Discounter Aldi led the industry in the most grocery store openings across the United States last year, but rivals H-E-B and Publix Super Markets bested the German chain in terms of the amount of new space occupied as part of the expansion of that type of property, according to a report by real estate firm JLL.

Aldi, a small-format grocer with its U.S. headquarters in Batavia, Illinois, was the leader of new store debuts, with 49 coming online in 2022, according to the annual JLL U.S. Grocery Tracker report released Thursday. Those locations — predominantly in the Southeast and Gulf Coast — totaled nearly 804,000 square feet of new space, said the report, titled "Grocers Grow Formats Big and Small." The chain also opened in July its 26th regional distribution center, in Loxley, Alabama, a facility designed to support nearly 100 stores in the region, according to the report.

"Aldi has continued its aggressive expansion in the past five years, cementing the grocer as the third largest by store count, with a current total of 2,270 stores," JLL said.

The square footage crown went to H-E-B, based in San Antonio, followed by Publix, which is headquartered in Lakeland, Florida. H-E-B, which has been rolling out larger-format "experiential" stores with more than 100,000 square feet, "added roughly 1.2 million square feet of space in the form of 12 new stores," JLL said.

Publix ranked second in terms of the overall footprint of its new stores last year. Its 25 new brick-and-mortar locations totaled 1.175 million square feet, just a bit behind H-E-B, according to JLL.

"I expect we'll see the same or slightly more new grocery units in 2023. The demand for small-format discount grocers is being driven by budget-oriented shoppers, something that isn't going away anytime soon," James Cook, director of retail research at JLL, said in an email to CoStar News.

"New large-format grocers are driven by the residential migration to Sun Belt markets, especially in Arizona, Texas and Florida," he said.  

In its report, JLL characterized last year as demonstrating continued momentum from 2021 for grocers, "but with added headwinds in the form of record inflation" and "marked by an array of challenges and changes." Those included consumers favoring dining out, supply-chain uncertainty, higher prices and more Americans returning to in-store rather than online shopping.

The report also described how and why some grocery chains are trying smaller-format stores, even as H-E-B goes bigger. And it said grocery-anchored properties still remain a favorite for investors, as food is an essential need for consumers, and supermarkets generate regular foot traffic at shopping centers.

"The grocery sector continued to expand in 2022, led by rapidly expanding chains such as Aldi and H-E-B," Brandon Svec, national director of U.S. retail analytics for CoStar Group, said in an email. "Interestingly enough, Aldi and H-E-B provide two completely different value propositions to consumers, one being price, the other being local customization and experience, but both have been very well received by consumers. Grocery in general remains a highly competitive, low-margin business dominated by a handful of tenants."

JLL's list of 2022's fastest-growing grocers also included: Grocery Outlet, based in Emeryville, California, with 28 new stores totaling 700,000 square feet; Whole Foods Market, headquartered in Austin, Texas, with 11 new stores for 418,000 square feet; and Sprouts Farmers Market, based in Phoenix, with 16 new stores at 384,000 square feet.

While many supermarket chains enjoyed growth, discount grocer Save A Lot, based in Saint Ann, Missouri, struggled with a large debt load, according to JLL. In 2021, Save A Lot sold 32 company-owned locations in the Cleveland, Chicago and Milwaukee markets to Yellow Banana.

"With only 18 corporate-owned stores remaining, the chain can now focus on a new strategy of transitioning to a wholesale model," according to JLL's report.

A variety of retailers — from department stores such as Macy's and Kohl's to off-price sellers like Burlington and discounters like Target — have been rolling out or testing smaller-format stores. And the grocery sector is no exception, with JLL citing several examples in its report, including St. Louis-based Schnucks, which opened its convenience brand called Schnucks Express in August last year, and Save Mart, a subsidiary of Lucky Bayview that's headquartered in Modesto, California, that debuted a small-format, full-service grocery store in San Francisco.

Grand Rapids, Michigan-based Meijer, which introduced several smaller-format stores of 75,000 to 90,000 square feet in 2020 and 2021, rolled out a 40,000-square-foot store in Ohio last year, according to JLL.

"This is a significant contrast to its typical format of 150,000 to 250,000 square feet," JLL said. "Meijer also announced plans to open two small-format Meijer grocery stores in metro Detroit in 2023."

Smaller-format stores offer several advantages over large stores, according to the report. Some shoppers appreciate "the speed, convenience and accessibility" they feature, JLL said. GreenWise Market, a small-format specialty chain operated by Publix, "has experienced a greater year-over-year increase of monthly visits and sees longer visits compared to standard Publix stores in Florida," JLL reported, citing data from Placer.ai.

In addition, small-format stores are also less expensive to build and require less land or space to buy or lease, according to JLL.

"This allows access to more markets than a larger-format store would," the report said. "Furthermore, as retailers continue to invest heavily in e-commerce, these smaller stores can act as fulfillment centers for online orders."

In contrast to those forays, H-E-B is going bigger. Moving "away from its standard 50,000-square-foot format to footprints of more than 100,000 square feet allows for a more experiential store with unique offerings such as tortillerias, BBQ restaurants and garden departments," according to JLL.

Last year, grocery-anchored real estate sales were able to "prevail despite [a] battered second half," JLL said. The investments posted a second consecutive record year, with roughly $14.7 billion in total transaction volume, a nearly 15.6% increase over 2021, according to the report.

"Given the sector’s economic resiliency, relative insulation from e-commerce, ability to draw foot traffic and long-term leases, [grocery-anchored retail] remains a favorite target for investors," Svec said. "As such, yield expansion in the grocery-anchored sector is expected to be capped by strong institutional interest and a limited pool of for-sale assets."