food value chain, from seeds to...

F O O D VA L U E C H A I N , F R O M s e e d s T O y o uWINTER 2018

– Deloitte

“ T h e f o o d i n d u s t r y h a s t r e m e n d o u s o p p o r t u n i t y, a s w e l l a s a n o b l i g at i o n , t o m e e t t h e n e e d s o f n e w, m o r e s o p h i s t i c at e d a n d m o r e d e m a n d i n g c o n s u m e r s w h i l e s at i s f y i n g s h a r e h o l d e r s ’ d e m a n d s f o r r e t u r n s —a n d i n d o i n g s o c r e at i n g a s u s ta i n a b l e f o o d s u p p ly f o r t h e n e w m i l l e n n i u m .”

ta b l e o f c o n t e n t sI N T R O D U C T I O N 4 w h e r e d o e s y o u r f o o d c o m e f r o m ?

PA R T I : 7 W h e n fa r m t o ta b l e wa s a s h o r t t r i p

PA R T I I : 1 0 P r o c e s s e d a n d Pa c k a g e d b y t h e M i g h t y F e w

PA R T I I I : 1 3 C h a l l e n g e s o f F r e s h a n d S p e c i a l

PA R T I V : 1 7 S u m m a r y a n d I m pa c t o n R e a l E s tat e M a r k e t s

R E F E R E N C E N O T E S 2 2

4F O O D V A L U E C H A I N . F R O M s e e d s t o y o u

w h e r e d o e s y o u r f o o d c o m e f r o m ?

In a recent study, 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. These

two factors were rated as being more important than organic labeling,

packaging, fat content, and brand.1 For modern grocery shoppers, the

source of food matters more than ever.

To better understand the significance of these

findings, we must first define what we mean by

“source.” That is, are we referring to the original

physical source of the food (i.e., mineral, plant,

animal), the geographical location and farm where

it originated, the processing plant where it was

prepared, the company that packages it, the logistics

firm that distributes it, or the grocery store that sells it.

For consumers, the concept of “source” encompasses

all these elements. A global “food awakening” is

driving a thirst for knowledge about the foods we eat

along with a desire to eat healthier foods, irrespective

of individual background, wealth level, or age. This

food awakening, in addition to a global population

movement into larger cities and a shift in how

consumers procure food products, has dramatically

impacted all participants of the “food value chain.”

Deloitte defines the food value chain as “the network

of stakeholders involved in growing, processing,

and selling the food that consumers eat – from farm

to table.”2 The five key categories in this system are:

suppliers of farming inputs such as seeds, fertilizer,

and equipment; food producers engaged in farming

and ranching; processors that handle the harvesting

and processing of raw foods; brands that package

and transport the finished food product; and grocery

retailers that deliver the product to the consumer.

F IG U R E 1 : KE Y P L AY ERS: TH E F OO D VA LU E CH A I N

INPUTS“Seeds, fertilizer, chem, equipment”

• Dow Chemical• DuPont• ChemChina• Syngenta• Bayer• Monsanto• John Deere

PRODUCERS“The farmer”

• Livestock production• Crop production• Horticultural science

PROCESSORS“The ABCDs of commodities”

• ADM• Bunge• Cargill• Dreyfus

BRANDS“CPG and distributors”

• Nestle• PepsiCo• Coca-Cola• Unilever• Danone• General Mills• Kellogg’s• Mars• Associated British Foods• Mondelez

RETAILERS“Supermarket chains”

• Wal-Mart• Costco• Kroger• Target• Albertsons• Publix• HEB• Whole Foods• Southeastern Grocers

“LEFT OF THE FARMER”

“RIGHT OF THE FARMER” “CONSUMER”

“BIG AG” GROCERY


For the purposes of clarity, we have placed food retail

products into four major categories: Repeat, Fresh,

Special and Frozen. Repeat refers to the packaged

center-aisle products that have historically been the

mainstay of the grocery industry because they are

typically bought on an ongoing basis. If the product

comes wrapped, in a box, or in a can, it probably falls into

this category. Fresh refers to perishable products such

as produce, meat, seafood, and prepared foods with

limited shelf life. These products require specialized

transportation and storage. Special products are those

not typically stocked in mainstream supermarkets.

These items include ethnic and locally sourced products

from non-national suppliers. Lastly, frozen products can

include any of the items listed above, in a frozen state.

Historically, within each category, there have been

different participants, regulations, supply chain and

logistics models, and consumer requirements. Today,

these categories and their members are all converging

in order to meet the current and projected shopping

patterns of the modern consumer.

Today, the food value chain for most products is

dominated by “Big Ag” companies: large global firms

that dominate each phase of the chain (Figure 1). For

instance, a wheat farmer (large or small) in Kansas

may grow his crop using inputs from DuPont and sell

it to Cargill, which then transports the grain to Kellogg,

which in turn processes these raw ingredients into

snack products that are sold to The Kroger Company,

which finally sells it to the consumer. The consumer can

buy the product in the store itself, click and collect at

the store, or have it delivered to his or her home.

It is important to note that each food category and

individual item within each category requires its own

distinct combination of the five components of the

food value chain. Big Ag companies, dominant in

three of the five categories, have historically operated

predominantly in the supply chain for Repeat goods,

as this was where the most money was to be made.

Fresh and Special products, which necessitate

specialized handling, are costlier to grow and produce,

require more complex supply chain management

models, and require more government oversight and

regulation, have historically seen less demand from

consumers. Consumer demand patterns, however, are

rapidly changing.

Stagnating demand for traditional grocery products has

led to huge consolidation in the realm of Big Ag, and as

a result, packaged foods are increasingly controlled by

a small number of global mega-companies. As demand

for mass-produced packaged foods continues to stall

or decline, these same companies will focus on the

fresh and specialty foods categories. This process

has already begun and is expected to continue into

the foreseeable future (Figure 5). Further, growth in

demand for fresh and special grocery products coupled

with improved capabilities for customized delivery has

resulted in substantial changes in the strategies of Big

Ag and big brand companies.

The real estate infrastructure of the food value

chain is in the process of a massive restructuring to

accommodate modern supply chain models. The

impact of this evolution has been felt mostly in the

industrial sector, where we believe industrial properties

will continue to move closer to population centers (see

Longpoint Review Spring 2018). Less obvious changes

are occurring in the grocery brick and mortar sector in

the form of new concept stores, smaller stores, more

urban locations, new entrants (e.g., Lidl), increased


mergers and acquisitions among retailers (e.g.,

Amazon/Whole Foods) and distributors (e.g., Unified/

SuperValu), growing home delivery options, click and

collect strategies, and growth of ethnic grocers. Thus, it

will come as no surprise that there are currently exciting

investment opportunities in almost every aspect of the

food value chain (Figure 2).

This paper examines the changing preferences of

today’s consumers and the evolving roles of the key

members in the food value chain, along with the

resulting impact on real estate markets.

F IG U R E 2: TR EN DS I N F OO D LOG IST IC S

Lifestyle Trends

Big AG Consolidation

Grocery Trends

New Grocery Store Formats

Supply-side

Trends

Demand-side

Trends

Supply Chain Restructuring

Consumer

Delivery Mechanisms

Brands & Retailers Go Vertical

Brick & Mortar

Home Delivery

Click & Collect

Urbanization

Demographic shifts

Emerging consumer technology

Consolidation of input producers

Consolidation of AG processors

Increasing competition

Declining margins

Source

Full Disclosure

Local

Organic

Ethnic

Fresh

Instant gratification

Easy returns

Low cost

Large selection

Consolidation of large brands (Kraft-Heinz)

Large brands acquiring smaller brands

Investments in fresh and specialty products

Amazon-Whole Foods merger

Costco, Walmart, Kroger vertical integration

United Natural Foods-Supervalu merger

Rise of small limited assortment chains (Aldi,

Trader Joe’s)

Rise of specialty grocer chains (fresh & ethnic)

Rising store counts

Smaller store sizes

More urban

H i s t o r y


W h e n Fa r m t o Ta b l e Wa s a S h o r t T r i p

In 1798, when English clergyman Thomas Malthus famously argued that

global population growth would ultimately outstrip the world’s food

supply, he could not have predicted the rise of mechanized agriculture,

advances in horticultural science, and the globalization of the world’s

food supply chain.3 Agriculture around the world has evolved from a

system of family farms and local agrarian economies to a system of

mass production and global distribution on a scale unimaginable to

Malthus and his contemporaries.

The U.S. offers an ideal case study for global changes

in the food supply chain. In colonial times, the

economy was almost entirely agricultural. At least 90%

of working Americans made part or all of their living

through farming.4 Most of the food people ate came

from their own farms, or from those of their neighbors.

The advent of the Industrial Revolution, however,

along with population growth and related public policy

initiatives, heralded an era of enormous change, and

led to the transition to a mechanized and consolidated

agricultural sector. Then, in 1862, the Homestead Act

allocated 270 million acres of free land to approximately

1.6 million people. Participants were granted ownership

of a parcel once they built a home and cultivated the

land, a policy initiative that bolstered the fortunes of

many impoverished farmers in the East and Midwest.

As the agricultural economy progressed, these smaller

farms increasingly merged into larger ones.5 At the

same time, a range of technological advances led to

greater crop yields and the logistical means to deliver

them to distant locations. The McCormick reaper,

steam and gasoline-powered tractors, hybridized

corn, and coast-to-coast refrigerated shipping were all

developments that linked the agricultural economies of

previously disparate markets.6

In the mid-1900s, advances in mechanical engineering,

horticultural science, and transportation technology

accelerated the growth of the national agricultural

economy. Between 1930 and 1960, the number of

tractors increased fivefold, while the number of farm

horses and mules declined by 87%. The size and efficacy

of “combine” harvesters – used to cut, thresh, and clean

grain simultaneously – bolstered crop yields.7 Meanwhile,

the use of chemical fertilizers and pesticides grew

dramatically.8 Then, in the 1960s, genetic modifications

and the cultivation of hybrid strains of corn, wheat, and

rice boosted crop yields even further.9


These mid-twentieth-century technological and

scientific developments led American farm productivity

and size to double between 1948 and 1998. Grain yield

per acre for corn, a mainstay in the U.S. agricultural

economy, increased by more than five times in the 80-

year period between 1936 and 2016 (see Figure TBD),11

and the average farm size increased from under 200

acres to over 400 acres. With larger farms producing

more efficiently, the total number of farms declined

from over five million to under three million, and the

share of the overall US population of farm laborers

declined from 41% in 1900 to 1.9% in 2000. 12

Thus, the current food industry is almost unrecognizable

from its earlier incarnations. Food that used to travel

directly from the field to the kitchen table may now

cross multiple state and country borders before landing

on the consumer’s table, leaving people with very little

knowledge of the origin of their food.

F IG U R E 3 : TH E CO R N Y I E LD “ H OCKE Y ST ICK” 10

U.S. Corn Grain Yield Trends Since 1866Data Source: USDA-NASS (as of Jan 2017)

0

20

40

60

80

100

120

140

160

180

200

1840 1860 1880 1900 1920 1940 1960 1980 2000 2020 2040

1956–2016

2016

1937–1955

1866–1936

Gra

in y

eild

(b

u/a

c)

1988

2012y = 1.8858x - 3635.8515

R2 = 0.9166

y = 0.76x - 1452.40R2 = 0.72

2016

1 0F O O D V A L U E C H A I N . F R O M s e e d s t o y o u

t h e m i g h t y f e w


P r o c e s s e d a n d Pa c k a g e d b y t h e M i g h t y F e w

Much of our traditional center aisle food today comes from “row crops”

– that is, crops that are planted in rows to accommodate mechanized

agriculture. In the increasingly consolidated food industry, Big Ag

dominates every phase of the food value chain for row crop agriculture.

Up until 2016, six supplier firms – Dow Chemical,

DuPont, ChemChina, Syngenta, Bayer, and Monsanto

– controlled more than 60% of the market for

agricultural inputs (seeds, pesticides, and herbicides).

Each of the six firms has since merged with another

company.13 Chemical Company and DuPont Pioneer

merged in 2017, with a deal size of roughly $62 billion,

and the combined company now carries out functions

ranging from materials science to agricultural

technologies.14 ChemChina acquired Swiss company

Syngenta in July 2017 for $43 billion,15 and Bayer

bought Monsanto in June 2018 for $66 billion, further

consolidating this segment of the market.16 Individual

farmers and farming companies now source most of

their inputs from one of these providers. For example,

90% of U.S. cotton seeds come from one of these

three mega-companies.17

Just as a few companies dominate row crop

agriculture, two types of crops dominate the US farm

production economy: corn and soybeans. In 2017, the

total value of production for corn was $48.5 billion,

while the total value of production for soybeans was

$41 billion. The next largest US crop is hay, at $16.2

billion.18 The outsized production share of corn and

soybeans reflects the geographic farming landscape,

with corn and soybeans accounting for 172.2 million

harvested acres, while staple crops like cotton,

sorghum, and rice accounting for a combined total of

only 18.8 million acres harvested annually.19 Thus, a

small number of crops are generating massive profits

for a small number of corporations at the input stage

of the food value chain.

The third stage of the food value chain is also marked

by a high degree of consolidation among companies

engaged in purchasing and processing. The “ABCDs”

of commodities – ADM, Burge, Cargill, and Dreyfus –

control more than 80% of the global grains market.20

As a result of the large market share occupied by

these firms, row crop farmers are subject to pricing

pressures from the mega-companies from which

they source their farming inputs, as well as from the

large firms to which they sell their farming outputs.

Consequently, the total number of farms in the United

States has declined year over year since 2007 and

farm net income has remained low, and there is little

sign of this trend abating.21

Once the food has been grown and harvested, it

is transferred to a distributor, which is typically a

major global consumer package goods (CPG) brand

(Figure 4). At this level of the value chain, there

are ten global companies that control nearly every

major food and beverage brand in the world: Nestlé,

PepsiCo, Coca-Cola, Unilever, Danone, General

Mills, Kellogg’s, Mars, Associated British Foods, and

Mondelez.22 McKinsey & Company notes that since

2011, CPG companies have witnessed declining year-

over-year growth rates, which are now in the low single

digits, as well as shareholder returns that have lagged

the S&P 500. McKinsey attributes this trend to new

distribution channels and buying preferences, as well

as disruptive new brands and retailers.23 As this arena

has become more competitive, firms have focused

on cutting operating costs and creating greater

efficiency through mergers and acquisitions. A study

by PwC covering 115 CPG deals each valued at over

$3 billion found that the average deal size had more

than tripled between 2014 and 2016.24 A significant

proportion of this increase can be attributed to the

trend of larger firms buying smaller brands in the

natural and ethnic foods category, such as Nestle’s

acquisition of Terrafertil, Atrium Innovations, and

Tribe Mediterranean Foods.


Beyond industry consolidation and new concept

brand acquisitions, some firms are vertically

integrating across multiple levels of the food value

chain. This is particularly true of Kraft Heinz tomato

products. The value chain process begins with

Heinz propriety seeds, which are supplied by the

HeinzSeed company.25 These seeds are incubated

in warehouses and subsequently planted on farms

located primarily in California’s Central Valley,

which supplies approximately 95% of the nation’s

processed tomato stock and one third of the entire

world’s processed tomatoes.26 After harvest, the

tomatoes are transferred to a partner food processing

company such as Morning Star, the world’s largest

tomato-processing organization, which has three

facilities in the Central Valley.27 After processing,

the refined tomato-based product is packaged and

transferred back to Kraft Heinz, which relies on a

network of 88 distribution centers nationwide to route

goods to the end buyer, which is typically a grocery

store location.28

Today’s food products come from an increasingly

vast and complex web of inputs, farmers, processors,

distributors, and supply chain logistics. However, at

every stage of the value chain, a few industry giants

dominate. Long gone are the days when people grew

and ate their own food or bought it from their neighbor.

Today’s food may have been grown in one state and

processed in another, with stops at multiple locations

before reaching its final destination, making it more

difficult for consumers to understand the source

of their food. However, in response to increased

pressure from consumers, the members of the food

value chain have begun making a more concerted

effort to provide greater transparency when it comes

to food source.

F IG U R E 4 : TH E G I A NTS W H O PRO DUCE YOU R F OO D


F r e s h a n d s p e c i a l


C h a l l e n g e s o f f r e s h a n d s p e c i a lWhile consumer demand for Repeat items drove the

growth of Big Ag during the 20th century, demand for

these row crops and center aisle products has been

stagnating in recent years. As consumer sentiment has

steadily shifted toward fresh, organic, locally sourced

food, American farmers have also begun to focus on

fresh and specialty products.29 Although Big Ag is

more economically efficient than smaller companies

and accounts for the majority of agricultural sector

revenue, brand companies selling Fresh and Special

products are on the rise. In addition, the growth and

success of “healthy” grocery chains such as Whole

Foods and Sprouts is due to locally sourced or

natural foods branding. In the period spanning 2016

to 2018, Sprouts opened 67 new retail stores, making

it one of the fastest growing grocery retailers in the

country.30 Further, ethnic grocers such as Presidente,

Cardenas Markets, El Rancho, and H Mart have

emerged as ethnic grocery specialists, driving Publix

and Winn Dixie to convert some existing stores into

Latin-themed banners, Publix Sabor and Fresco

Y Mas. Even traditional grocers such as Kroger,

Walmart, and Publix have been changing the internal

layouts of their stores to increase local and organic

offerings and provide a more expansive selection of

healthful produce.

Because of the immensity of the logistical challenges

involved in the delivery of Fresh and Special products,

key food industry firms have been consolidating

vertically across the supply chain to ensure quality

and quantity. In the grocery wholesale sector, for

example, Supervalu bought Unified Grocers for

$390 million in 2017, giving the national wholesale

chain access to 345 independent grocery stores

on the West Coast.31 In the poultry sector, Tyson

Foods integrated the entire supply chain – breeding

stock, egg hatcheries, farms, processing facilities,

and transportation infrastructure. In grocery retail,

The Kroger Company now operates seventeen dairy

plants, ten deli and bakery plants, two beverage

plants, two cheese plants, one meat plant, and a fleet

of vehicles that conduct 8,600 daily deliveries.32 33

Similarly, Costco is developing a poultry processing

facility in Nebraska that will supply the 90 million

chickens it sells per annum. In 2016, taking its cue

from competitors such as Kroger and Albertsons,

which operate 37 and 19 dairy manufacturing plants

respectively, Walmart decided to enter the dairy

business with the establishment of a 250,000 square

foot dairy plant in Indiana.34


As the trend towards consolidation and vertical

integration continues, new, increasingly complex

logistical infrastructure designed to deliver fresh

products is emerging. Fresh products require a

complex network of climate-controlled transportation

and storage infrastructure that reduces spoilage and

maintains quality. In addition, specialized warehousing

facilities for perishables must be located near the

consumer or grocery retail destination in order to

minimize transportation time and distance. Each

individual supplier must pass food safety checks and

inspections that are both rigorous and expensive.

The necessity of third-party intermediaries (there are

over 33,000 different food manufacturing companies

in the United States) 35 for handling the sorting and

distribution of local produce adds an additional layer

of complexity to procurement.36

In the meat supply chain, for example, cold storage

procedures begin in the slaughterhouse, where

carcasses must be cooled to under 7°C (4°C for

poultry) to avoid bacterial growth and extend shelf

life. A network of climate-controlled aircraft, vessels,

trucks, and warehouse facilities are aided by

compressors and ventilation and insulation systems

that maintain a safe cold storage environment for

meat in transit.37 The dairy supply chain is similarly

complex. The Cabot Creamery Co-operative in New

England transports milk in special stainless-steel

insulated trucks from over 1,000 family farms to four

refinement facilities (creameries). After processing,

finished milk, yogurt, cheese, and butter products

each require their own temperature settings for the

journey to their final destination.38

Produce requires similarly specialized logistical

infrastructure. For example, Stemlit Fruit harvests apples

from company-owned orchards in four districts of

Washington state between August and October every

year, and then packages and stores the fruit in controlled

atmosphere facilities. These highly specialized facilities

use nitrogen gas to reduce oxygen levels from 21%

to 2%, and maintain a strict climate of 32-36°F with 95%

humidity. While seafood products share some of the

same basic requirements, they pose their own particular

logistical challenges. Alvaro Carril of Chile-based LAN

Cargo, which transports seafood and produce from

South America to the US, notes, “Transporting salmon

is different than moving flowers, and both commodities

require special and differential treatment.”39

F IG U R E 5: B IG F OO D B R A N DS BU Y I N G O RGA N IC / N ATU R A L F OO D B R A N DS

TerrafertilAtriumInnovations


Special products that exist outside the main grocery

supply channels also depend on a specialized, often

local, supply chain. For example, the supermarket

chain Sprouts uses a decentralized procurement

system to source a variety of natural and organic

products. The Sprouts supply chain of 2,400 products

from over 850 vendors is primarily locally sourced,

meaning food comes from within a 500-mile radius

of the retail store.40 The chain accomplishes this

feat by using dedicated regional procurement teams

that have the flexibility to buy different products in

different locations based on availability.41

Similarly, ethnic food suppliers are building out their

global logistics infrastructure in response to growing

demand. The shopping preferences of the two

fastest growing demographic segments in the US,

Asian-Americans and Hispanics, have spurred the

rise of alternative grocery channels.42 For example,

Goya, the largest US-based manufacturer of Hispanic

food, offers over 2,500 products from the Caribbean,

Mexico, Spain, Central, and South America, and

operates 26 distribution facilities throughout the US,

Puerto Rico, the Dominican Republic, and Spain.43

Similarly, products sourced by Diaz Foods, another

ethnic wholesale distributor, reach thousands of

East Coast customers by travelling through one

40,000 square foot cold storage facility and one

60,000 square foot dry storage facility, both located

in Virginia.44 The company recently expanded its

distribution network by leasing a trucking fleet

through a partnership with Ryder, and will increase

its warehouse footprint in the near future. The

partnership enables Diaz Foods to incorporate the

most technologically advanced vehicles into its

supply chain without making the capital investment

of owning them, thereby maximizing efficiency and

minimizing costs while providing optimal delivery of

their products.45

Although the specific logistics requirements of

different Fresh and Special goods vary considerably,

common to all is an increasingly complex web of

management systems, transportation resources,

and industrial warehousing infrastructure needed

to deliver products to consumers. If, as expected,

demand for these products continues to grow, then

the need for logistics systems that can safely and

efficiently deliver them to consumers will also increase,

creating a considerable supply-demand imbalance in

the industrial and retail real estate sectors, and thus

considerable investment opportunities for Longpoint

Realty Partners.

r e a l e s tat e i m p l i c at i o n s


S u m m a r y a n d I m pa c t o n R e a l E s tat e M a r k e t s The rise of the Fresh and Special segments

necessitates the combination of infill logistics facilities

and locally-relevant grocery retail concepts that can

effectively and efficiently deliver these products

to today’s consumers. As urban brick and mortar

grocery retail stores grow in number and diversify by

concept type and size, logistics industrial facilities will

continue to be built nearer to population centers and

to service more varied food value chain participants.

In the past, the dominant grocery logistics model

employed by major supermarket chains was to

own and operate their own distribution facilities, an

approach intended to ensure product quality and

quantity.46 Then, in the late 20th century and early

2000s, most major grocery store chains built large

distribution centers one or more hours outside of

urban areas to serve stores within a broader region.

Many of these facilities are still directly owned and

managed by supermarket chains. For example, Publix

warehouse facilities in Florida today are on average

42 years old with 383,400 square feet of space, 25-

foot clearance height, and 54 dock-high doors.47

The increasing complexity of the food retail

landscape and consequent rise of specialty and

alternative format grocers has created a niche for

third-party logistical (“3PL”) solutions. Given that

investments in distribution real estate infrastructure

require major capital outlays with significant fixed

costs, it makes sense to aggregate the warehouse

operations for multiple smaller firms under a few

external providers.48 Larger supermarket chains such

as Walmart have also sought to manage expenses

by moving to outside logistics companies, which

can lower labor costs by 50%.49 Thus, over the past

twenty years, many grocery chains have shed their

supply chain real estate to 3PLs, which have expanded

their warehousing and logistics infrastructure.

For example, the Kroger Company has outsourced

over 6.7 million square feet of warehouse space

(one-third of its total capacity) over a ten-year period.

Other chains such as Ahold, Safeway, Trader Joe’s,

A&P, Pathmark, BI-LO, and Wawa have followed suit.50

Grocery 3PLs are now expanding at a rapid rate

to meet growing demand, driving competition

($ in billions)

$523$539$539

$549

$574$588

$600$612

400

450

500

550

600

650

700

Source: U.S. Census Bureau

2011 2012 2013 2014 2015 2016 2017

17% increase from 2011-2017

F IG U R E 6: U . S . G ROCERY I N DUSTRY G ROW TH

Source: Nielsen

2011 2012 2013 2014 2015 2016 2017

5,197

5,738

6,179

6,386

6,6166,778

7,047

4,500

5,0005,000

5,500

6,000

6,500

7,000

7,50035.6% increase from 2011-2017

T o ta l U . S . S u p e r m a r k e t S a l e sN u m b e r o f N at u r a l a n d

s p e c i a lt y S u p e r m a r k e t s


for urban industrial space. Large wholesale and

distribution companies such as C&S Wholesale

Grocers, Supervalu, SpartanNash, and Sysco, which

tend to cater to traditional branded CPG products,

have recently made significant investments in their

metropolitan warehouse infrastructure. C&S, the tenth

largest private company, now has over twenty facilities

in the Northeast alone, with most of them situated on

the outskirts of major cities such as Baltimore, New

York, Philadelphia, and Hartford.51 Sysco has over 120

U.S. warehouses, with multiple dedicated facilities

of varying sizes and locations for each major metro

area. For example, its South Florida footprint consists

of smaller handling facilities located near the airport,

a 657,000 square foot facility 15 miles Northwest of

Miami, and additional fresh-focused facilities in Fort

Lauderdale and West Palm Beach.52

Growing demand for Fresh and Special grocery

items and the related logistical complexities has

also bolstered the role of “specialty distributors” (the

USDA defines “specialty distributors” as providers

of “…frozen foods, dairy products, meat and meat

products, or fresh fruits and vegetables…[which]

operate in niche markets…”).53 These third-party firms

today account for 45% of total grocery wholesale

revenues.54 That said, many key retailers have

chosen to invest in their own infrastructure in order to

handle the logistics of fresh and unique products. For

example, Amazon has invested in three million square

feet of warehouse space to power its AmazonFresh

and Amazon Prime Pantry grocery delivery programs,

which is still only one-tenth of the warehouse space

that Wal-Mart uses for specialty food distribution.55

Today’s brick and mortar grocery landscape reflects

these investments in logistics infrastructure. Supply

chain optimization and expanded infill warehousing

facilities have enabled a proliferation of small-

format supermarkets. Chains such as Aldi, Lidl, and

Trader Joe’s – with average store sizes between

8,000 and 15,000 square feet – have flourished in


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urban environments where retail space is limited.

Aldi led the nation in the number of two-year net

store openings between 2016 and 2018, with 171

new locations.56 Larger retail chains such as Walmart

have also pioneered smaller brick and mortar brands,

such as Walmart Neighborhood Market, which are less

than half the size of a standard Walmart Supercenter.

These changes in grocery store formats have

caused the median store size in the U.S. to decline

by 12.2% since 2006.57 As these smaller stores 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. This trend was made possible

by the development of an urban food logistics

network nationwide.

Regardless of whether food is procured through brick

and mortar stores, curbside pickup, or home delivery,

real estate operators must work to understand the

evolving supply-chain landscape and adapt according

to the physical requirements of the food industry in

the 21st century.

1. “How Consumer Demand for Transparency is Shaping the Food Industry, The 2016 Label Insight Food Revolution Study, Label Insight. https://www.labelinsight.com/hubfs/Label_Insight-Food-Revolution-Study.pdf?hsCtaTracking=fc71fa82-7e0b-4b05-b2b4-de1ade992d33%7C95a8befc-d0cc-4b8b-8102-529d937eb427.

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3. “Thomas R. Malthus. “Classic Readings in Economics.” Middlebury College, History of Economic Thought, http://sites.middlebury.edu/econ0450f10/files/2010/08/malthus.pdf.

4. Malthus, T.R. Ibid.

5. “The Homestead Act.” History.com, https://www.history.com/this-day-in-history/the-homestead-act.

6. Spielmaker, D. M. “Growing a Nation Historical Timeline.” 21 March 2018. https://www.agclassroom.org/gan/timeline/farm_tech.htm.

7. “Agricultural Mechanization Timeline.” National Academy of Sciences, 2018. Greatest Engineering Achievements of the 20th Century, http://www.greatachievements.org/?id=3725.

8. Dimitri, Carolyn, Anne Effland, and Neilson Conklin. “The 20th Century Transformation of U.S. Agriculture and Farm Policy.” Economic Information Bulletin Number 3, United States Department of Agriculture, Economic Research Service/USDA,June 2005. https://www.ers.usda.gov/publications/pub-details/?pubid=44198. Page 6.

9. Arnold, Carrie. “The Past, Present and Future of Agriculture.” Smithsonian Digital Studio, 30 June 2016. Smithsonian.com, https://www.smithsonianmag.com/science-nature/video-past-present-and-future-agriculture-180959618/.

10. Nielsen, R.L. “Historical Corn Grain Yields for the U.S.” Purdue University, May 2017. https://www.agry.purdue.edu/ext/corn/news/timeless/yieldtrends.html.

11. Nielsen, R.L. Ibid.

12. Dimitri, Effland, and Conklin. Page 2.

13. King, Lindsay. “Five of the ‘Big 6’ agricultural corporations, including Monsanto, looking to merge.” The Fence Post, 25 April 2017. Summit Daily, https://www.summitdaily.com/news/five-of-the-big-6-agricultural-corporations-including-monsanto-looking-to-merge/.

14. “DowDuPont Fact Sheet.” DowDuPont, May 2018. http://www.dow-dupont.com/home/default.aspx.

15. “ChemChina Clinches Its $43 Billion Takeover of Syngenta.” Reuters, 5 May 2017. Fortune.com, http://fortune.com/2017/05/05/chemchina-syngenta-deal-acquisition/.

16. “Bayer Closes Monsanto Acquisition.” 7 July 2018. Monsanto.com, https://monsanto.com/news-releases/bayer-closes-monsanto-acquisition/.

17. MacDonald, James A. “Mergers and Competition in Seed and Agricultural Chemical Markets.” United States Department of Agriculture, Economic Research Service, 3 April 2017. https://www.ers.usda.gov/amber-waves/2017/april/mergers-and-competition-in-seed-and-agricultural-chemical-markets/.

18. “Crop Values: 2017 Summary.” United States Department of Agriculture, National Agricultural Statistics Service, February 2018. http://usda.mannlib.cornell.edu/usda/current/CropValuSu/CropValuSu-02-23-2018.pdf.

19. U.S.D.A. Ibid.

20. Putz, Adam. “The ABCDs and M&A: Putting 90% of the global grain supply in fewer hands.” 21 February 2018. Pitchbook.com, https://pitchbook.com/news/articles/the-abcds-and-ma-putting-90-of-the-global-food-supply-in-fewer-hands.

21. “Total number of farms in the United States from 2000 to 2017.” Statista, https://www.statista.com/statistics/196103/number-of-farms-in-the-us-since-2000/.

22. Taylor, Kate. “These 10 companies control everything you buy.” Business Insider, 28 September 2016. BusinessInsider.com, https://www.businessinsider.com/10-companies-control-the-food-industry-2016-9.

23. Henrich, Jan et al. “Agility@Scale: Solving the growth challenge in consumer packaged goods.” https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/agility-at-scale-solving-the-growth-challenge-in-consumer-packaged-goods.

24. Neely, J, Derek Townsend, and Dominic Ricketts. “Megadeals in Consumer Packaged Goods.” 15 February 2017. Strategy+Business, https://www.strategy-business.com/article/Megadeals-in-Consumer-Packaged-Goods?gko=d7e96

25. “57 Varieties.” Tomato Heinz Seed. http://www.heinzseed.com/new/hs_about.html.

26. Daniels, Jeff. “California’s tomato business is rotten — and farmers are seeing red.” CNBC, 28 July 2016. https://www.cnbc.com/2016/07/28/californias-tomato-business-is-rotten--and-farmers-are-seeing-red.html.

27. “2017 Tomato Paste and Processed Tomato Statistics.” The Morning Star Packing Company, 2017. http://morningstarco.com/statdocs/2016%20Exhibits%20Brochure.pdf.

28. Trebilcock, Bob. “Keeping it nimble at Kraft Heinz.” Logistics Management, 28 February 2018. https://www.logisticsmgmt.com/article/keeping_it_nimble_at_kraft_heinz.

29. Angelini, Herter, and Stipanov. “All Retail is not Created Equal.” Longpoint Realty Partners Review, Spring 2017.

30. “2018 Directory of Supermarket, Grocery & Convenience Store Chains.” Chain Store Guide, March 2018. http://www.chainstoreguide.com/csgonline/industryinformation/supermarket.pdf.

31. Springer, Jon. “Supervalu completes Unified deal.” Supermarket News, 26 Jun 2017. https://www.supermarketnews.com/retail-financial/supervalu-completes-unified-deal.

32. 2016 Kroger Fact Book. The Kroger Company. http://ir.kroger.com/Cache/1500100492.PDF?O=PDF&T=&Y=&D=&FID=1500100492&iid=4004136.

33. Wells, Jeff. “Kroger launches online portal for local product suppliers.” Food Dive, 25 September 2017. https://www.fooddive.com/news/kroger-launches-online-portal-for-local-product-suppliers/505721/.

34. Samuel, Steward. “Why Walmart’s getting verticaly integrated.” IGD, RetailAnalysis, 28 March 2016. https://retailanalysis.igd.com/news/news-article/t/why-walmarts-getting-vertically-integrated/i/11036.

35. “Industries at a Glance: Food Manufacturing.” Bureau of Labor Statistics, United States Department of Labor. https://www.bls.gov/iag/tgs/iag311.htm.

R e f e r E n c e N o t e s

36. Wells, Jeff. “Growing pains: Why supermarkets are struggling to source local products.” Food Dive, 6 April 2017. https://www.fooddive.com/news/grocery--grocery-source-local-vegetables-fruit-produce/440670/.

37. Jeff, W. Ibid. Page 5.

38. “Say cheese: Journey from farm to fridge.” Casale, Lucy M. The Boston Globe, 8 August 2017. BostonGlobe.com, http://sponsored.bostonglobe.com/vermont-tourism/say-cheese/.

39. Terry, Lisa. “Perishable Logistics: Cold Chain on a Plane.” Inbound Logistics, 20 January 2014. https://www.inboundlogistics.com/cms/article/perishable-logistics-cold-chain-on-a-plane/.

40. Sprouts Farmers Market. Form 10-K, United States Securities and Exchange Commission, 31 December 2017. http://investors.sprouts.com/Cache/392296783.pdf.

41. Sprouts Farmers Market. Ibid.

42. “Fresh Foods and Flavors: How Multicultural Consumers are Driving Fresh Grocery Trends.” Nielson.com, 4 November 2016. http://www.nielsen.com/us/en/insights/news/2016/fresh-foods-and-flavors-how-multicultural-consumers-are-driving-fresh-grocery-trends.html.

43. “History: Our Story.” Goya Foods. https://www.goya.com/en/our-company/history.

44. “Diaz Foods opens state-of-the-art distribution center in Virginia.” The Produce News, 6 April 2015. http://www.theproducenews.com/9-news-section/story-cat/15532-diaz-foods-opens-state-of-the-art-distribution-center-in-virginia.

45. “Diaz Foods and Ryder.” Ryder System Inc, Case Study, 2015. https://ryder.com/-/media/ryder/ryder-global/expertise/case-study_diaz-foods.pdf.

46. “Infrastructure of Retail Food Distribution Network Within North America.” Wholesale Grocer’s Directory, 18 February 2017. https://wholesalegrocersdirectory.com/infrastructure-retail-food-distribution-network-within-north-america/.

47. CoStar. Accessed 15 November 2018. http://product.costar.com/home/.

48. “The Grocery Distribution Network in North America.” MWPVL International, Inc. http://www.mwpvl.com/html/grocery_distribution_network.html.

49. “Are Grocery Retailers Increasingly Outsourcing Distribution Operations to 3PLs?” MWPVL International, Inc. http://www.mwpvl.com/html/retail_3pl_outsourcing.html.

50. MWPVL International. Ibid.

51. “C&S Locations, Northeast/Mid-Atlantic.” C&S Wholesale Grocers. http://www.cswg.com/locations-northeastmid-atlantic.

52. “Our Locations.” Sysco. https://www.sysco.com/Contact/Contact/Our-Locations.html.

53. “Wholesaling.” United States Department of Agriculture, Economic Research Service, 10 October 2017. https://www.ers.usda.gov/topics/food-markets-prices/retailing-wholesaling/wholesaling/

54. U.S.D.A. Ibid.

55. Dastin, Jeffrey. “Even with Whole Foods, Amazon would need many more warehouses to reshape grocery delivery.” Reuters, 23 June 2017. https://www.reuters.com/article/us-whole-foods-m-a-amazon-com-logistics/even-with-whole-foods-amazon-would-need-many-more-warehouses-to-reshape-grocery-delivery-idUSKBN19E2OK.

56. “2018 Directory of Supermarket, Grocery & Convenience Store Chains.” Chain Store Guide, 2018. http://www.chainstoreguide.com/csgonline/industryinformation/supermarket.pdf.

57. “Median Store Size: Square Feet.” Food Marketing Institute. https://www.fmi.org/our-research/supermarket-facts/median-total-store-size-square-feet.