The Future of Grocery Logistics

grocery logistics

As the largest grocery logistics landlord in Australia, Charter Hall is powering the food and grocery industry at a time of unprecedented growth. Matthew Cox, National Industrial Delivery Manager for Charter Hall explains how the sector has been disrupted by the digital economy in the past 18 months, and why automation will supercharge the online grocery space in the future. 

Over the past financial year and during the pandemic, the food and grocery sector has observed record growth in Australia, as consumers reduced their discretionary spending and focused primarily on essential goods amid uncertain economic conditions.

“The Australian retail sector is worth about $340 billion according to the Australian Retailers Association, and the supermarket, grocery and fresh food market make up nearly a third of that landscape,” says Matthew Cox. “It’s the single biggest part of the Australian retail landscape and the most resilient. It is why Charter Hall Group has made a substantial investment in this sector and has focused on partnering with tenant customers that need both bricks and mortar retail outlets and supply chain logistics facilities to ensure the success of their business models.”

Charter Hall’s substantial portfolio is occupied by major supermarket players Coles, Woolworths, Metcash and ALDI, in addition to other prominent food and beverage manufacturers who supply these supermarket players including Ingham’s, Coca-Cola Amatil and Arnott’s. Purely online prepared food companies, like Marley Spoon are also part of the portfolio and in a business segment that is growing strongly. For the 2020-21 financial year, 40 per cent of Charter Hall’s record $10 billion transactions were sale and leaseback arrangements, with 24 per cent of those being in the food and staples retailing sector. Those businesses strategically chose Charter Hall to be their long-term property partner and landlord.

Matthew explains the dynamics of this sector have been significantly disrupted by the pandemic. As consumers re-evaluated their shopping habits and looked for ways to reduce their time in supermarkets, online grocery retailing has spiked in popularity. This includes shoppers using “click and collect” services and delivery direct to their homes.

“Market growth within the online food logistics sector was prominent for two or three years before COVID, but the pandemic really supercharged this trend,” says Matthew. “In 2018, it only made up two or three per cent of the market, and people were sceptical that it could expand much further. But since COVID, online grocery sales have grown beyond expectation with a 45 per cent growth forecast this year alone according to research company IBISWorld.” 

Matthew says major food retailers across Australia are looking at their online fulfilment capabilities and realising that they need to improve the efficiency of their supply chains to adapt to this ‘e-grocery’ boom. “Suddenly, nearly all major briefs for traditional bricks and mortar retailers have an e-commerce component,” he adds.

This “e-grocery” boom is not just limited to major grocery retailers, Matthew explains. Disrupting the online grocery space is home delivery meal kit providers such as Marley Spoon, which offer consumers fresh produce and recipes as an alternative to shopping in grocery stores. As more customers stayed home to cook during the 2020 lockdowns, Marley Spoon almost doubled its Australian customer base to 114,000 in the June 2020 quarter. To keep up with this accelerating demand, the company signed a 10-year pre-lease for a new state-of-the-art 14,200 square metre facility in Wetherill Park, Sydney, delivered by Charter Hall. 

“Today’s consumers are busier than ever and looking to save time wherever they can. Home delivery meal kits and online grocery services are quickly filling this gap,” says Matthew. 

He explains that for most food logistics retailers, this online boom has resulted in an increased reliance on automation within warehouse facilities, in order to enhance their supply chains and keep up with this massive market growth.

“There are two types of automation we’re looking at here,” he says. “The first is digital process automation such as software applications and artificial intelligence – systems that can enhance data collection and give food retailers greater control of their inventory storage. This allows tenants to hold food products for exactly the right amount of time, saving them massive amounts of money and avoiding spoilage.”

“The second type is physical process automation, which refers to tasks automated through robotics and sensors. This typically takes the form of automated guided vehicles, autonomous robots and automated storage and retrieval systems.”

Charter Hall’s substantial portfolio includes an ALDI distribution centre in Victoria.

Charter Hall is working with key tenant customers Woolworths and Coles to deliver next-generation automated fulfilment centres, to fast-track the picking, packing and delivery of online groceries that are in high demand.

For Coles, Charter Hall is currently delivering two customer fulfilment centres in Sydney and Melbourne. These state-of-the-art facilities will incorporate a specialised top-loading automated storage and retrieval system designed by the UK software and robotics company Ocado.

“Once completed, whenever someone in Sydney or Melbourne submits an online grocery order for home delivery, it will be fulfilled by these Coles Customer Fulfilment Centres,” says Matthew. “These facilities will be part of a “hub and spoke system”, connecting to smaller distribution centres that provide a last-mile delivery solution for these metropolitan areas, located within a one-hour drive.”

Charter Hall has also worked with Woolworths on delivering a new automated facility in Melbourne. “Woolworths has always been a big driver of automation within logistics, successfully overhauling their entire supply chain as part of their initial rollout 15 years ago,” says Matthew. “We’re now part of the second rollout, and the landlord of their latest automated distribution centre  in Melbourne with a lease of at least 20 years.”

Matthew explains that this automation wave is just starting to take hold in Australia, as the cost versus benefit equation evens out.

“Adding automation to a facility used to be an incredibly expensive operation, which could take up to a decade for payback. But now, it only takes three to four years to see those returns. Rather than viewing automation as an exclusive or competitive edge, our customers understand that it is simply necessary to compete in the current grocery logistics market.”

 “Above all else, we’re looking to deliver automated solutions for our grocery customers that can be used both now and far into the future,” Matthew explains. “Like many other sub-sectors of Australia’s retail landscape, online grocery delivery is here to stay. From an industrial and logistics standpoint, we’re excited to be partnering with and at the forefront of this growth for our customers.”

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