Why Grocery Retail Is Really Becoming Cool

Who wants an additional 100 million square feet of cold-storage space?

America does, because consumers are set to pay fewer visits to physical stores and buy more of their groceries online. At the same time, demand for fresh food and meal kits is also on the rise, driven by a growing appetite for healthier and higher quality produce.

It will mean around 70% of Americans doing their shopping on the Internet in 2022, generating $100 billion in retail sales, according to a recent forecastOpens a new window from the Food Marketing Institute and Nielsen. That’s where those 100 million square feet of refrigerated warehousing come in.

The forecast, which covers the next five years, is by CBRE,Opens a new window the commercial real estate services and investment firm, which believes the cold storage sector is about to be transformed.

But this is about far more than building lots of big boxes across the country. It’s to do with designing systems that will be far more complex than anything the cool chain has seen before.

Groceries get cool

Expect to see new, specialized facilities spring up first in top food-producing states including California and Florida, as well as close to major cities where demand will be highest. The facilities won’t just feature a single cold storage capability but will come equipped with multiple, highly accessible zones providing shelter for a range of perishables and frozen items.

Walmart, for one, is building a 548,000-square-foot perishable distribution center in the Golden State that will, on completion, boast a -15⁰ freezer, a 28⁰ meat area, a 34⁰ wet produce section, a 34⁰ dairy and a 55⁰ dry produce zone. That kind of setup will be standard when more new facilities come on stream.

The capital costs of all this buildout will be huge. The food warehouses will require heavy duty refrigeration equipment, custom metal paneling for good thermal insulation, zonal docking facilities, as well as fittings and systems to facilitate bacterial control.

There’s a time factor, too: Cold storage warehouse construction can take up to six months longer to complete than dry warehouse.

Operating expenses will be relatively high. Retailers will lean on third-party cold storage specialists to do the job for them, and rents currently command three times the rate of regular warehouses. Labor accounts for a huge chunk of expenses, and it will be a major issue as the sector expands in a tight market.

Recruiting and retaining general warehouse workers is tough. Doing the job in the cool chain is tougher still since companies are asking people to work in inhospitable and uncomfortable environments. The employee turnover rate was just over 40% in 2018, according to the latest Global Cold Chain AllianceOpens a new window survey.

Humans over machines

Cold storage facilities will need plenty of bodies because they’re not straightforward pallet-in, pallet-out operations. Food order processing means lots of piece picking – individual handling – an area where humans excel and robots need to get better. Machines tend to find the going hard in cold environments, with batteries drained quicker and freezing drops of moisture getting into electrical and mechanical systems. The technology required to keep operations running needs to improve, and likely will.

Another major issue is the cost of refrigeration. High energy bills are an inescapable aspect of these warehouses carrying out their primary job of keeping cool. Facilities owners need to get smarter to shrink those bills, and artificial intelligence can play a role.

Lineage Logistics, a leading cold storage operator, has come up with “flywheeling,”Opens a new window using machine learning technology to determine general peak periods for energy prices. The company then super-cools the warehouse in advance and turns off the refrigeration equipment during those peaks. Last year, Lineage ran a pilot project for flywheeling at one of its California facilities and reported a 39% reduction in costs.

This is good news for the warehouse end of the cool chain, but control inevitably gets looser as the produce nears the consumer. The online shopper isn’t always at home for a delivery.

Walmart thinks it has a solution. The retail giant has just launched its InHome Delivery serviceOpens a new window in three locations across the country. Delivery personnel get access to a home using a smart lock and a one-time, task-specific passcode. They then stock the fridge.

There will, of course, be security concerns. Walmart stresses that all InHome Delivery staff are subject to background checks. Plus, they wear body cameras so that deliveries can be viewed remotely.

And that should mean that both groceries and consumers can just chill.