Growing segmentation in the grocery industry brought the average size of new stores in 2004 under 40,000 square feet for the first time in a decade, reports the Food Marketing Institute. This decline reflects an increase in specialty markets that require less space and urban stores that have limited space. Rarely can you find the 10 acres most stores consider the minimum for a standard supermarket.

The Big Three grocers, Safeway, Kroger and Albertsons, are shrinking their footprint to accommodate smaller spaces in big metropolitan areas. But mostly they're holding fast to the traditional 40,000- to 60,000-square-foot stores, or moving toward super-size centers to counter Wal-Mart.

A survey by research firm Retail Forward found that 61 percent of shoppers buy their food at a conventional supermarket, leaving 39 percent up for grabs by specialty markets, value-oriented grocers and wholesalers.

All grocers are trying to find their niche — be it small or large — so they can compete effectively with Wal-Mart. Over the past five years, Wal-Mart's share of the grocery pie grew 17 percent annually vs. 4 percent for supermarkets. Wal-Mart now has 19 percent of the market. Its market share is expected to hit 35 percent by 2010.

“Everyone is looking for ways to be more competitive, and we're certainly seeing a broader offering to consumers given the threat of the superstore,” says Mark Whitfield, executive vice president for the California-based private real estate investment trust Donahue Schriber.

New store construction fell for the fourth consecutive year, comprising just 3.1 percent of total inventory, but remodeling activity increased as store operators sought fresh design concepts.

The customer is always right

Grocers are working to improve customer relationships, says Gwen MacKenzie, vice president in Sperry Van Ness' Los Angeles office.

“They're doing everything to make the experience so pleasant that customers won't want to go anywhere else.” Major grocers are reducing prices on staples to compete with Wal-Mart while creating specialized sections that turn a big profit to make up for their losses.

A renewed focus on merchandising may be the wave of the future. “We will see more branded departments, whether these are joint ventures with outside companies or internally developed, chain-driven brands,” says John Domino, vice president of design and construction for SuperValu, Inc., a retail food services logistics company.

“These stores will more closely resemble department stores with many ‘store within a store’ departments, a real focus on visual merchandising and an increase in specialty lighting.”