A Really Big Refrigerator

We haven’t had a lot of good news lately. Or, more precisely, we haven’t seen a lot of good news lately, though it does exist. We don’t see it because both regular media and social media usually focus on the bad. That’s not entirely wrong. The survival imperative makes humans watch for threats, and sometimes threats are real.

One of the powerful lessons of this past month has been that you really can’t count on anything to be certain in the world of business.

Only a few short months ago, if you had any rational risk manager argue that we could see a simultaneous large scale situation where retail revenues went to zero, where hotel revenues went to zero, where airline revenues went to zero you would have been sent for a psychiatric evaluation.

Well, here we are.

So where is this good news that I spoke about? Who will win in this economic environment? I take the perspective that a successful business is all about solving real business problems.

On yesterday’s show we talked about the massive supply chain disruptions that are poised to hit our global food supply. At lunch today, my wife went to our freezer and took out a package of frozen kale which she added to her home-made carrot soup. The package indicated that the frozen kale originated in Ecuador.

I don’t know how in a world of reduced transportation, as companies re-think their global supply chains, how we will kale get from a field in Ecuador into a freezer bag and ultimately to my dinner table in Ottawa Canada.

On today’s show we’re looking at a new report issued this week from industrial real estate firm CBRE predicts that demand for local domestic refrigerated warehouse space is going to increase in the short term and over the next 5 years.

CBRE also cited a Brick Meets Click/Shopper Survey, which saw 46% of respondents indicating they will continue to purchase goods online after the COVID-19 pandemic subsides.

What’s more, the report pointed to what CBRE called long-term impacts for the industrial cold storage sector, due to COVID-19, including:

• E-commerce groceries will become more widely adopted as consumer comfort grows with the practice. This will trigger heightened demand for cold storage capacity;
• Multi-tenant refrigerated warehouse companies will likely consolidate to gain more control of the cold storage footprint;
• Since e-commerce is typically fulfilled by local grocery stores, retail footprints will include more storage and fulfillment space, including a greater need for infill temperature-controlled facilities in proximity to consumers;
• Automation will increase, prompting higher-density, greater-height and smaller-footprint buildouts that will be required for around-the-clock operations

The cost of building new cold storage is a huge barrier given that construction costs are two-to-three times higher than that of regular warehouses.

It stands to reason that more and more people will shop using online grocery stores. They are going to use them first out of necessity during the Covid-19 outbreak. Once the initial objections are overcome, they will continue to use the online grocery for convenience. The result will be a significant and permanent shift in the retail landscape for food. We’re talking about the last 5 miles of the supply chain between the point of production and my dinner table.

Those online grocers will need a big fridge, the size of a warehouse. The entrepreneur who invests in these facilities in high density and high population markets stands to be ahead of the game and potentially a big winner out of this disruption.