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Online Grocery Sales Skyrocketing Despite Dearth Of Warehouse Space

The demand for home delivery of groceries ordered online is skyrocketing. 

Everyone wants what they want and they want it now, said Michael Roe, an account executive with warehouse operations firm DMW&H.

“Don’t just blame the millennials,” he said. “It’s every generation.”

Surging demand has some developers struggling to keep up new warehouse supply in Atlanta.

It is the mom who does not want to drag her kids through a 200K SF store and lose one along the way. It is the baby boomer who does not want to go out in the snow to pick up milk and eggs.

The statistics back up Roe's assessment.

According to a recent report by the data measurement and analytics company Nielsen, online grocery sales reached $20.5B in 2016 and are expected to climb to $100B by 2025 and make up 20% of total grocery retail sales.

The logistical side of this trend is still in the infant stages, Prologis Investment Officer Darren Kenney said at the NAIOP CRE.Insights: The Last Mile conference in Seattle.

Kenney spoke at the conference with Roe and JLL Executive Vice President Matt Powers.

“We think grocery is the least-penetrated of the e-commerce game,” Kenney said.

At this point, warehouses specifically designed for the unique needs of online grocers are hard to come by.

“The inventory is not there,” Powers said. “Online grocers are having to adapt, but their strengths are not in home delivery.”

To fill the need, grocery retailers are acquiring or partnering with delivery services. Walmart partnered with Parcel and Deliv, Kroger is working with Boxed and Target uses Shipt. Grocery deliverer Instacart works with Albertsons, Costco, Wegmans and Aldi.

But when something goes wrong on the home delivery end, it is the retailer that gets drug through the social media mud and gets the bad reviews, Powers said.

Grocery-specific warehouses are challenging. They must contain areas for frozen food, cold food and dry goods.

“Each order has to come out of several parts of the distribution center, then it’s got to be put in the box,” Powers said. “The first thing that goes into the truck is the last thing to come out.”

Residential home delivery is similar to distributing to mom-and-pop stores, he said.

“They order a little of this and a little of that,” he said.

It all boils down to the challenge of how to get ice cream from point A to point B before it melts. To do that, warehouse control systems and warehouse management systems have to come together to make each warehouse work in harmony.

“We are seeing a lot of high-speed robotics,” Roe said. “But software is the key.”

Prologis' multistory warehouse facility in the Bronx

It is also about location. Closer is better.

Warehouse logistics are undergoing a seismic shift, Kenney said.

In the past, warehouses were for storage. That meant remote locations were fine as long as they were close to a freeway.

“The whole supply chain has changed,” he said.

The new goal is to be as close to urban centers as possible.

In traffic-snarled cities, such as Seattle, it is more about minutes than miles.

Prologis’ plan is to get close to people, Kenney said. To that end, the company has been investing in real estate closer to urban centers.

Prologis has invested in multistory warehouses that better fit into tighter infill markets, and the company recently purchased several smaller industrial buildings to be used as warehouses.

“They are not new, and don’t look sexy,” Kenney said. “But they meet the demand to be close and the demand to serve that last mile.”

In grocery, there is a powerful drive to be competitive, Kenney said.

“We are going to have to be innovative and bring these ideas to the retailers of the world,” he said. “You want the right chess pieces in the right positions when this new wave of e-commerce sets in.”