The existing infrastructure, particularly near rapidly growing urban centres, relies on outdated systems plagued by lost mileage and inefficiencies. Distribution centres with cooling and freezing capacity are few and far between, forcing trucks to cover unnecessary distances, often resulting in higher costs and delays.
The lack of adequate cold storage facilities near large urban centres often leads to redundant transportation, with products traveling back and forth between locations. For example, food might bypass nearby stores en route to a distant cold distribution centre before being redistributed back to those same stores, adding excessive mileage and causing delays.
While grocers like Walmart and Kroger are experimenting with promising new distribution models, the overall cold chain is challenged by high construction costs, sustainability concerns, and complex regulations that make it difficult to build and upgrade cold storage facilities to meet changing demographics and consumer demand.
How lost miles add up
Many of the existing cold storage facilities were built 20 to 30 years ago, following the ‘hub-and-spoke’ model, similar to the Sears distribution system in Industrial America. In this model, grocery retailers and their third-party logistics (3PL) partners rely on a few major distribution centres spread across the country, each serving as a central hub for all their stores.
This outdated grocery supply chain model has not kept pace with changing demands in the U.S., where online grocery sales are predicted to grow at a compound annual rate of 4.5 per cent over the next five years, more than three times the 1.3 per cent growth rate expected for in-store grocery sales, according to a Brick Meets Click’s forecast. As grocers expand into fast-growing U.S. markets like the Sun Belt, cold distribution inefficiencies are becoming more pronounced. The distance from stores to central cold storage hubs has grown, making older facilities less effective for modern supply chains.
“Many of the cold distribution centres for grocery retailers are significantly older and more outdated compared to what we’re seeing elsewhere in the supply chain,” said Peter Kroner, Director, Industrial / Supply Chain and Logistics Market Intelligence for Avison Young.
Canada faces similar challenges, especially in metro areas like Greater Toronto. Population growth over the past five to 10 years has outpaced the development of cold chain infrastructure, creating a lag in distribution.
Flash-frozen vegetables, for example, might be processed at a rural manufacturing facility, sent to a nearby 3PL, and then transported hundreds of miles to a major retail distribution centre—only to be sent back to another 3PL in the wrong direction before finally reaching the stores.
People generally prefer not to have food production facilities like hog farms near their homes. The separation between agricultural zones and populated areas further compounds ghost miles.
The fast expansion of e-commerce has led to more sophisticated and reliable supply chain models built on layered distribution systems—from hefty central hubs to smaller peripheral and last-mile fulfillment centres—although the cold supply chain for grocery items has been slow to adapt, increasing carbon emissions and fuel costs. Grocery retailers are now beginning to address these lost miles and inefficiencies as part of their ESG (Environmental, Social, and Governance) initiatives.
“There will always be some ghost miles, but right now, we’re seeing a lot of redundancy, which happens because gaps in the network need to be filled. If the nearest distribution centre is 200 miles away, you have no choice but to go there. By building closer facilities, we’re creating new stopping points.” said Warren D’Souza, Senior Manager, Market Intelligence, National Industrial Lead for Avison Young.
Advancing the cold chain system and eliminating ghost miles
While progress is slow due to the high costs of developing cold storage facilities, some large grocers are beginning to lessen their reliance on faraway distribution centres by building multiple facilities that better serve growing urban areas. In Canada, major chains like Loblaw are adding cold storage on the periphery of cities, anticipating population growth in the next 20 years.
In the U.S., Walmart is opening five automated cold storage and freezer facilities, each costing over US$1 billion. The distribution centres are strategically located, with more storage capacity and cost-effective operations, to address sustainability issues and overhaul the old cold chain logistics models.
In addition, Walmart is using its existing store locations as fulfillment centres, with floor space dedicated to collecting orders, packing for delivery, and curbside pickup. Using stores for fulfillment can reduce lost miles, but grocers need to ensure it doesn’t deplete shelves for in-store shoppers.
“The biggest challenge for retailers is balancing convenience with maintaining the in-store experience. When online orders are fulfilled directly from the store floor, it can deplete shelves and frustrate in-store shoppers. Grocers are faced with the difficult task of growing delivery and curbside pickup options without compromising the ease and experience of shopping in-store,” said Meghann Martindale, Principal, Director Market Intelligence, Retail for Avison Young.
Grocers are trying to find the right mix. Some, like Trader Joe’s, focus solely on the in-store experience, while others, like Kroger, are investing in fully automated fulfillment centres with freezing and cooling capacity and on-demand delivery. With its Ocala series in Groveland, Tampa, and Jacksonville, Fla., Kroger can service the entire Florida market without having any physical storefront locations.
Modern cold storage buildings are taller, with 70 to 80-foot clear heights that allow for higher racking systems, maximizing storage capacity. These fully automated ‘dark facilities’ require minimal human intervention. Features include insulated floors and advanced cooling technologies to prevent ground freezing and ensure consistent temperatures throughout the cold chain, enhancing food safety from the warehouse to the stores and consumers.
What’s next?
As these modern, strategically located cold storage facilities come online, they have the potential to eliminate inefficiencies and lost miles by reducing unnecessary transportation and helping grocers meet sustainability goals.
For grocers looking to stay competitive and meet evolving market demands, investing in a modern cold chain logistics system is crucial for securing future success.
(Content provided by Avison Young)
