Founder and Principal

Katy Press’s 30+ year retail real estate career has placed her on both sides of the retail development table, first as a retailer and then as a retail developer. Katy has operated a successful consulting practice working with many of the top retail developers, landowners, and cities in the region. Prior to consulting, Katy was VP of Development for Catellus Commercial Group initiating a regional retail development arm of the California Company. Katy’s first retail experience came in 1984 as a Real Estate Representative for 7-Eleven Stores in the Colorado marketplace. After leaving 7-Eleven she joined Safeway Stores and stayed there during the 90’s holding the position of Real Estate Manager. During that tenure, Katy helped Safeway pioneer a self- development program that extended through the Colorado region resulting in the personal development of 20+ Safeway anchored shopping centers.

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