2024 Industry Cold Storage Warehouse Update: Food and Beverage

by Laura Olson | Aug 7, 2024 | Blog

2024 Industry Cold Storage Warehouse Update: Food and Beverage

2024 U.S. Cold Storage Supply

The cold storage warehouse industry has continued its pace of significant growth and is projected to continue expanding in coming years. In 2024, the global cold storage market was valued at approximately USD 190.24 billion. It is anticipated to grow at a compound annual growth rate of nearly 17% until 2932 at which time it is projected to reach nearly USD 409.4 billion. Consolidation in the cold storage warehouse industry continues with companies like Americold Logistics, Lineage Logistics, United States Cold Storage, and Nichirei Corporation leveraging strategic partnerships, acquisitions, and technology innovations to grow their global footprint.

In today’s economy, balancing labor and resource availability, automation and technology with infrastructure in warehouse site selection has become an unusually tough challenge. Since Q1 of 2023, companies occupying cold storage warehouse storage facilities have recognized that getting the size and configuration of cold and frozen space in the warehouse is usually unachievable in the exact location desired. As a result, these companies are pivoting faster to find secondary markets that can act be alternative cold storage warehouse locations.

In addition, major companies occupying cold storage warehouses have tended to execute portfolio rationalization strategies to decrease the number of SKUs to free up warehouse space for faster moving products. This also helps by reducing the number of pallet positions required in the distribution network.

In terms of location, population growth has been occurring across the Sunbelt, in the 15 southern states from Virginia and Florida through Nevada and southern California. Consequently, food production and distribution are also growing in these and other areas. There has been an average of 26.4% increase in inventory and an average 4.8% population increase over the same time period within 7 of the top 10 cold storage markets. Six of these markets have had the largest increase in cold storage warehouse inventory since 2017.

North America is leading the cold storage warehousing industry with notable investments in the logistics infrastructure and an extensive network of warehouses in the United States and Canada. According to NAIOP, there is still a shortage of cold storage warehouses in the United States, especially outside major urban areas. Of all the industrial real estate in the U.S., only 2% are cold storage warehouses. Of this, half the cold storage warehouses are an average of 37 years old, and in suboptimal locations. Warehouses used to be built in rural areas near urban areas. With the popularity of home delivery, fresh, healthier foods, prepared foods, imported food products, and online grocery shopping, cold storage warehouses are being built adjacent to or in populated areas.

The cost of building a cold storage warehouse is nearly twice as much as building an equivalent sized ambient warehouse. Because of the range of products and temperature zones, cold storage warehouses each have unique specifications and requirements, requiring tailored building designs. One notable cold storage construction trend is that of taller freezer facilities.

Three different approaches are being used to increase the number of cold storage warehouses in the US:

1. Converting dry warehouses into cold storage warehouse facilities requires a layer between the foundation and the dirt. Typically, glycol is used, and this layer helps warm the dirt to prevent it from freezing and compromising the foundation. The infrastructure of an existing dry warehouse is significantly different of that of a cold storage warehouse and must be altered to accommodate cold, harsh temperatures. This has not been a popular approach.

2. When building cold storage warehouses on spec, these modern buildings typically have higher clearance heights, dense racking, and efficient utilities, however the pricing is higher than that of existing cold storage warehouse facilities. Some speculative cold storage warehouses are being built using a traditional spec model and tailoring the facility to suit clients, with a flexibility of temperature zones within the new buildings. This approach has been gaining popularity.

3. Renovating an existing cold storage warehouse can be problematic as adjusting from refrigerated temperatures to that of sub-zero means infrastructure changes. This approach is also not popular.

Cold Storage Warehousing Market Dynamics

Historically, cold storage warehouses tended to be built around ports, in higher density residential zones as well as in manufacturing hubs. Products housed in cold storage warehouse facilities varied by geographic areas, and largely were food products. Growth in the cold storage real estate sector is significant, and a projected annual increase of 13.2% is projected through 2030.

Cold storage warehouses have high energy requirements due to the need for cold, chilled, and ultra-cold temperatures within facilities. Energy requirements of each cold storage warehouse differ. Concerns about climate change have resulted in construction changes on new facilities. Many cold storage facilities are installing solar panels in adjacent areas such as adjacent undeveloped land, parking lots, or on rooftops. Wind energy is also being used, but not as frequently.

Pressure from consumers, the business community, and regulators has resulted in placing a higher priority on sustainability. Cold storage Warehouse operators are adopting eco-friendly technologies and practices including optimized insulation and building design, energy efficient equipment, energy management systems, and use of high-efficiency equipment with regular maintenance and upgrade programs. In addition, sustainable refrigeration practices including natural refrigerants with low global warming potential and ozone depletion potential are being used.

Industry News: Cold Storage Warehouses Embrace Technology

Cold storage warehouse operators have started to embrace more use of technology:

Warehouse management systems developed with specific functionality for cold storage are being used to track inventory shelf life, as well as to help ensure food safety regulations are followed and documented. Cold storage warehouses value inventory control functionality with multiple allocation strategies including FEFO, FIFO, FMFO and more. In dealing with low temperatures, some subzero, as well as chilled zones, it is highly useful to leverage a WMS that can handle multiple temperature zones and integrate easily with cold chain monitoring devices and tools.

AI and machine learning for predictive analytics

Blockchain for managing traceability and transparency across the supply chain

Robotics and automation to enhance efficiency and better utilize labor resources

Mobile racking to get the most out of the building footprint

What Factors Are Influencing Cold Storage Warehousing?

Foodservice Industry

During COVID, both the business and institutional sides of the foodservice industry were hit hard because of closures. The foodservice industry utilizes both public cold storage warehouses as well as private cold storage facilities. During this period, 3PL cold storage warehouses reported rising inventories and backlogs. Smaller distributors and foodservice companies as well as those with inconsistent storage needs tend to rely on 3PL cold storage warehouses due to the benefits they provide in terms of cost and flexibility advantages.

Smaller Food Producers

Smaller food producers have benefitted from a variety of government initiatives designed to create market opportunities and strengthen supply chains. This includes grants and loans to modernize facilities, develop new products, and expand marketing efforts.

Headwinds of change are creating challenges for these companies, however. Financial pressure from rising interest rates, persistent inflation, and high input costs have tightened

profit margins. These issues, combined with the impact of geopolitical tensions impacting commodity prices and supply chains have made for a tense, complex, and at times, uncertain market environment. Smaller food producers are continually pressured by larger, well-resourced competitors to innovate and differentiate their products.

The growing market for specialty, organic, and locally-sourced products continues to provide niche opportunities for smaller food producers.

Restaurants

The U.S. foodservice industry has made substantial strides in recovering from the COVID pandemic. Let’s first look at how the restaurant industry has recovered since the pandemic. The restaurant sector has seen significant growth due to sales levels as off-premises dining has soared with consumers taking advantage of curbside pickup, drive-thru options and delivery services but is still facing higher labor and food costs.

1. The cost of ingredients and operations has increased due to inflation and has resulted in increased meal prices.

2. Changes in Consumer Behavior: During the COVID pandemic, consumers became accustomed to eating at home and now find it easy to access delivery services.

3.Labor struggles in restaurant operations: Restaurants report that recruiting and retaining staff is still one of their top concerns. Although the restaurant industry is anticipated to add approximately 200,000 jobs in 2024, almost half of restaurant operators report that they still need more employees to meet customer demand.

4. Competition is currently strong. Nearly 45% of restaurant operators expect to be more significant than in 2023. Many restaurants have undergone strategic restructuring or filed for bankruptcy. This structuring effort has resulted in the closure of multiple locations and has led to more intense competition in some markets.

5. Transition to remote work or hybridized work model has led to business professionals eating outside of the office less frequently and/or holding business dinners.

Here is a look at some of the consumer food buying trends:

Global flavors

Consumers continue to show increasing interest in diverse tastes worldwide. From Food Network to restaurants across the nation, consumers are being introduced to lesser-known cuisines, dishes, and cultural traditions. This is building more awareness and appreciation for new flavors and ingredients, regional cuisines and even hybridized culinary adventures. An increased interest in African pantry items has been forecast as brands develop new dishes that fuse Western tastes with African ingredients and flavors.

New favorites like bubble tea and Calabrian chili peppers are ready for the big time. These trends are being embraced by brands and leveraged for new products and brands to be imbibed by hungry, thirsty consumers.

Healthy options and functional products

Consumers have become increasingly more conscious about the foods that they eat. Over the years, the demand for fresh, healthy food has increased. Correspondingly, there is a greater need for facilities with the appropriate cold storage and handling conditions in the areas of increasing and urban populations. During the COVID period, many consumers moved away from big metropolitan areas to more rural sectors.

Hormonal remedy recipe products, and those geared for specific purposes such as enhancing immunity, enhancing gut health, supporting cognitive function, etc. Also experiencing growing popularity is plant-based foods. As sales of sugary beverages continue to fall, ready-to-drink teas and sparkling water continue to climb.

Fast and convenient

Consumers are leaving their concerns about pre-made mixes, starters, and sauces behind and leveraging more convenience-oriented items in meals made in the home. Along those lines, fast casual establishments are now seeing more interest in freshness, healthy options, and fast home delivery, drive through access, and self-serve kiosks. Also on the rise, “virtual restaurants” that prepare food in commissary-style kitchens and do not have in person dining.

Following its explosive growth during the COVID pandemic, in 2024, the meal kit market has stabilized and continues to grow. This market has focused on sustainability, and this has aided in maintaining the interest of consumers.

The frozen and chilled foods sector has continued to grow in popularity and now accounts for the largest market share. This sector includes ready-to-eat meals, processed foods, convenience items, fresh produce, dairy products. Think about your last foray in buying groceries, either online or in person. Now, consumers have access to exotic fruits and vegetables such as dragon fruit, nopales, and rambutan, grown across the world.

Everyday indulgences

Premium ingredients have made it to home kitchens. Popular with home cooks now are items including artisanal butters, specialty oils, premium truffle salts, and spice blends.

Increase in Services: Meal Kit Delivery and Online Grocery Shopping

Make and eat meal kits for at home meal preparation are highly popular

Pharmaceutical Industry and Cold Storage Warehouse Needs

Needed to handle and store the following types of goods in cold storage warehouse facilities:

Vaccines and injectable medications
Biopharma drug products
Biological implants

Blood and blood products
Some types of medical devices such as those with sensitive components, or that will be used for in vitro diagnostic products

U.S. FDA Food Safety Regulatory Changes: FSMA

Impacts the Food and Beverage Industry as well as Cold Storage Warehouse Operators

According to CDC estimates, 48 million people in the United States get sick, 3,000 people die, and 128,000 are hospitalized every year from foodborne diseases. Because of this, the FDA has come up with some new actions that must be taken to help secure the food supply chain for consumers.

Another issue impacting the cold storage warehouse industry is the Food Safety and Modernization Act. This regulation significantly impacts the public cold storage warehouse industry by imposing stricter regulations designed to ensure food safety.

Recently the FDA proposed a new traceability rule for certain foods and required that additional traceability records be maintained for certain high-risk foods (fruits and vegetables). Additional FSMA requirement involve establishment of a program to accredit laboratories to conduct food testing; leverage modern technology and other tools to develop a more digital, traceable, safer food system; help importers understand their responsibilities under the Foreign Supplier Verification Program (FSVP); and initiate the Voluntary Qualified Importer Program (VQIP) if importers meet specific criteria to expedite the review and entry of food products into the US.

Conclusion

Jonesing for a sweet potato French fry dipped in harissa-spiked sauce? You got it.

In case you have missed the food industry news, consumers are having a love affair with food and beverage. From fine dining at celebrity chef restaurants in Las Vegas to eschewing sugary soft drinks and using new global flavor ingredients to enjoy fruits and vegetables, consumers are making the most of the wide variety of available options and global supply chain.

American warehouse operators that deal with food and beverage inventory have new regulatory concerns with the roll out of FSMA changes. New FSMA guidelines impact the storage and distribution of food products, and help to prevent the operational disruptions of the import of foreign food products at cold storage warehouses and distribution centers.

Beyond the basic concerns involving the health and safety of consumers, 3PLs and warehouse operators must always keep customer satisfaction top of mind. After all, customer loyalty to brands can be fleeting.

Whether you operate a refrigerated cold storage warehouse or an ultralow temperature cold storage warehouse, there is new technology for you to use. From warehouse management software and monitoring devices built to handle the complexities and rigors of cold temperature warehouses to robotics, technology is at hand to help track and maintain temperatures which inhibit bacterial growth and ensure product safety and quality.

Today WMS can integrate with temperature monitoring devices and tools in refrigerated containers to ensure effective cold chain logistics solutions. Cold storage warehousing is in high demand across the world and has a bright future for investors and operators.

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