With a background in computational biology, Rueben Scriven joined Interact Analysis two years ago and leads the warehouse automation and on-highway commercial vehicle research areas. Rueben has spoken at some of the leading industry events and moderated several panel discussions on the topic of commercial vehicle electrification. He’s also appeared on CNBC to provide insight on the global electric bus market.
The newest insight in our ongoing series on warehouse automation looks at the food and beverage sector, with a focus on temperature controlled warehouse automation. Lead analyst Reuben Scriven takes us through the latest developments in food and beverage warehousing, focusing on chilled and frozen product.
In case you missed our previous article in this series, which looked at parcel distribution, you can check it out here.
Food and beverage – Covid-19 driving new consumer habits
Covid-19 has tested food supply chains across the globe. The changes in purchasing behaviour, panic-buying being the most extreme manifestation of this, caused by local and regional lockdowns, resulted in food and beverage producers being unable to forecast demand and manage production. On top of this, producers had to cope with supply-side delays and shortages.
The pandemic has brought about a significant change in eating habits, many of which will be long-lasting. A recent survey across 60,000 restaurants in the UK, Australia, Germany, and North America found that numbers of restaurant diners this September had fallen by more than 40% relative to pre-lockdown figures. This is a hugely significant drop and has been fatal for many establishments.
As happened during the recession of 2009, the fall in numbers of people eating out resulted in an increase in demand for convenience foods such as ready meals and frozen foods. These are forecast to perform better than most other food categories over the coming months and indeed years. Sales of tinned foods have also increased. Even when the coronavirus has been brought under control, the likelihood is that these new eating habits will persist, as consumers eat in more and spend less on fresh foods owing to the challenging economic climate we will all be living in.
These new habits are likely to spark off an acceleration in the trend not only towards the automated warehousing of tinned products, where, given the uniformity of the product, automated material-handling is relatively straightforward, but also towards more sophisticated temperature controlled warehouse automation solutions, in refrigerated premises.
Global ready-meal market driving chilled and frozen warehouse automation
According to Statista, the global ready meal market is forecast to grow to $498bn in 2024, up from $389bn in 2019, growing with a CAGR of 5%. The result of this high growth is that chilled and frozen warehouses will be in high demand during the forecast period. Cold chain and frozen warehouse automation solutions currently make up 14% of North American warehouse automation revenues in the food and beverage sector, however, Interact Analysis expects that this will increase throughout the forecast period. US company Americold is one of the main outfits driving the growing demand for chilled and frozen warehouse automation solutions.
Americold: A market-leader in chilled and frozen warehouse automation solutions
Americold Logistics of Atlanta, Georgia, boasts a 5.1% share of the global market and a 27.2% share of the US market. Globally, it operates just under 1.1 billion cubic ft of temperature-controlled warehouse space and it’s beginning to roll out highly automated systems. In June 2020, it ordered two highly automated temperature controlled case picking systems from Dematic and we expect that its investments in automation will increase over the forecast period as the demand for chilled and frozen food increases.
Americold’s case for automation is clear. In 2019 warehouse services accounted for 58% of the company’s total revenues yet it only contributed 14% to its net operating income. Storage and rent, on the other hand, accounted for just 42% of total revenue yet made up 86% of NOI. The reason why warehouse services account for such a high percentage of revenue yet contribute so little to net operating income is because for every dollar it receives in warehouse service revenue, it pays $0.76 in labour costs. It’s no surprise, therefore, that Americold is trying to reduce labour costs so that it can make its warehouse services business more profitable. It will achieve this through automation.
The advantages of automation in the chilled and frozen warehouse sector
Temperature-controlled automation has existed for some time, but Interact Analysis’s research suggests that it is entering a large investment cycle, driven by the pandemic, and headed by Americold. Advances in automation technology mean that automated equipment can now operate in freezing conditions. Low temperatures and changes of humidity do have an impact on automated machinery, meaning automation solutions in such environments can cost more to install and maintain, but the return on investment can still be very attractive. Manned chilled and frozen warehousing has disadvantages. Being staffed, buildings necessarily need to be large and there are energy costs associated with maintaining low temperatures in these large facilities. Personnel turnover also tends to be high. Automated storage solutions enable the downsizing of the storage facility, minimising the number of staff, and reducing energy outlay.
Automation in this sector is surely a no-brainer.
Stay tuned in to our Insight Service. Next week we will be giving the low-down on warehouse automation in the manufacturing sector.