High Bay Warehouse

Localizing the New Cold Chain Distribution Center

As COVID-19 spread throughout North America, one thing became clear — this was a supply chain disruptor in every sense of the word. While industry innovations like localization and micro-fulfillment were long discussed as the future for cold chain technologies, nobody would have guessed that the future was now. 

Of course, we all hope the pandemic is a once-in-a-generation occurrence. While the demand for cold storage may have become more urgent, the need itself wasn’t new. Between food manufacturers, restaurant suppliers, grocery distributors, and pharmaceutical industries, cold chain warehouse space was in hot demand. 

It’s undeniable that the pandemic shifted consumer minds. While meal kits and grocery delivery services were available, these services saw a boom as stay-at-home orders were rolled out. Consumers adopted these from both convenience and utility. 

With the industry upended by the pandemic, it was obvious that cold chain distribution needed innovation. This was found by analyzing proven strategies of e-commerce fulfillment and applying them to the hub and spoke distribution model. The answer became clear — decentralization and micro-fulfillment. 

The Impact

Before COVID-19 spread, there was already a rising trend in online grocery and direct-to-consumer meal kit delivery services. According to JLL, online grocery sales grew an estimated 22 percent in 2019, with further growth continuously expected. 

While these trends were on the rise, the hub and spoke distribution system remained the standard. This model functions with a large regional distribution center as the hub that feeds products into stores, like spokes to a wheel. In this method, customers come to stores to do their shopping. 

Over the last year, the need for more cold storage has grown. Driven by the need for rapid vaccination and the growth of direct-to-consumer shopping, retailers know that external forces affect the supply chain more and more. Just this year, we have seen supply chains taken down by consumer panic, a stuck freighter, and hackers. 

Adapting to Change

As the pandemic spread, grocers had to assess the situation and come up with an adequate response. After meeting state and federal guidelines, many stores rearranged their layouts, offered new services, and rationed products depending on availability. 

Looking forward, companies want to avoid these issues in the future. So changes are being made to current distribution models. By using the constraints of the last year and pairing them with the top industry predictions, many are turning to decentralize the supply chain. This can take the shape of further segmenting the hub-and-spoke model to create multiple smaller distribution hubs — including micro-fulfillment centers. 

The question now is will micro-fulfillment still hold as much value ten or twenty years down the road. With some predicting possible market gains up to $10 billion, the opportunities for micro-fulfillment are there. 

One of the key advantages of localizing distribution centers with smaller facilities is circumventing rising real estate costs. Due to the scarcity of available land in large metro areas, building costs for large, traditional distribution centers tend to balloon. By rolling out smaller, localized facilities, companies can forego the costs of a large build. Micro-fulfillment centers, for example, can be part of existing grocery stores, retrofitted existing facilities, or small greenfield builds. 

Last Mile 

Getting a product to its final destination is the ultimate goal in this industry. While brick-and-mortar stores used to be the stage for this step, the times have changed. The last mile can now circumvent grocery stores, restaurants, and pharmacies to go straight to the consumer’s home. 

While delivery trucks headed to restaurants and grocery stores have limited space, orders going from a D.C. to a consumer’s house can circumvent that issue. With e-commerce giants like Amazon entering the grocery market, it is clear that they see a successful strategy here. 

It is here that the Amazon effect comes in — customers place orders expecting fast deliveries. This expectation is why many are considering local cold storage facilities a necessity. With this in mind, there is no doubt that more and more grocers and 3PL facilities will turn to new cold storage facilities and micro-fulfillment centers. 

If you are considering these options, let’s talk! Our cold chain experts have experience designing and building some of the largest temperature-controlled facilities in the world. Whether you have questions about an upcoming project or just want to pick our brains, we’re here to chat.