With the surge in online grocery shopping and consumers’ growing preference for frozen goods, grocery retailers in the U.S. and Canada face increasing pressure to improve their cold supply chain.
The existing infrastructure, particularly near rapidly growing urban centers, relies on outdated systems plagued by lost mileage and inefficiencies. Distribution centers 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 centers 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 center 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.
The lack of adequate cold storage facilities near large urban centers 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 center 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.
GROCERY DISTRIBUTION CENTERS
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 centers 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This outdated grocery supply chain model has not kept pace with changing demands in the U.S., where online grocery sales are predicted to grow at a compound annual rate of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 percent over the next five years, more than three times the 1.3 percent 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
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 percent over the next five years, more than three times the 1.3 percent 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
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 center–only to be sent back to another 3PL in the wrong direction before finally reaching the stores.
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 center–only to be sent back to another 3PL in the wrong direction before finally reaching the stores.
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 center–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 centers— 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
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 center–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 centers— 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
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 centers by building multiple facilities that better serve growing urban areas. In Canada, major chains like Loblaws 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 centers 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 centers, 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.
In the U.S., Walmart is opening five automated cold storage and freezer facilities, each costing over US$1 billion. The distribution centers 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 centers, 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.
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 centers 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 70-80-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
Modern cold storage buildings are taller, with 70-80-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.
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.
Article contributors
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Director
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Industrial / Supply Chain & Logistics Market Intelligence
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