POLICY REPORT

URBAN STRUCTURE

Date: November 03, 1998

Author/Local: PFrench/7041

CBuckham/7265

RTS No. 198

CC File No. 5340

TO:	Vancouver City Council
FROM:	Director of City Plans, in consultation with the Director of Legal Services
SUBJECT:	Supermarkets in Vancouver

RECOMMENDATION

THAT this report be received by City Council for information.

GENERAL MANAGER’S COMMENTS

The General Manager of Community Services submits this report for INFORMATION.

COUNCIL POLICY

CityPlan, adopted by Council in June 1995, calls for the City to "create neighbourhoods that provide residents with a variety of housing, jobs and services; create neighbourhood centres that become the civic, public heart of each neighbourhood, and plan the centres with local people to meet the current and emerging needs of residents and local businesses. To achieve this, Vancouver will: ..... provide shops and services for neighbourhood residents - from groceries and hardware to daycare and community police..."

Both the Dunbar and the Kensington Cedar-Cottage (KCC) Community Visions, adopted by Council in 1998, contain Directions regarding encouraging local shops and services in neighbourhood shopping areas, as well as limiting internal shopping malls and big box stores. In the case of KCC, there are Directions that directly relate to two former supermarket sites discussed in this report. (See Appendix A for related KCC Community Vision Directions).

SUMMARY AND PURPOSE

On October 7, 1997, when considering a rezoning referral for 8435 Granville Street, which is located near a Safeway, Council asked staff for a report back on the loss of supermarkets in the City, as well as the status of restrictive covenants limiting new supermarkets on sites that have been vacated.

This report looks at the changes in food supermarkets and food retailing in Vancouver between 1980 and 1998; and at the incidence of restrictive covenants on former supermarket sites.

In the 1980-98 period, food retailing in Vancouver has changed significantly in response to an increasing diversification and segmentation of the food consumer market. In 1980 there were a large number (47) of very similar small and medium-sized conventional supermarkets, at more or less regular intervals throughout the city. In 1998, there were fewer supermarkets (40) overall, but with some new types: smaller specialty supermarkets and large/mega supermarkets.

Geographically, supermarkets have "thinned out", with stores farther apart, particularly on the east side. In 1980, the driving trade areas of many conventional supermarkets overlapped. By 1998, store closures had eliminated many of these overlaps - but without leaving any areas of the city outside driving trade areas. However, overlap with trade areas of new large/mega food stores is common, particularly on the east side.

Of the 35 neighbourhood shopping streets in the City, 26 had one or more supermarkets in 1980, and 23 do today. Supermarkets were also found in seven small neighbourhood nodes in 1980, and this is down to four today. Shopping malls housed four supermarkets in 1980, and have five today. Industrial areas which had none in 1980 are home to four large/mega outlets now.

At this time no policy initiatives appear to be required with respect to the mix of supermarkets in the City.

Six out of 14 closed supermarket sites had restrictive covenants placed on them limiting the amount of floor space for food sales that may be located on the site, precluding new grocery stores. Four covenants are still active. One of these sites has been redeveloped to residential. Two sites have had or will have London Drugs outlets occupy the old supermarket buildings (1650 Davie Street, 5605 Victoria Drive at East 41st Avenue) and one site has an approved Development Permit (4050 Knight Street at Kingsway).

The restrictive covenants are intended to limit competition that might affect nearby supermarkets owned by the chain that is closing the store. By restricting the opportunity for other food retailers to locate on these sites - even the smaller specialty type supermarkets which are responding to consumer diversification - covenants negatively affect the future viability of neighbourhood shopping streets. This is contrary to the directions of both CityPlan and the two Community Visions recently completed in Dunbar and Kensington-Cedar Cottage.

As the City is not a party to these agreements, and the Director of Legal Services is of the opinion the City does not have power to challenge them on regulatory grounds, there does not appear to be any legal recourse available to the City to cause these restrictive covenants to be struck down.

BACKGROUND

1.Report Contents

This information report on supermarkets in Vancouver presents:

·two "snapshots" of Vancouver supermarkets - 1980 and 1998, profiling key changes during this period;

· a brief discussion on changes in consumer profile and the grocery industry; and

·a summary of restrictive covenants now in effect.

Staff note that Council has also requested a report on large C-2 sites (many of them supermarkets) that intrude into residential areas, such as the ex-Safeway site at East 41st Avenue and Victoria Drive. This will be a separate report from the Land Use and Development Division early next year.

2.Definitions and Information Sources

For the purpose of this review, a supermarket is defined as a self-service food store greater than 5,000 sq.ft. in size, selling a full range of food and household goods. Staff note this does not cover all food retailing in the City. There are many smaller specialist food retailers - produce stores, bakeries, butchers, ethnic specialty stores -often clustered in significant neighbourhood shopping streets such as Commercial Drive, the Punjabi Market, West Broadway and East Hastings.

Conventional supermarkets depend mainly on driving trade, with a trade area of approximately 5 minutes. In Vancouver this translates to about 7,500 feet. They also serve a walking trade area of about 3 blocks, or 1,500 feet. Large/mega stores such as Costco have a larger driving trade area of 10-15 minutes, or 15,000-22,500 feet.

Sources of information for this study include past and present field surveys; previous research by a retail leasing consultant; and grocery trade publications.

DISCUSSION

1. Vancouver Supermarkets: 1980 and 1998

Figures 1 and 2 and Tables 1 and 2 summarize Vancouver supermarkets in 1980 and 1998. The subsequent notes describe key elements of the changes. (Appendix B provides more details).

Table 1

Number of supermarkets by size: 1980 & 1998

Size Category	1980	1998
Small: 5,000-15,000 sq. ft. (e.g. Stong’s, BuyLow, Meinhardt, Capers)	20	16
Medium: 15,000-40,000 sq. ft. (e.g. IGA, Safeway, SuperValu, T&T)	26	17
Large/Mega: >40,000 sq. ft. (e.g. Safeway Oakridge, Superstore, Costco; not including nearby outlets in Boundary and Richmond)	1	7
Total	47	40

Table 2

Locations of supermarkets: 1980 & 1998

Location Type [total]	With S’mkt 1980	With S’mkt* 1998
N’hood shopping streets [35]	26*	23*
Small n’hood nodes [30]	7	4
Shopping Malls [5 in ‘80, 6 in ’98]	4	5
Industrial Areas	0	4

* Some have more than one supermarket.

(a) Vancouver Supermarkets 1980

·47 supermarkets were operating in the City.

·Stores were small and medium size with only one store larger than 40,000 sq.ft., (Woodward’s Downtown).

·Most stores offered a similar product range: prepackaged meat, produce, brand name staples, and a limited number of non-food items. Some stores offered specialty brand names to cater to specific customers (e.g., Woodward’s Arbutus).

·Geographically, stores were fairly evenly dispersed throughout the City.

·In 1980, virtually all residents were within the driving trade area of one supermarket, and many of two.

· Of the approximately 35 neighbourhood shopping streets in the City, 26 had one or more supermarkets. There were also seven supermarkets in small neighbourhood nodes, and four in neighbourhood shopping malls. (See Appendix A for details).

(b)Vancouver Supermarkets 1998

·40 supermarkets are currently operating in Vancouver. Since 1980, 17 stores have closed (13 changed to non-food use, four remain vacant), and 10 new stores opened.

·The most significant change in size has been the increase in the large/mega category (enlarged Safeways, "super stores", and "wholesale clubs"), and the reduced number of small and medium stores.

·Store format and product range are significantly more diverse than in 1980. Formats include: small specialty supermarkets catering to niche markets such as organic, ethnic or gourmet; expanded conventional supermarkets with full-service bakeries, delis, meat, fish departments, hardware and drugstore products; superstores with all of the above plus photo finishing, insurance and travel services, drycleaners and banks; and "wholesale clubs" with a "no frills" approach to retailing a limited selection in bulk quantities at low prices.

·Geographically, supermarkets thinned out during the 80s and 90s, particularly on the east side. Some new small or medium size stores located in higher density areas such as Kitsilano, Mt. Pleasant/Fairview, and Downtown. New large/mega stores located along highway-oriented retail strips on Grandview Highway, S.E. Marine Drive and nearby in Richmond and Burnaby.

Figure 1 - 1980 Supermarkets

Figure 2 - 1998 Supermarkets

·Most residents still live within the driving trade area of a small or medium supermarket - but fewer live within the driving trade area of two of these. However, all east side residents are now within the larger driving trade area of a large/mega grocery store. Some are within the trade area of more than one large/mega, given the nearby Burnaby and Richmond outlets.

·Of the 35 neighbourhood shopping streets, 23 now have one or more supermarkets, a reduction of three from 1980. The number in small neighbourhood nodes has been reduced from seven to four. One mall location has been added at City Square. The major geographical change is the addition of 4 large/mega food outlets in industrial areas.

2.The Food Retailing Business

(a)Changes Between 1980 and 1998

Up until the 1980s, food shoppers’ desires were relatively stable and predictable. A limited number of food chains and a handful of independent grocers operating small and medium sized stores catered to most of Vancouver’s shoppers. In the decades following, demographic, social and economic changes have reduced consumer predictability and homogeneity. Major changes have included:

·greater ethnic diversity and different food needs (45% of Vancouver’s population was a visible minority in 1996);

·a greater number of women working, generating higher family incomes, but with less time to shop for food;

·an increased interest in food, wine and cooking as a leisure activity - in part due to a more diverse selection of food; and

·diversity in store formats (small to mega sized stores and specialty), which in turn has reinforced segmented consumer base and behaviour.

In response to a changing consumer profile, the grocery industry has diversified. New formats include:

·superstores (e.g., Real Canadian Superstore) target cost- and time-conscious consumers with full-service bakeries, delis, meat, fish departments, and aisles of hardware and drugstore products plus a variety of non-food services (insurance, travel);

·warehouse clubs (e.g., Costco), target the same consumer as the mass merchandiser but on a much larger scale, with higher volumes and lower mark-ups;

·specialty stores (e.g., Capers, T&T, Meinhardt’s) target the growing organic food market (25% increase/year), the Asian market and the gourmet crowd. With the restructuring of chain stores these retailers often took over old supermarkets;

·drug store chains (e.g., London Drugs) have expanded the number of food aisles in an attempt to attract shoppers on a more frequent basis; and

·mass merchandisers, (e.g., Zellers and WalMart) also target cost-conscious food shoppers with prepackaged grocery items.

Established conventional supermarket chains have reacted to a decreasing market share by:

··211·211stepping up marketing and using more aggressive promotion campaigns;

·changing their image and mix of goods to match an area or market; providing an array of price options (e.g., offering generic products, house brands and bulk purchase); or diversifying selection by adding natural, organic and ethnic products to the shelves;

·expanding some stores to serve larger areas and offer broader services, in some cases closing a nearby store in the area, (e.g., the closure of Safeway at 4th Avenue & Alma Street with the expansion of the store at Broadway & MacDonald Street);

·closing stores that were competing head-to-head with each other for the same dollar (e.g., the two SuperValus on Davie Street, and three IGAs on West 41st Avenue); and

·reducing the number of stores located in the trade areas of mega stores, particularly on the east side.

(b)The Future

The debate continues on the future format of the grocery store - large-scale supermarkets and megastores versus smaller, neighbourhood markets. Some analysts claim that as the baby boomers reach their 50s, consumer shopping habits will change. For many, price will be less of a factor in where to shop. Young families pressured for time and money, in search of one-stop superstore shopping will be the minority. Aging consumers with disposable income will shop more at smaller, neighbourhood stores with an emphasis on quality, convenience and customer service. Other analysts argue that good shopping habits learned in the 80s won’t fade - that saving money never goes out of style and neither will the larger format.

The natural and organic food industry is growing rapidly, and we can expect to see more competition in this area. As well, more Asian-style supermarkets like T&T will likely appear. Shopping on the Internet will also grow in popularity as more people use the Net. (In Quebec, where Internet shopping was first introduced in Canada, electronic sales are expected to account for 5% of total sales by 2000.) These trends towards market diversification will continue to be a factor.

As the debate continues, most analysts agree that there will be support for a variety of formats. The percentage of shoppers who keep all the various formats in business will slowly shift. Some stores will shift with them, a few may close, but there will continue to be a need for formats in most categories as the grocery industry adjusts to new demographic, social and economic change.

3.Restrictive Covenants

(a)Current Active Covenants

In June 1998, staff searched the land titles of 14 former supermarket sites for restrictive covenants limiting the sale of food for off-premise consumption (i.e., restricting new supermarkets). Of the 14, six had such covenants - three former SuperValus and three former Safeways. The restrictive covenants are intended to limit competition that would affect nearby supermarkets owned by the chain that is closing a store.

In two cases (3250 West Broadway and 6399 Victoria Drive) the covenants are no longer active. Four active covenants remain, summarized in Table 3.

Table 3

Active Covenants

Address	Previously	Restrictive Covenant	Expiry Date
1650 Davie St.	SuperValu	No more than 15% of the floor area shall be used for the sale of food	No expiry date - covenant automatically renews
4050 Knight St.	Safeway	No more than 3,500 sq. ft. for a food supermarket or grocery store, other than a pharmacy which must be less than 6,000 sq. ft..	February 25, 2013 (no renewal clause)
1260 Nanaimo St.	Safeway	No more than 5,000 sq. ft. for a food supermarket or grocery store	August 24, 2009 (no renewal clause)
5605 Victoria Dr.	Safeway	No more than 1,500 sq. ft. for supermarket, grocery store, or convenience store (does not apply to London Drugs)	September 5, 2015 (no renewal clause)

1650 Davie Street is a former SuperValu site, currently occupied by London Drugs. In 1996, Loblaw’s (SuperValu) agreed to give up their lease provided the site’s owner agreed to a covenant restricting the use of the property for the sale of food. This covenant runs with the leases of the nearby stores it is meant to benefit (1030 Denman Street and 1255 Davie Street) and is automatically renewed with renewal of those leases.

4050 Knight Street (at Kingsway) is a former Safeway site and currently used as a flea market on weekends. This site has an approved development permit for a 5-storey, mainly commercial development. Since the preliminary application in 1996, the owner acquired an adjacent, covenant-free site and is proposing a 10,000 sq. ft. grocery store fronting Kingsway. There is, however, no assurance that a grocery tenant will be found. The development has not proceeded so far. During the course of processing the development application, Council and staff heard many expressions of concern from the community regarding the restrictive covenant. The Kensington Cedar-Cottage Vision notes this site as a key one in revitalizing the neighbourhood centre envisioned around Knight and Kingsway.

1260 Nanaimo Street is a former Safeway site, developed in 1993 with housing, which will likely outlast the duration of the restrictive covenant. This site is effectively removed from potential commercial development.

5605 Victoria Drive (at East 41st Avenue) is a former Safeway site, which was rezoned from C-2 to CD-1 (at the current low built density) in order to require any significant redevelopment to be subject to a rezoning. It currently has an approved development permit for conversion of the old Safeway building to a London Drugs. There is also a rezoning application in process to add residential development to the site in conjunction with the London Drugs. The covenant would restrict tenanting to a food store if London Drugs leaves before 2015 expiry of the covenant. As with Knight and Kingsway, the KCC Vision notes this as a key site in the neighbourhood centre’s future.

(b) Impacts of Covenants

Although only three of the current covenants affect sites which might in future be food stores, covenants could be placed on other sites if additional stores close.

Food stores are one of the types of retail that act as "anchor" for neighbourhood shopping streets. In some cases, collections of smaller food stores (e.g., the Punjabi Market) work this way, but usually it takes a store of significant size. Large consolidated sites like these supermarket sites are rare, and consolidating new ones in established shopping streets is difficult. The restrictive covenants have a negative effect on the possible vitality of neighbourhood shopping areas by foreclosing the opportunity for even small specialty supermarkets to locate there. This contradicts CityPlan directions (borne out by the two recent Community Visions) to enhance neighbourhood shopping and services, and in many cases to make them the focus of future neighbourhood centres.

(c)Legal Action

The City is not a party to these covenants. Rather, they are agreements between landowners and former occupiers (who also have interests in proximate lands) who used the lands for supermarkets. Therefore the City is not able, as a party to the agreements might be (depending on the provisions of the agreement), to terminate the restriction in that manner.

As well, the Director of Legal Services is of the opinion that the City does not have the authority, either statutorily or otherwise, to challenge the covenants on regulatory grounds.

The Director of Legal Services is of the further opinion that were these agreements to be challenged on their written terms, courts might well uphold their provisions as being valid and enforceable in law.

CONCLUSION

The number, location and types of food supermarkets in Vancouver have changed between 1980 and 1998, in response to the diversification and segmentation of the consumer market.

Supermarkets have both closed and opened. Both new smaller specialty supermarkets and large/mega stores have appeared. Currently 23 neighbourhood shopping streets have one or more supermarkets, down from 26 in 1980. Four local neighbourhood "nodes" have supermarkets, down from seven in 1980. Supermarkets in malls have increased from four to five; while locations in industrial areas have increased from 0 to four. Virtually all Vancouverites are still within the approximately five minute driving trade area of one or more supermarkets, however. At this time no policy initiatives appear to be required with respect to the mix of supermarkets in the City.

The restrictive covenants imposed by Canada Safeway and Kelly Douglas (SuperValu) on sites they have vacated prevent other food retailers from locating on these sites - even the smaller specialty type supermarkets. Of 14 closure sites reviewed, six had covenants placed, and four of these remain active. These covenants limit the opportunity for the food retailing industry to respond to consumer diversification, and negatively affect the future viability of neighbourhood shopping streets. As such, they are contrary to the directions of both CityPlan and the two Community Visions recently completed in Dunbar and Kensington-Cedar Cottage. There is nothing to prevent further covenants being placed on other sites where stores close.

As the City is not a party to these agreements, and the Director of Legal Services is of the opinion the City does not have power to challenge them on regulatory grounds, there does not appear to be any legal recourse available to the City to cause these restrictive covenants to be struck down.

* * *

Appendix A

KENSINGTON-CEDAR COTTAGE COMMUNITY VISION

Adopted Directions related to former supermarket sites

5 Kingsway and Knight Street Shopping Area

5.1 Major Neighbourhood Shopping Area

The Kingsway/Knight Street shopping area should be the major neighbourhood shopping area along Kingsway and a community heart.

5.4 Storefronts, Shops and Services

Small local shops and services should continue ..... In addition, there should be a large grocery store or supermarket.

5.5 Former Safeway Site at Kingsway and Knight Street

If the recently approved development of the former Safeway site does not go ahead, future redevelopment of this site should be used as an important opportunity to contribute to the Vision directions for this area.

7. Victoria Street and 41st Avenue Shopping Area

7.1 Major Neighbourhood Shopping Area

The shopping area along Victoria Drive, generally from 42nd to 37th Avenue (Jones Park) should be strengthened as the major neighbourhood shopping area along Victoria Drive and a special community place.

7.4 Storefronts, Shops, and Services

Small local shops and services should continue to line the sidewalks on both sides of the street.

7.5 Former Safeway Site

Redevelopment of the formers Safeway site at Victoria Drive and 41st Avenue should be used as a major opportunity to contribute to Vision Directions for this area.

LOCATIONS OF SUPERMARKETS

S = small supermarket: 5,000 - 15,000 sq. ft.

M = medium supermarket: 15,000 - 40,000 sq. ft.

L = large/mega supermarket: >40,000 sq. ft.

NEIGHBOURHOOD SHOPPING STREETS

Name 1980 1998

1. Robson & Denman M M,S

2. Denman & Davie M,M,S M,M

3. Davie & Thurlow M M

4. West Hastings St. L -

5. West Pender St. - M

6. West 10th M M

7. West 4th & Alma M S

8. West 4th & MacDonald - -

9. West 4th: Vine - Arbutus M M,S

10. West Broadway & Alma - -

11. West Broadway: Blenheim - MacDonald S,M L

12. West Broadway & Maple M M

13. Dunbar: West 16th - West 19th - -

14. Dunbar: West 26th - West 32nd S S

15. Dunbar & West 41st M M

16. West 41st: Larch - West Blvd. S -

17. Granville: West Broadway - West 16th S S

18. Granville: West 63rd - West 71st M M

19. Oak: West 20th - West 24th - -

20. Cambie: West 16th - West 19th S S,S

21. Main & Kingsway M,M M

22. Main: East 25th - East 29th - -

23. Main: East 48th - East 51st [Punjabi Market] - -

24. Fraser & Kingsway S -

25. Fraser: East 23rd - East 28th S S

26. Fraser: East 41st - East 51st S,S,S S

27. Commercial Dr: Venables - East 3rd S S

28. Commercial Dr: East 6th - East 14th M M

Name 1980 1998

29. Kingsway & Knight M S

30. Kingsway & Nanaimo M -

31. Kingsway & Joyce M,M L

32. Victoria: East 33rd - East 50th S,S,M S

33. East Hastings: Garden - Slocan - -

34. East Hastings & Boundary - -

35. Renfrew & East 1st M M

SMALL NEIGHBOURHOOD NODES

[for brevity, only those with supermarkets in 1980 or 1998 are listed]

Name 1980 1998

1. West 16th & Stephens S S

2. West 16th & Arbutus S S

3. Granville & West 41st S -

4. Nanaimo & Charles M -

5. Nanaimo & East Broadway M -

6. East 22nd & Rupert S,S -

7. East 49th & Elliot S S

8. West 57th & East Boulevard - S

SHOPPING MALLS

[for brevity, only those with supermarkets in 1980 are listed]

Name 1980 1998

1. Arbutus Village M M

2. King Edward M M

3. City Square mall did not exist M

4. Oakridge M L

5. Champlain Mall M M

INDUSTRIAL AREAS

Name 1980 1998

1. Marine Drive & Prince Edward - L

[Real Canadian Superstore]

2. Grandview & Rupert - L

[Real Canadian Superstore]

3. Grandview & Skeena - L

[Price/Costco]

4. Broadway & Kaslo - L

[Real Canadian Wholesale]

* * * * *

(c) 1998 City of Vancouver