Investing in the on-demand economy
The impact of e-commerce on Americans’ shopping habits and consumer expectations has significantly disrupted the logistics industry and is rippling through retailers’ supply chains.
Modern America’s growing diversity and changing consumer preferences have far-reaching implications for the retail, grocery and third-party logistics sectors. In the retail industry, for instance, shoppers demand seamless experiences that blend the ease of online transactions with the comfort and personal attention of physical retail spaces. Harvard Business School’s Ryan Raffaelli even coined the “3Cs” framework to explain the conditions leading to retail success—stores that “connect” the community, “curate” product offerings for unique cultural needs and serve as “convening” spaces for neighborhoods and interest groups.
The food economy is central to curating the brick-and-mortar shopping experience. In fact, 71% of consumers noted that they make purchasing decisions based on their understanding of a product’s full ingredient list, and 54% said that they prioritize the source of their food, according to a study conducted by Label Insight, St. Louis, Mo. These two factors were rated as being more important than organic labeling, packaging, fat content and brand. For modern grocery shoppers, the source of food matters more than ever. This global “food awakening” is driving a thirst for knowledge about the foods we eat along with a desire to eat healthier foods, irrespective of one’s background, wealth level or age.
At the same time, the impact of e-commerce on Americans’ shopping habits and consumer expectations has significantly disrupted the logistics industry and is rippling through retailers’ supply chains. Traditional shipping networks defined by a centralized distribution center delivering goods to brick-and-mortar stores are no longer adequate. In today’s competitive marketplace, successful retailers must have multiple distribution facilities and regional warehouses near the end-consumer to shorten delivery times and streamline the omni-channel retailing network.
Investments in logistics infrastructure, supply chain optimization and expanded infill warehousing facilities have enabled retailers and supermarket chains to expand their store footprints and experiment with new shopping channels. Third-party logistics providers (3PL) have emerged as the critical link between retailers and customers. Dedicated logistics companies help their clients manage supply chain expenses and deliver products by integrating the full suite of operations – technology, shipping and warehousing – under one roof. Over 80% of Fortune 500 manufacturers today, including most major retailers, outsource a portion of their supply chain operations to 3PLs, produced by Armstrong & Associates, West Allis, Mich.
The rise of e-commerce and dedicated logistics providers coupled with growing urban populations and shifting consumer preferences have dramatically impacted all participants in the “food value chain.” In order to keep up with multi-channel integrated competitors, traditional supermarket companies are pioneering new concept stores, smaller stores, more urban locations, increased mergers and acquisitions, home delivery options and click-and-collect strategies. Previously limited to shopping by traditional means, today’s consumer can leverage modern retail channels to shop for groceries more quickly and conveniently. Ethnic and specialty grocery stores are also on the rise, providing a greater selection of groceries tailored to the tastes of distinct demographic and cultural populations. Ethnic grocery chains, limited assortment grocers and natural foods supermarkets all provide modern consumers with a greater array of grocery options.
Grocery store counts have increased as new and smaller-store concepts have penetrated urban areas. Over the past six years, the total number of U.S. grocery stores has increased by 32% and total store sales have increased by 17%, driven by the growth of new store concepts, sizes, and urban locations, according to a report published by Longpoint Realty Partners, Boston, Mass. Natural and specialty supermarkets have led the way with their ranks growing by 36% in six years, contributing to a drop in the median U.S. store size by 12.2% since 2006, as published by the Food Marketing Institute, Arlington, Va. Grocery chains with average store sizes between 8,000-15,000 square feet have flourished in urban environments where retail space is limited.
Due to consumer trends, a supply demand imbalance now exists between the infill retail and warehousing space demanded by grocers, retailers and 3PLs. The impact of the supply chain restructuring has been felt mostly in industrial real estate, where properties will continue to move closer to population centers. Infill warehousing is in high demand by retail and logistics tenants alike, since it serves as the key link between the production facility and the end consumer – receiving, storing, sorting and packaging goods for the final mile of delivery. As noted above, less obvious changes are occurring in the grocery brick-and-mortar sector in the form of new concept stores, smaller stores, more urban locations and new entrants. Thus, it will come as no surprise that there are currently exciting investment opportunities in almost every aspect of the food supply chain.