From Our Print Edition

Aging facilities, labor challenges and a new generation of massive automated warehouses are forcing retailers to reassess their storage strategies.

Pick a study, any study, and you’ll find a report that forecasts that U.S. cold storage warehouse costs will rise 13% to nearly 17% on compound annual growth rate (CAGR) through 2030.

Factors driving facility costs upward include consumer-driven demand for additional cold storage space, upgrades to existing facilities and equipment, new warehouse construction, rising energy prices and labor-associated overhead.

BIG MONEY IS CHASING RETURNS

A 2022 CBRE report forecasts that online sales will see their share of total U.S. grocery dollars reach 21.5% by 2025, up from 13% in 2021. Frozen and refrigerated foods, which grew in popularity following the coronavirus pan- demic, are expected to post ongoing gains as well.

Experts who spoke with Frozen & Refrigerated Buyer confirm there is plenty of upside demand for cold storage space. Investors recognizing the opportunity have poured millions into the speculative cold storage warehouse market with giant new facilities constructed ahead of signed tenant agreements.

CBRE’s research reveals that 3.3 million square feet of speculative cold storage space was in development as of the second quarter of 2022, up from 300,000 square feet in 2019. Nearly 40% of respondents to CBRE’s 2022 U.S. Investor Intentions Survey Report said they were investing in cold storage assets, up from 7% in 2019.

“There was a big explosion of cold storage uses 30 years ago,” says Chris Copenhaver, a senior director and national co-lead of Chicago-based Cushman & Wakefield’s food and beverage advisory group. “We’re seeing another one now since the COVID pandemic. I think there’s going to be a smaller gap going forward because the building of cold storage warehouses is going to continue.”

New generation warehouses are typically two to three times higher than legacy facilities, can house refrigerated or frozen items, feature modern truck courts and include other features designed to optimize productivity, says Copenhaver.

New large cold storage warehouse development is particularly pronounced in specific regions around the U.S., including South Florida and the Jacksonville area in North Florida. The Atlanta, Dallas-Fort Worth and Phoenix markets are also hot, as is the Lehigh Valley in Pennsylvania. The same goes for “anywhere in New Jersey and California,” says Copenhaver.

THE FUTURE IS AUTOMATED

Industry experts say that cold storage warehouse operations will become increasingly automated as roof clearances are raised higher and companies are challenged to find staff to work shifts in temperatures between 20 and minus 20, depending on the type of facility.

“We are seeing automated storage retrieval systems (ASRS) going into buildings that are 50-feet or higher,” says Copenhaver. “If you’re going to use that much cubic square footage in a building, you’re going to have to have [ASRS] because older material handling equipment can’t handle stuff that high.”

In January, Phononic, headquartered in Durham, N.C., said it would combine its solid-state cooling technology with Belgium-based stow Robotics’ automated warehouse technology “to design, develop and scale solutions for cold chain fulfillment, particularly for grocery automated fulfillment centers.”

‘Even if it’s [only] a 10-year-old facility, most of them have very little to no automation built in.’

“There are several benefits to automating warehouse tasks in cold storage facilities, however, the one we hear about the most frequently is the improvement to labor costs,” says Matt Walker, vp of sales-automation at Phononic. “This is predominantly driven by the fact that retailers/CPGs experience their highest warehouse labor attrition in cold/frozen ware- houses.

“When retailers or CPGs are able to automate cold storage facilities, they can minimize the amount of time an operator has to spend in that facility, thus improving the experience and reducing attrition,” he explains. “In addition, expanding automation into frozen warehouses delivers clear benefits via improved throughput and storage density, both of which translate immediately to
top-line growth, which remains a priority across businesses today.”

ONE SIZE DOES NOT FIT ALL

Massive new cold storage warehouses and related tech may elicit ‘oohs’ and ‘ahs’ from frozen and refrigerated industry watchers. However, the vast majority of storage facilities in use today are significantly smaller and have been in operation for 30-plus years.

Adam Thocher, senior vp of global programs and insights for the Global Cold Chain Alliance (GCCA) and executive director of the Global Cold Chain Foundation (GCCF), Arlington, Va., says that “everybody’s mind goes to the shiny, new, big, fully automated warehouse” when the issue of cold storage warehouse tech comes up. The reality is that these facilities are expensive to construct and the vast majority of companies looking to automate their operations have more modest goals in mind.

“Even if it’s [only] a 10-year-old facility, most have very little to no automation built in,” says Thocher. “So we’re looking at how you supplement what you’re currently doing with new technologies such as AGVs (automated guided vehicles) or insulated forklifts that help get jobs done a little bit quicker and easier.” Another popular option: conveyor belts enhanced by WMS (warehouse management system) technology so workers spend even less time picking and packing. “The answer isn’t always a 100% automated warehouse,” says Thocher.

In addition, says John Gaudet, CTB, vp of business development for RLS Logistics, Glassboro, N.J., automation doesn’t mean retailers can plug, play and walk away. “The more automation you have, the less you have to worry about labor,” he confirms. However, managing automation requires a skill set of its own.

“Special attention has to be given to how pallets are stacked, wrapped, loaded and unloaded; pallet condition; SKU velocity; and many additional factors,” says Gaudet. Plus, “These facilities cost more to build, which will necessitate higher per pallet storage costs. Auto- mated facilities also require a larger initial investment, regular maintenance, software updates, equipment repair, and in some cases increased energy costs.”

RETAILERS HEDGE THEIR BETS

Rising warehouse costs and competition for customers are putting pressure on grocery retailers to upgrade their cold storage operations in a way that doesn’t substantially drive up the price of purchases. Expert suggestions for stretching their cold storage budgets include:

• Signing longer-term leases to reduce rent volatility.
• Farming out cold storage to third-party logistics providers to help scale operations and maintain strategic flexibility. Gaudet recommends companies working with 3PLs investigate “signing longer-term contracts that out- line rate escalators” through the life of the deal to avoid being blindsided by unforeseen costs.
• Exploring the possibility of sharing cold storage space with another party or parties.
• Making use of automated technologies such as WMS, ASRS and others to reduce employee costs, increase on-the-job satisfaction among workers and improve organizational performance.
• Considering the size and location of warehouses to deliver on organizational objectives based on factors like inventory, speed to customers and transportation costs. For example, as part of their due diligence, retailers should conduct transportation studies before opening new warehouses.