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· Consumers love food delivery. But restaurants and grocers hate it
· Online grocery and last mile growth continue to drive food space usage
Consumers love food delivery. But restaurants and grocers hate it
Along with Kroger, Target Corp. and Walmart Inc. are spending billions of dollars to develop their own delivery systems. The retailers have seen their margins suffer in recent quarters as a result
Heather Haddon & Julie Jargon | WSJ
via Business Standard | March 10, 2019
Consumers expect to order books, toys, shoes and anything else they want online and have it show up at their doors quickly and inexpensively. Restaurants and grocers are rushing to satisfy the exact same demand. They’re having a hard time.
A hungry customer in Denver might order a $9.99 Cuban sandwich from Panera Bread Co., which can arrive at her door in about 30 minutes.
The problem for Panera is that each delivery costs about $5 after accounting for labor, gas and packaging. Yet to avoid turning away customers, it continues to charge a flat delivery fee of $3 per order in most markets, which means they have to sell a lot more per order to absorb those costs.
Food delivery is proving to be a thorny, expensive and crucial puzzle for restaurants, grocers and investors. Billions of dollars have been spent in a quest to build services that reliably move fresh food from one place to another, yet many in the business wonder if they will ever get the economics right. Most delivery orders remain unprofitable.
Companies are willing to put up with losses, for now, because they aren’t seeing much growth inside their stores. And while delivery currently represents only a tiny fraction of overall food-buying, restaurant and supermarket companies expect people to increasingly shop that way. Big-city dwellers remain the largest consumers of food delivery, but the phenomenon is spreading to suburbs and smaller urban areas.
“Customers have raised their expectations. The whole framework has changed,” said Frans Muller, chief executive of Royal Ahold Delhaize NV, which is trying to boost sales of its Peapod grocery delivery service. Peapod has previously ·said it is profitable in only a handful of its markets.
Online grocery sales are expected to grow to around $86 billion in 2022 from $17 billion in 2017, according to a report from UBS Group AG. Investment firm William Blair & Co. estimated sales of online restaurant delivery will grow to $62 billion in 2022 from about $25 billion today.
For now, it’s an expensive slog. Kroger Co. reported lower profit on Thursday for its latest quarter, in part due to investments of hundreds of millions of dollars in online operations, and its shares fell 10% that day on the news.
Although grocers and restaurants have their own separate challenges, they face similar problems.
Both are dependent on foot traffic and have fallen behind other retailers in adopting order-taking technology. Both operate on low margins—typically 15% to 19% for restaurants for dine-in customers, and 1% to 3% for grocers—and customers are only willing to pay so much for convenience.
It costs supermarkets an average of $10 an order to deliver food, but grocers only recoup around $8 from customers because charging more risks turning off shoppers, according to a survey of supermarket executives by consulting firm Capgemini . Only 1% of 2,874 consumers surveyed by the research firm were willing to pay the full cost of grocery delivery.
And 85% of consumers aren’t willing to pay more than $5 for restaurant delivery, according to a recent survey of 2,000 fast-food and fast-casual customers conducted by online ordering platform Tillster.
Amazon.com Inc.’s purchase of Whole Foods in 2017 and its rapid rollout of grocery delivery across those stores intensified the pressure for other supermarkets to offer delivery. Separate from Whole Foods, Amazon is now planning to push into the grocery business with dozens of new stores in several major cities, as recently reported by The Wall Street Journal—a sign of how difficult food delivery is when done only online.
Along with Kroger, Target Corp. and Walmart Inc. are spending billions of dollars to develop their own delivery systems through acquisitions and investments. The retailers have seen their margins suffer in recent quarters as a result.
“I’ll be honest, it’s not easy,” John Mulligan, chief operating officer for Target...
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Online grocery and last mile growth continue to drive food space usage
Todd Heine, RE Journals
March 8, 2019
The growth in fresh and organic food products and last mile delivery is fueling significant demand for industrial space in Chicago and across the country. As a central location for food production, warehousing and distribution since the 1800s, Chicago continues to attract a diverse range of manufacturers, distributors and food ingredient companies.
The purchase of Whole Foods by Amazon was a game changer for many food businesses, providing the impetus for expansion in ecommerce. This, coupled with food companies expanding their specialty and convenience food selections, has generated significant activity in the Chicago industrial market.
One notable expansion of the city’s food services capabilities is Pullman Crossings, a 62-acre, build-to-suit development designed for the region’s growing food services companies. Ryan Companies recently announced plans to develop a 400,000-square-foot speculative industrial project in Pullman Crossings, which is located at I-94 and 103rd Street on Chicago's south side.
Heading into Q2 of 2019, there are several top trends driving the food sector.
Growth in online grocery
The online grocery sector is expected to more than triple in volume over the next five years, as online options expand and consumer acceptance increases. As a result, the food industry should see continued growth in food processing and distribution, which will translate into demand for industrial space. This is significant, given that the Chicago-area food and beverage industry has grown to become the second largest in the U.S., generating more than $30 billion in sales and employing more than 130,000 people.
Shortage of cold storage space ...
Last mile expansion ...
Expanding use of automation ...
Food safety will be a bigger focus ...
Q2 2019 and Beyond ...