A surge in grocery deliveries is creating a huge opportunity for industrial real-estate developers. From cold storage to automation, here are 5 ways the coronavirus is transforming how we buy food.
- Grocery delivery services are booming as customers avoid the stores and order in. Experts believe that many delivery customers will stick even after social distancing is over.
- This will have a ripple effect in real estate, accelerating an already-strong demand for more cold-storage industrial space, according to a report by CBRE.
- The report outlined five ways that this change in habits will affect cold-storage and the real estate of food-distribution.
- This could mean that grocery stores and restaurants drastically increase their cold-storage space as customers order more food to their homes.
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Coronavirus has led to a surge in demand for grocery delivery services, as the country attempts to slow the spread of the coronavirus.
This sudden shift has strained the infrastructure and labor force of these companies, with Amazon wait-listing new delivery customers, Instacart workers going on strike for access to protective equipment, and customers having trouble finding open times to schedule their deliveries.
Companies and workers may need to get used to this disruption, as experts say that much of grocery delivery's popularity will remain after social distancing relaxes.
This shift could also lead to a boon for the owners, operators, and developers of the real estate asset most critical to grocery delivery: cold storage. A CBRE report released on April 8 suggested five ways that the coronavirus could potentially impact cold storage by accelerating the adoption of food delivery services.
The short report is an update to a CBRE report from last year, which found that the refrigerated warehouse segment of the US industrial market is only 1-3% of total warehouses, but that over the next five years, the country will need an additional 70 million to 100 million square feet of space to meet demand. The country currently has roughly 214 million square feet of cold storage space.
There will be an increase in customers ordering perishable groceries online
The report notes that online grocery deliveries are clearly going to see an uptick, which would mean that delivery companies will need more cold storage space.
However, for this to be true, customers would need to order perishable and frozen foods, which were previously much less popular for delivery. But this may change in the wake of coronavirus, as customers rely on the delivery services for all of their grocery needs, and become more comfortable with ordering perishables online as well.
Local grocery stores will require more storage and fulfillment space
Much online grocery delivery is fulfilled at actual grocery stores on the ground. With an increase in order volume, stores may be overwhelmed and not have enough space to deal with the demand.
This could necessitate a "blending of retail and industrial space," and will also create demand for cold storage facilities that are closer to customers. This blending of space could be as simple as building out more storage space, or as complicated as actually creating larger fulfillment centers within stores with its own cold storage. Some of this space will need to be new, as the average cold-storage warehouse is 34 years old.
Restaurants may also need more cold-storage space
The report predicts that restaurants may see a more permanent disruption, shifting their attention from dine-in to take out or delivery. As a result, they may need to increase their cold storage capacity to meet demand.
Public refrigerated warehouse companies will see further consolidation
Public refrigerated warehouse companies, or companies that own large warehouses that store food such as Americold Logistics and Lineage Logistics will begin to see consolidation as demand, and prices, for cold storage rise. This could lead to the largest operators partnering with developers to build networks of cold storage close to population centers, cutting down on the logistical challenge of delivering food to consumers.
Automation will increase in cold storage facilities
Cold storage facilities are, unsurprisingly, cold places, constricting the size of the potential labor pool who would be interested in working in them. Facilities will turn to automation to meet increased demand, allowing the facilities to remain productive around the clock and with a smaller workforce.
These facilities will be higher density and will be able to trade a smaller footprint for a greater height, as machines don't incur the same risks as the people working in facilities would, allowing for facilities in locations where it would have previously been impossible.
