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10/18/2022

The Future of Cold Storage

Navigating challenges in regard to inventory, capacity, freight and labor
Charles Betts
National Sales Manager, Interstate Cold Storage
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With consumers buying more frozen foods, cold-storage facilities expect production and requests for inventory storage to continue to increase.

The ripple effects of the COVID-19 pandemic have created an abundance of challenges, threats and opportunities for the cold-storage industry.

From a domestic retail spend point of view, demand outpaced production during the first two years of the global pandemic. Therefore, more businesses were able to find third-party logistics cold-storage space in 2020 and 2021, due to a lower average of on-hand inventory of existing customers. Recently, though, as food manufacturers continue ramping production back up to pre-pandemic levels, the cold-storage market has tightened, and space is once again limited.

[Read more: "Cold-Storage Solutions Evolve to Meet Retail Needs"]

Space is only one piece of the puzzle, however. Driver availability, reduced warehousing labor, fuel costs, and even equipment shortages – material-handling equipment, over-the-road reefer units, shipping containers – all negatively affect the cost of finding temporary solutions.

While cold-storage space availability is limited at a macro level, the pandemic also accelerated consumer growth spending substantially within the frozen sector. According to the American Frozen Food Institute (AFFI), 30% of consumers increased their at-home freezer capacity in 2020 for three reasons:

  1. Supply: Many people sought backup food plans to prepare for potential shortages, which was a rational fear proven accurate by continued shortages in the supply chain: disinfectants, toiletries, fresh produce, chicken, beef cuts and baby formula.
  2. Safety: Increased freezer space meant minimizing trips and exposure risks at grocery stores. Some people even increased the freezer space in their homes by investing in a second freezer with their federal stimulus checks.
  3. Choice: There was a consumer response to grocers offering both more choices of frozen food (ethnic choices, health choices, better-for-the-planet choices), as well as a higher percentage of grocery space dedicated to frozen.

Interestingly, the uptick in frozen spend from 2020, initially thought to be tied to availability, has had excellent “stickiness” providing continued growth in year-over-year spend, rather than revenue retraction in frozen category sales. Consumers preferred both ease of production in frozen home meals, as well as reduced food waste that often occurs with perishable items. Millennials and Gen Xers specifically drove frozen growth, even as fresh products have returned to shelves.

Retail grocery shoppers have increased their percentage of frozen groceries purchased per trip, as well as buying more frequently from the frozen food section. AFFI also reports that frozen food spending for consumers increased an additional $595 per person in 2021.

This information leads to two major takeaways. First, there are now much higher percentages of year-round storage requests from food producers to meet increased consumer demand. Furthermore, many food manufacturers are requesting more cold-storage space. The current baseline of cold-storage demand is responding to a 24% increase in frozen spend since 2019.

Cold-Storage Facilities' Recommendations

With consumers buying more frozen foods, we expect production and requests for inventory storage to continue to increase. Couple this with the recent upswing in manufacturing this year, and you have a huge demand for cold-storage space at a time when facilities are already facing significant labor strains.

Several cold storages are reducing their services and focusing their available labor on the basic core function of receiving and shipping full pallets. That means that services such as blast (or quick) freeze, relabeling, repacking, strapping, stamping, restacking, case picking and cross-decking might not be available if there are labor limitations. Until the labor market turns around, expect further erosion of labor-intensive services.

We recommend that companies begin pre-planning to see what amount of storage space they will need, and when. The sooner that plans are made, the more likely that you’ll get the space that you need.

Annual forecasts are a production company’s best tool, because they allow the third-party logistics warehouse to communicate cold-storage needs far enough in advance to minimize challenges or delays. These cold-storage warehouses are currently working hard to fulfill current demands while also trying to gauge and project the future needs of all their customers. It’s essential to understand how each customer’s inventory build will dovetail, throughout each month, for both capacity and labor constraints.

While there are certainly short-term challenges within the cold-storage industry, consumer growth spending suggests that frozen products will play an increased role in both the supply chain and retail grocery shopping moving forward. For now, it appears that the demand for cold storage space will only increase. If warehouse space can’t meet the demand, it’s critical for companies to pre-plan and consult a trusted cold-storage warehousing company.

The last thing any business needs is for products to get ruined or be deemed unusable at a time when demand has never been higher.

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