The State of Cold Storage Warehouse Industry in the Age of COVID-19FAST TAKE: Scannable update on cold storage warehousing in 2020
Did you know that online grocery sales increased approximately 22% and are anticipated to escalate to 40% in 2020?
Since the first quarter of 2020, American consumers have become increasingly dependent on online grocery ordering and delivery. With the spread of the COVID-19 pandemic in both urban and rural areas and the influenza season fast upon us, this trend shows the promise that e-commerce grocery delivery is here to stay. Over the past six months or so, consumers have expanded their grocery shopping routines to include direct-to-consumer delivery, buy online, pick up in store (BOPIS), and curbside pickup. A survey conducted by Brick Meets Click/Shopper Kit of post-COVID practices found that 46 percent of the consumers surveyed anticipate continuing to purchase goods online, including groceries.
Add to that the popularity of biologic pharmaceuticals, fragile, temperature-sensitive drug products that require cold storage and are in high demand and the likelihood of an increased need in cold storage warehouse space increases proportionally.
This means that the cold storage warehouse industry is changing rapidly.
Noted real estate services firm CBRE anticipates that 75-100 million square feet of cold storage warehouse space will be needed to service the ramp up of online consumer food sales and that the demand for more space will continue over the long term.
Changing Consumer Tastes
Today, consumers are more concerned about health and welfare and have shown a preference for:
- More organic and non-GMO food
- Food produced locally
- Fresh, healthy foods
What Factors Are Changing the Cold Storage Warehouse Industry?
- Pronounced increased of online shopping and delivery of groceries
- Need to position cold storage warehouses closer to populations
- Need for infill cold storage warehouse locations and last mile delivery to consumers
- More consolidation in the public refrigerated warehouse industry
- Lack of speculative construction of new cold storage warehouses
- Increased cost of cold storage warehouses as compared to dry (ambient) warehouses
- Changing consumer tastes for fresh, local, healthier foods
- Large proportion of cold storage warehouse inventory is outdated
78.2% of cold storage warehouses were built pre-2000
Average age of cold storage warehouses is 42 years
Innovative Solutions for Cold Storage Warehouse Facilities
- Big Box retailers are frequently doubling as e-commerce distribution facilities
- More buy online, pick up in store
- More multi-story warehouse construction
These Markets Will Experience the Greatest Demand for Cold Storage Warehousing
Included in this list are both highly populated regions as well as smaller Southeastern markets with major population gains:
- Los Angeles
- New York/New Jersey
- Dallas/Fort Worth
- Nashville TN
- Raleigh-Durham NC
- Charlotte NC
95% of food imported to or produced in the U.S. transits through 3rd party distribution centers before reaching consumers
Grocery and Cold Storage Warehousing Industries Struggle to Adjust to New Normal
Typical grocer supply chain network has to change from:
- Hub and spoke system: cold storage distribution centers house pallets of food for grocery store delivery
To an e-commerce order fulfillment supply chain network:
- Ensure that food products are packaged for individual orders
- Use technology to process orders which are then routed and delivered to consumers living in proximity to each other (like mail delivery model)
FAST TAKE: More 3PLs are now involved with cold storage warehousing as well as in last mile delivery. 3PL cold storage operators have expanded the range of the value-added services they offer and are an integral partner to other supply chain businesses.
COVID’s Lasting Impact on Cold Storage Warehouse Construction
The dramatic increase in D2C consumer behavior this year is causing significant disruption to the food industry.
- Shift in restaurant dining formats caused by lockdowns
- Less dine-in capacity
- More delivery and take out, requiring more cold storage capacity
- Grocery stores as fulfillment hubs due to more e-commerce ordering
- Blend of retail and industrial space
- Increased need for infill cold storage warehouses close to consumers
- Retail store footprints will now need to include more storage and fulfillment space
3. Increase in short-term warehousing requirements for freezer and cooler space (from 3 to 12 months)
4. Need for fast, accurate order fulfillment necessitates more warehouse automation
- Shortage of warehouse workers
- Warehouse operators need labor-saving solutions- material handling, robots, cobots, AS/RS, AGVs and other options
- Driving change in construction of cold storage warehouses to high density, taller height/smaller footprint buildouts
The Demand for Cold Storage Warehouses in Industrial Real Estate
Top 5 Industrial Construction Markets Q4 2019 with Highest Demands for New Warehouse Space:
1.Kansas City (7.3% vacancy)
- Miami (12.4% vacancy)
- Baltimore (13% vacancy)
- Greenville S.C. (18.7% vacancy)
- Dallas-Fort Worth (75% of its 25 million square feet
Top 5 Submarkets:
- North Fort Worth
- Northeast Atlanta
- South Atlanta
- Ontario California
- Southeast Houston
With consumer trends moving towards healthier food options such as organic fruits and vegetables, dairy products and preservative-free perishable foods, the need for cold storage warehousing has increased. Today’s inventory of existing cold storage warehouses is largely outdated. The average age of cold storage facilities is 42 years old, built before the technology boom and even the predominant need for track and trace. Today’s cold storage, temperature-controlled warehouses are built for speed, labor savings, sophisticated inventory control and accuracy.
As consumers tastes have changed, they have also hungered for fast delivery of grocery food products. The hub-and-spoke distribution network is not efficient for e-commerce grocery and new supply chain models must take its place.
To accommodate D2C orders, distribution, transportation and logistics strategies must be changed and more technology put into service for temperature monitoring perishable foods, pharmaceuticals and other temperature sensitive goods. Across the cold chain, from refrigerated containers used in transportation and logistics to specific temperature zones in distribution centers and cold storage warehouse space, new software and technologies need to be leveraged to help ensure the safety and quality of perishable products.
The construction and operating cost of refrigerated warehouses and each cold storage facility are high, especially with respect to energy cost. Construction cost of cold storage warehouses is nearly double that of dry storage warehouse facilities. This is one of the main reasons why cold storage warehouse facilities are not built on speculation, but rather only once a contract has been secured.
Third party logistics providers have risen in importance in the cold storage warehousing industry. Working with supply chain partners such as food processors, much of the work and manual tasks are now outsourced to 3PLs and billed as value-added services. This reduces the labor costs for a foods processor, minimizing capital investment and the need to hire and maintain a larger workforce.