E-commerce and the Cold Grocery Supply Chain

Business as usual. COVID-19 put this cliché on ice and has introduced us to unprecedented times and new normals, rocking business models to their core and forcing change where none was wanted. As retail, healthcare, education, travel, banking, and other sectors struggle to adapt, we’re seeing new trends, new challenges, and new opportunities emerge.

The Centers for Disease Control and Prevention confirmed the first case of COVID-19 in the U.S. on January 21, 2020. Just 56 days later (March 17) there were confirmed cases in all 50 states. With shut downs imminent, many consumers rushed to stock up on essential food and goods. Panic buying is normal behavior for extreme weather conditions, but unlike hurricanes and the like, COVID-19 has been long-term and widespread.

Let’s get digital

In addition to panic buying, COVID-19 has changed how people buy their groceries. Prior to the pandemic, grocery e-commerce – that is, sales that are initiated online (website or app) and fulfilled through grocery store pickup, delivery, and grocery/meal kit service – had become the latest grocery trend. In 2019, 4% of grocery sales in the United States were online[1].

The general consensus was that this trend would continue its gradual increase, but COVID-19 had other plans. According to Nielsen, “By the time concerns about the spread of COVID-19 reached critical mass in mid-March, approximately one-quarter of shoppers said they expected to shop online more frequently—or for the first time—in order to avoid germs in public places.[2]

More grocery-specific, CNN Business reported that, “Downloads of Instacart, Walmart's grocery app, and Shipt increased 218%, 160%, and 124% respectively,” from March 12, 2019 to March 12, 2020.1

A shift does not equal growth

People aren’t suddenly consuming more food, but the combination of panic buying, e-commerce, and the temporary shuttering of restaurants and bars certainly has the supply chain looking that way.

As detailed in our previous blog post, the temperature-controlled product supply chain’s innate resilience can handle these fluctuations without breaking. At any given time, there’s about four months of goods spread across the temperature-controlled food supply chain. This starts with processing and packaging at manufacturers throughout the United States. Goods are sent to Production-Advantaged sites, then onto Major Market Distribution Centers, where products from multiple manufacturers are stored together. From there the products go to Food Service Distribution Centers if they are destined for restaurants, universities, hotels, etc., or Retail Distribution Centers if they destined for retail establishments.

With many restaurants closed or operating at limited capacity, some of the manufacturers dedicated to supplying the food service industry have been able to adapt operations and supply products to surging retail-based food sales. It is not an increase in overall demand, but rather a temporary compression of sales into a shorter time period and a shift in fundamental operations.

The same goes for e-commerce – it's not an increase in overall demand. Temperature-controlled product that is purchased by consumers online is almost entirely serviced out of individual grocery stores, not temperature-controlled warehouses. The best place for grocers to service last mile logistics – services like home delivery and “click and pick” – is from the store itself. This is because transportation costs account for 70% of overall supply chain costs and are the most expensive part of the cold food supply chain, so utilizing space that is closest to the end consumer is the most cost-effective and advantageous option.

An uptick in e-commerce and a shift to more retail-based sales does not starve the temperature-controlled food supply chain nor does it require an inordinate increase in storage. Cold food storage requirements only increase if production increases, and production increases only if demand increases. That simply is not happening on a large-enough scale.

For more information on Americold’s offerings and how our fixed commitment model helps ensure manufacturers and retailers have the space they need, even during a pandemic, contact us. Let's talk!

[1] Meyersohn, Nathaniel. 19 March 2020. Coronavirus Will Change the Grocery Industry Forever. CNN Business. https://www.cnn.com/2020/03/19/business/grocery-shopping-online-coronavirus/index.html

[2] Nielsen. 30 March 2020. Tracking the Unprecedented Impact of COVID-19 on U.S. CPG Shopping Behavior. https://www.nielsen.com/us/en/insights/article/2020/tracking-the-unprecedented-impact-of-covid-19-on-u-s-cpg-shopping-behavior/