Sunday Strategist: Fancy Ice Cream and the Stone-Cold Supply Chain

(Bloomberg Businessweek) -- Wall Street finally figured out its ice cream order. It was only a matter of time.

Private equity funds and institutional investors have cornered a huge chunk of America’s $6 billion cold-storage market, according to this fascinating deep-dive from Prashant Gopal. It’s an early, esoteric bet on the growth of grocery delivery and it’s sure to age well.

Not surprisingly, the new owners have tuned these chilly warehouses up, improving product flow and dangling bigger discounts for the larger, less volatile customers that dominate the center of the grocery store. Smaller, scrappier food startups have been asked to pay more or squeezed out entirely.

Growth, while great, is tricky to plan for. And building a cold storage facility costs three times as much as a traditional food warehouse, so the supply/demand relationship in the cold storage market is about as liquid as the Breyers inside.

This is all sound business blocking and tackling for the new wave of warehouse owners. It’s also, however, pretty squarely at odds with how people, increasingly, are eating these days—a concerted bent toward fresher, local, small-batch brands. The three-month old Klondike bar is out; the days-old pint of Coolhaus “Cereal Dreams” is in. There’s even a corner of the venture-capital world focused on finding the next KIND bar or Annie’s Mac & Cheese.

When it comes to frozen food, the product is outrunning the supply chain, which is odd. Typically, these days, that equation is reversed. You can get a mattress within hours now from any one of a dozen companies, primarily because a bunch of twentysomethings figured out how to squeeze one into a box and source a delivery network. Likewise, Instagram chock-a-block with months-old apparel brands, because starting a swimsuit company these days is as easy as calling an Asian factory and lining up a drop-ship service.

Meanwhile, Jeni’s, a small-batch ice-cream darling, has been left to cobble together a supply chain with its own freezers. Ice cream innovation is all around us, but few are disrupting the freezers.

Chill, though—the invisible hand is at work. At least one company, Idaho-based Cold Summit Development, is starting to design more flexible cold storage with startup brands in mind. Others are sure to follow. And if grocery delivery grows nearly as much as estimated, those retailers will no doubt help source space for the smaller, faster-growing fare, lest they cede those sales to Amazon.com. 

Eventually, there will be plenty of cool homes of the Coolhaus crowd. In the meantime, being small just got a bit more expensive.

Businessweek and Beyond

• Amazon’s 7-Eleven strategy
• Inelasticity of demand is the stranger Netflix thing
• It’s probably too late for your podcast
• Counter-programming Prime Day might not be the best idea
• NASA, desperate for dollars, turns to virtual reality

To contact the editor responsible for this story: Silvia Killingsworth at skillingswo2@bloomberg.net

©2019 Bloomberg L.P.