Whole Foods, Amazon: What’s Ahead for Grocery Delivery

Whole Foods, Amazon: What’s Ahead for Grocery Delivery

Sept. 2017

Food Oases: Amazon’s move into grocery delivery and the impact on consumers, industrial real estate

Fresh produce and other high quality items may be available for grocery delivery for many of the 23.5 million Americans living in food desserts—but they’re not necessarily coming as grocery stores.  A recent Bisnow article highlighted how online grocery delivery services are helping bring fresh and healthy foods to those living without access to major supermarkets.

Pexels Food image

Grocery delivery is a hot items for Amazon, given its purchase of Whole Foods. Image courtesy of Pexel.

Barriers to entry

While online food orders only account for about 2-4 percent of grocery shopping, there’s high potential for grocer  growth without building or renting a lot of additional real estate.  But there are also challenges:

  • Cost of renting or owning cooler or freezer space is high- $150-$170/sf
  • Food deserts are often in low-income areas where people don’t spend money on high-quality foods
  • Distribution centers must be within an hour of customers, a potential challenge on the industrial real estate side

New stores and distribution centers offering online ordering

Some companies are skirting these issues by using their existing stores as extensions of cold storage facilities. Amazon’s recent acquisition of Whole Foods, as well as its purchase or rental of several new cold storage facilities in major cities like Chicago, Dallas and New York, have allowed the company to expand its Amazon Fresh network to a greater base.

More choices doesn’t mean people will choose healthily

Because many food deserts are in low-income areas, online grocery retailers may be entitled to funding similar to tax incentives for affordable housing when they educate the public on a healthy diet. That may be an incentive for the retailers, but it won’t necessarily entice customers to make the right choices when they buy foods. In one case in the Bronx, the city of New York paid 40% of the construction costs for a supermarket to be built in a food desert, but customers still chose less expensive processed food options.

Stay tuned for more on how this grocery delivery trend impacts consumers — as well as industrial real estate professionals.

 

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