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The shift from brick-and-mortar retail toward ecommerce also prompted a parallel transition in the associated supply chains, as retailers sought more storage space to hold goods before delivering them, even as they demanded less physical store space. Creative retailers came up with ways to transform previous big box stores into warehouses, though sometimes those shifts came too slowly to be effective. The latest market dynamic suggests the need for yet another revision to the approach, to ensure there is enough cold storage to meet the growing needs of online grocery sellers.

The grocery delivery market continues to grow, even as competitive service providers struggle to achieve efficiency and good logistics quality. Compared with online retailing of dry products, like books and clothing, selling food electronically creates a host of additional challenges. Some food needs to be frozen, while other items should just be cold, so a single warehouse might need to provide varying temperature zones. Certain products need to be defrosted slowly before being put on a truck for delivery. Others can never leave a frozen state and still be delivered in a way that ensures they are safe for consumption.

Beyond these product-related demands, the design of cold storage warehouses entail some challenges too. For example, companies need quick closing freezer doors and multiple entryways, to avoid the risk that warm temperatures outside or in the offices infiltrate the cold storage rooms. Accordingly, the costs of designing and maintaining a cold storage warehouse can be three times as high as the costs associated with dry warehouses.

Despite these challenges though, logistics companies are increasingly building such facilities, as well as seeking out buildings they can convert. They have to do so, to meet the growing demand from food retailers such as FreshDirect, Amazon/Whole Foods, Kroger, and Walmart. The industry features oligopolistic competition, such that just two big companies maintain control over more than 60 percent of the warehouse space available in North America. They also are expanding globally. Thus retailers and food delivery services have little choice but to rely on these members of the supply chain.

Discussion Questions:

  1. Considering this description of the cold food supply chain, what are your predictions about pricing trends? That is, should retailers expect prices for cold storage services to drop, stay the same, or increase?

Source: Ester Fung, “E-Commerce Made Warehouses Hot. Now Investors Warm to Cold Storage,” The Wall Street Journal, December 10, 2019