The frozen food market is constantly changing in order to adapt to the needs and shopping behavior of the consumers, who are more and more conscious about their food, are much more interested in online shopping and e-commerce, as well as in sustainable, locally sourced and free-from groceries. How does this impact logistics operators and cold storage providers?
Following a period of economic uncertainty, which has affected all players on the frozen food market, including cold storage and logistics providers, the market is slowly picking up speed again, according to some of the players active on this segment, with plenty of growth potential in both the Western and Eastern European markets. “A trend we see is that companies integrate more and more services in their portfolio as third party logistics providers. They offer complete solutions for their clients and therefore cover a bigger segment within the temperature controlled logistics supply chain. We also notice more cooperation between companies as well as the creation of European and international networks, to be able to offer solutions for both frozen and fresh,” says Christine Weiker, Secretary General of the European Cold Storage and Logistics Association (ECSLA).
The association is actively monitoring and analyzing European legislative initiatives with the potential to have an impact on the industry. The focus here is on energy, energy efficiency, sustainability, food safety (as a member of the European Commission’s Advisory Group on the food chain), import & export related issues as well as transport & logistics (as a founding member of the European Logistics Platform). ECSLA’s role is to act as an early warning system for its members with the motto: No surprises! As the meeting place for the European temperature controlled logistics industry, ECSLA also organizes two top-level international conferences every year. These meetings offer industry representatives a place to meet, share experience and best practices as well as learn about the latest innovations and network with colleagues in a relaxed atmosphere.
Although commendable and encouraging, cooperation among companies is still at an early stage and there is a tangible need felt for sustainable partnerships and cooperative efforts, according to Eelco Schnabel, commercial director at Partner Logistics: “The past five years have been about surviving under changing customer conditions, with the focus on short-term cash rather than sustainable partnerships. However, the market is now developing positively again and customers we speak to have ambitions for growth. The frozen market is quite scattered across Europe, with typically each country being dominated by one or two big players and a number of smaller players. While the infrastructure in Western Europe is well developed and Eastern Europe less so (although now improving), most players still have a ‘provider’ focus rather than being truly customer focused, but the market is now strengthening again, with a growing emphasis on full supply chain solutions and customer care in a more customer-driven market”, says Schnabel.
Unified services
The recent spotlight cast on the temperature-controlled supply chain and its effectiveness goes to show that it is now more important than ever that all components of this segment work together to maintain set temperatures and in turn, the quality of products. Partner Logistics is a leading company in Europe for the provision of state-of-the-art highly automated warehousing, primarily for frozen foods, currently operating six large-scale deep freeze warehouses – two in the UK, three in the Netherlands (of which one is Europe’s largest) and one in Belgium.
The integrated logistics service provider designs, builds and operates cold storage facilities to meet the specific requirements of its clients such as Birds Eye, Lamb Weston, Pinguin and other leading names in the frozen food industry. Overseeing more than five million pallet movements each year, Partner Logistics fully understand the importance of effective monitoring and maintaining of a low temperature environment in which to store a variety of food products. “The top three market challenges for Partner Logistics currently are price pressures; capacity and the need to offer a total solution. In addressing these, we are talking with customers about focusing on the full supply chain picture and total cost of ownership rather than unit prices, more collaborative working to offer an end-to-end solution as well as overcome capacity issues and be able to offer a European network, and developing new customer-centric services and innovations that respond to market trends and customer needs,” says Schnabel.
In order to control the quality of the products from end-to-end, a rigorous set of systems and procedures are implemented to ensure core warehouse temperatures are kept within strict tolerances at all times, typically operating at -27°C. Partner Logistics also works with hauliers, so that temperature data during transportation to the warehouse is always made available to check that product quality has been maintained, whilst also providing this information to its customers. Following transportation, inside the warehouses, all loading and unloading areas are fully enclosed, in order to maintain a consistent temperature and ensure that the product is always kept in optimum condition. This environment is maintained throughout the expanse of the warehouse, as the product makes its way through a fully automated system, until it reaches its final storage location.
With constant online access to temperature information and automatic alarms direct to engineers and management should there be any anomalies, through the fully integrated and monitored system, products are guaranteed to always leave the warehouse in perfect condition. “Partner Logistics puts innovation at the heart of the business. In the last year alone we have been working on a wide range of developments, all aimed at delivering a better solution for our customers. Examples include consolidated, double stack and over-height pallet transport solutions to optimize vehicle fill and minimize empty kilometers; developments in warehouse automation to simplify and improve flexibility in our operations; improved recall procedures to provide enhanced food safety; and the introduction of LED lighting across our sites to reduce energy consumption”, says the commercial director.
This investment in the latest automation, which controls warehouse temperatures and provides customers with accurate product temperature data, ensures that Partner Logistics is playing its part in improving the quality control and efficiency of the frozen food supply chain.”2013 was a stable year for us in terms of volume. This year we see volumes picking up and a market that is ready to develop with new customers looking for more innovative and customer-focused solutions. We are very positive about our longer term ambitions,” adds Schnabel.
The Eastern European perspective
According to the latest data, only 30% of cold chain logistics in Southern and Eastern Europe is outsourced, which translates into a positive trend and growth in outsourcing in the years to come. Hampered by the economic downturn, however, logistics providers in the East have not been able to expand at the desired pace and are now focusing on building warehousing and transport infrastructure so as to offer not only transport or warehousing, but the full integrated logistics solution.
Such is the case for Ralu Logistics in Croatia, for example, a startup company founded in 2009, which first entered the temperature controlled transport market a year later, in Europe and Russia. Ralu Logistics currently operates in Croatia, Serbia, Slovenia and Hungary with 150 modern reefer trucks and has had double digit growth in transport revenues. In 2012, the company started to build its own cold store warehousing infrastructure, which will be fully operational in 2015, in order to meet the demand for cold chain logistics operations in the Eastern European region.
“Ralu Logistics’ vision is to be the leading third party cold chain logistics provider in the south – east Europe region. Therefore, we closely follow up the business development of frozen and chilled food manufacturers and retailers that operate in this part of the continent. Fresh and deep frozen production continues to increase to meet worldwide demand, and technology has created a wider range of usage for those kinds of products and the ability to transport products throughout Europe. Logistics costs account for a significant share of the total costs of the company, in manufacturing and retail. Companies are forced to find a more efficient solution for their logistics operations taking into account not only the cost but also quality of service. Big retailers are creating their own logistics, asking manufacturers to deliver to their centralized storages,” says Martina Martinovic, logistics director of the company.
Last year, Ralu Logistics experienced double-digit growth in revenues, while in the first half of 2014 recording revenue and EBITDA growth as well. The company continues its investment program, both in a new cold store warehouse and distribution capacity (small trucks for POS delivery) and in a new logistics center, with the cold store warehouse in Zagreb, which will be operational next year. Ralu Logistics also follows and operates according to the highest standards in food industry: it implemented the technology which enables them to deliver the service at the highest quality level – WMS in warehouse operations, EDI connection with their customers, a GPS system for vehicle tracking and temperature control, fleet management etc. Moreover, relating to innovations, the new cold store warehouse will benefit by a brand new “Pick by Voice” technology in terms of commissioning.
“With Croatia’s EU membership in July 1 2013, retailers and manufacturers are reshuffling their business strategies in the region. Retailers are giving up on cooperation with local distributers and are starting to integrate local procurement to their respective European network. As a consequence, they are looking for pure logistics providers who can offer integrated logistics solutions – transport, cold store warehousing, commissioning and distribution to the POS level. Manufacturers are faced with a fear of competition from the EU and must restructure their operations to increase competitiveness. One of the first steps is to outsource transport and distribution,” says Martinovic.
Challenging yet positive market outlook
Recent market data shows that on a European level, frozen food consumption continues to grow. In the UK, for instance, the frozen food market has grown in value by 2.5%, to almost GBP5.8bn, according to the latest report from Kantar Worldpanel, which analyses the 52 weeks ending June 22, 2014. Similarly, in seven of the major Western European economies, the category was valued at EUR68.72bn in 2013 and is expected to grow double digit, by 10.94 percent by 2016, according to the latest report by Swiss research company Food for Thought. Germany is by far the leader in terms of market value, with 28.1 percent, followed by France (19.7 percent) and the UK (19.2 percent). And although at lower levels, there is growth recorded in Eastern Europe as well. All this shows important growth potential for logistics and cold storage operators also.
“I see the market gradually evolving in three key ways: moving from local to Europe-wide service provision, a changing focus from provider to customer needs, and the creation of more network-focused solutions rather than individual solutions,” says Partner Logistics’ commercial director.
On the other hand, the recently introduced sanctions on Russia from the European Union and the country’s retaliatory measures and bans on agricultural imports (frozen and chilled food included) from the EU have yet to be analyzed and their impact accounted for and may prove to have some negative influence. However, most key players involved in this field agree that the market will continue to develop positively.
“There are other issues as well, such as the new Regulation on Fluorinated Greenhouse Gases or F-Gases, or the challenge of attracting work force and retaining them (for which companies have internal programs, organize Masters’ classes and cooperate with universities via their federations), but overall our sector of temperature controlled logistics is growing and we believe that it will also continue to grow in the future,” concludes Christine Weiker.