Amazon’s recent purchase of Whole Foods Market gives the e-commerce giant a foothold in the grocery business, one of the few retail sectors that the online giant doesn’t yet dominate. But gaining control of 431 Whole Foods’ stores across the country serves another important function, it helps the company resolve the ‘last-mile’ challenge of delivering fresh food to its customers.
The last-mile is an important one, of course. It’s that last bit of delivery space between a retailer and its customer base. The last-mile challenge has long been a tough one for the delivery of fresh food. Vegetables, meats and fruit must be delivered as quickly as possible.
By nabbing Whole Foods, Amazon can use these locations as important cogs in last-mile delivery. Customers can order their fresh food online, and then Amazon can send the groceries quickly from one of its newly bought Whole Foods grocery stores.
The Amazon buy impacts every Midwest state that has a Whole Foods store. Missouri is a good example: The state has three Whole Foods locations in the Kansas City area and three in the St. Louis region.
“E-commerce is pushing so much of the demand for industrial activity in our market today,” said Joe Hill, senior vice president with the St. Louis office of Colliers International. “The activity we are seeing, though, is not so much on the manufacturing side, but on the distribution side. It is mostly involving distribution centers.”
And like in most major cities, companies operating in the St. Louis region are, like Amazon, looking for solutions to the last-mile delivery challenge, Hill said.
“The last-mile situation is creating new demand for distribution space located close to urban areas,” Hill said. “Users need to be close to the population centers. And these spaces aren’t the huge half-million to million-square-foot regional centers that we used to see. They are more in the 100,000-square-foot to 250,000-square-foot range instead. Last-mile delivery is changing the dynamic a bit. As others retailers continue to challenge Amazon like Walmart is attempting to do, we’ll only see this trend continue.”
Traditionally, industrial users have operated on the outskirts of cities. But Kris Bjorsen, international director for JLL, says that this will change in the future. In other countries, there are plenty of examples of urban industrial facilities, warehouses and distribution centers located in the center of cities.
That trend hasn’t hit the United States yet, but it will, Bjorsen said.
“Urban logistics hasn’t come to the United States yet, but we need to be preparing for it,” Bjorsen said. “We have a lot of congested cities here that are hard for freight distributors to reach. These places would benefit from better urban logistics planning.”
Many big companies are getting creative when it comes to this last-mile, urban logistics. Jim Della Valle, senior director for supply chain transformation and outbound transportation for CVS Pharmacy, said that CVS has identified several individual stores in its network that can act as distribution centers. CVS stocks extra product in these stores – most located near dense, urban areas – and then ships them as needed. It’s a way for CVS to avoid having to open even more large-scale distribution centers across the country.
James Breeze, national director of industrial research for the United States with Colliers International, said that more companies are getting creative, like CVS, to solve the last-mile challenge.
“How to handle last-mile delivery is probably one of the top questions that companies face today,” Breeze said. “That is top of mind today.”
Companies are stretching for last-mile delivery solutions so that they can get their products to users as quickly as possible, of course. But Breeze says that there’s another reason why last-mile delivery is so important: It saves companies money.
Companies can significantly reduce their transportation costs and their trucking costs if they are located closer to their customers.
“If they can shorten the distance to the end consumer, that will be a significant savings,” Breeze said.
Challenges abound, though. Because last-mile distribution centers are located in denser, more populated areas, it’s more difficult for trucks to get around. There’s also fewer options when it comes to distribution space the closer companies get to the center of densely populated areas.
“When you are looking at an urban warehouse, you don’t want to be in the core center of a city,” Breeze said. “You want to avoid some of that congestion. The most successful of the urban industrial facilities are located just outside of the downtown areas, where there is less of a traffic constraint.”
Finding labor for urban industrial centers can be a challenge, too, Breeze said. The labor force living in or near an urban area generally needs higher wages because rents and housing prices in these areas are higher. This means that companies opening distribution centers in these areas often have to pay higher salaries to attract enough employees to staff their centers.
“Finding labor for warehouses in urban areas has been a challenge for a lot of occupiers,” Breeze said.
Finally, rents tend to be higher in urban areas, Breeze said. The hope, though, is that end users can save enough on transportation costs to make the higher rents acceptable, he said.