Food's last mile - warehouse

Food’s Last Mile

The grocery industry landscape has seen major changes in the fast few years as grocery retailers respond to increasing customer demand for fresh food delivered to their doorsteps, while striving to maintain product quality and keep costs down. At I.CON West 2019, the food supply chain was discussed at length by Cameron Trefry, LEED AP and principal with Ware Malcomb, and Chris Owens, vice president business development, retail and food service at Americold.

“Thirty years ago, Walmart disrupted their space, and now they’re being disrupted again by Amazon,” said Owens, speaking about grocery retailers.

Owens shared a list of stores with the top volume of grocery sales in the U.S. from 2018-2019; is ranked tenth. “That may not surprise you, but three years ago, they weren’t even on the list,” he said.

Owens shared two key drivers that are reshaping the grocery industry landscape:

  • Fresh foods: Shoppers want more fresh produce and fresh prepared food. That has a tremendous impact on how stores and their supply chain are designed. “It’s roughly four times more expensive to ship cold goods vs. dry goods,” said Owens.
  • E-commerce: In as few as 5-7 years, 70% of consumers will be purchasing food and beverages online. Today that number is only 3%. It’s no longer only young people buying food online – now all demographic groups do.

These demands are causing stress on the existing physical distribution infrastructure, and retailers need to make significant investments in their cold supply chain to keep up. That can be a painful reality for retailers, considering the notoriously low profit margins in the industry.

“For every dollar you give a grocery, they keep only one penny,” said Owens. “Cost efficiency is very important to these companies.”

But companies are seeing the need to take action: There was a 30% increase in investment in grocery retail space last year – or 17 million square feet in the U.S. “It’s driving different behaviors and assets are being redesigned and redeployed and large investments are being made,” said Owens.

However, the optimal e-commerce fulfillment model is still undetermined. “Any online grocery order that a grocery fulfills, they lose money. Right now there is no profitable model,” said Owens.

Grocers now are experimenting with several different approaches. Some are replacing existing obsolete fulfillment centers and embracing automation. That’s an expensive prospect. Trefry and Owens agreed that the price of these cold storage facilities is about $120-140 per square foot. “These days, the automation systems we’re putting into these buildings is costing more than the buildings themselves,” Trefry said.

Others are implementing a new concept called micro-fulfillment. This utilizes the existing back room in a grocery store, reformatting it or expanding it to incorporate automation for online order fulfillment. “It is typically a back room, underutilized space, or new property that’s being stood up in a metropolitan area,” said Owens.

In conclusion: “We don’t know which model is going to win. Maybe none of them will be a clear winner,” said Owens.

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