Societal changes in Korea driving cold chain demand

By Simon Baek

In Korea these days, as the younger generation delays getting married, single households are increasing. According to Statistics Korea, the number of single-person households last year increased by 3.3 percent to 5.61 million. This phenomenon coupled with a rising number of two-person households is driving strong growth in the fresh food e-commerce market.

As members of such households look forward to having high-quality ingredients in smaller portions or ready-made meals delivered to their front door before or after work, e-commerce retailers, or “e-tailers,” have begun to take notice of the fresh food sector. Mobile technology also plays a prominent role as millennials, working moms and housewives are becoming avid mobile shoppers of fresh food after being attracted by the convenience of delivery and the variety of unique products that cannot be easily found at offline stores.

Amidst rapidly growing e-commerce, a global shopping phenomenon, this demographic shift and social change is dictating how businesses satisfy their customers today. More sophisticated supply chains and modernized logistics centers with large storage spaces have become prerequisites for e-tailers and third-party logistics (3PL) players who are responsible for delivering ordered goods to customers. With the recent growth of fresh food being purchased via internet and mobile, moving perishable items that require a state-of-the-art temperature-controlled supply chain, or “cold chain,” has become the hot topic in logistics.

To meet the requirements of individual consumers who are becoming more impatient and difficult to satisfy with delivery services, e-tailers selling fresh food have the difficult task of securing cold warehouses in strategic locations that are equipped for distribution. With the majority of cold storage facilities constructed for self-usage among 3PL players who specialize in cold chain, most existing assets are more suitable for storage and consignment than distribution. In Korea, the logistics market currently lacks the cold warehouse capacity to satisfy the needs of fresh food e-tailers, thus creating demand among a major would-be tenant group in the cold logistics market.

At present, the market supply of leasable cold warehouse space is at a nascent stage, similar to leasable dry warehouses a decade ago. With that said, approximately 1,750,000 square meters of new Grade A logistics space is scheduled to be completed in 2018, a figure three times that of 2017 and the largest annual total ever recorded, according to CBRE research. Because of this growth, the cold warehouse market is expected to face increased leasing and investment activities due to a clear rise in demand.

In the end, consumer demand is driving the recent rapid expansion of the fresh food delivery market. With e-commerce players diversifying the selection of goods they offer consumers, their demand for logistics space is prompting the development of new facilities and redevelopment of older warehouses into modern cold chain logistic stock.

Simon Baek (simon.baek@cbrekorea.com) is executive director, Industrial & Logistics, at CBRE Korea, the world's largest commercial real estate services and investment firm.