The Future of U.S. Food Distribution

by

ERP Analyst, Software Advice

According to a 2010 article in The New York Times, Americans consume 31 percent more processed foods than citizens of other nations. One reason for this is our food distribution networks. Our average food item travels roughly 5,000 miles before it’s consumed. Because of this, our foods are prepared and packaged to be shipped long distances.

Current trends suggest that the status quo of long-distance food distribution may be primed for disruption. Increased consumer demand for locally-grown organic foods, coupled with a renewed interest in living in urban cores and rising gas prices, collectively suggest that U.S. food distribution networks will soon need to evolve to support these and other shifting lifestyle and economic trends.

For a glimpse of what our future food distribution chain might look like, we need only look to where these trends have already advanced a few steps ahead of us: Europe.

American Consumers Are Demanding Fresher Foods

One of the chief drivers behind the potential reshaping of our food distribution networks is changing consumer preferences. The last several years has seen an uptick in demand for fresh, organic food. The growth of the U.S. organics industry is informative: since 1990, the U.S. organics market has exploded in revenue from $1 billion to $26.7 billion. This impressive growth is echoed by the earnings of Whole Foods Market, which grew its gross profit by 35 percent between 2007 and 2011, in a down economy.

Taken together, these stats signal that food distributors would be wise to move toward a system that better supports producers of organic, natural foods. European distributors have catered to this segment by supporting local farmers and farmers’ markets, and with legislative actions such as banning genetically-modified foods that are common in America. The growth in urban farms and farmers’ markets in the U.S. may be just the impetus that food distributors here need to move in the same direction.

Urban Centers Are Becoming More Important Food Hubs

The increased demand for local food is complemented by the growing importance of urban cores to food networks. As some Americans move back to city centers, there is greater need for European-style grocers that make lower-volume, higher-frequency sales. Considering that the typical U.S. supermarket is 35,000 square feet–twice the size of an average European supermarket–space limitations require a significant reduction in grocer size and carrying capacity. These stores also need a distribution network that is regionally located and can make frequent replenishment drop-offs like their European equivalents.

While this would be a major disruption to the centralized way the U.S. distributes food, the expansion of urban agriculture holds promise for supporting this change. The USDA recently found that roughly 15 percent of the world’s food is now grown in urban areas such as vacant lots and rooftop gardens. While it’s unclear just how many urban farms there are in America, it appears to be a growing movement, with urban farms spanning from Birmingham, Alabama to Detroit, Michigan. The expansion of urban farms could help us create a food network that relies less on large agri-business and more on smaller, owner-operated farms like the ones that thrive in Europe.

Another encouraging sign for shifting to a regional form of food distribution, albeit on a smaller scale, is the proliferation of farmers’ markets. Since the USDA started tracking these markets in 1994, they’ve expanded in number from 1,755 to 7,175–a 308 percent increase. The proliferation of these markets suggests that there is already a community that's ready and willing to endorse a regional approach to distribution.

High Gas Prices Require Regional Distribution

There’s one additional factor at play that would help spur a more European style of distribution: rising fuel prices. Comparatively high gas prices have been a reality in Europe for a long time. As a result, European food distributors have tended to locate their distribution centers closer to the delivery point to reduce transport costs. The opposite has happened here. Decades of relatively cheap oil has created a food distribution network that relies heavily on centralization, which makes it cost-effective to ship high-volume loads.

The case for centralized distribution centers may soon change, however, due to the “new normal” of higher fuel prices. In April of 2011, Fatih Birol, Chief Economist at the International Energy Agency, predicted that oil prices are likely to rise more than 30 percent in the next three years. If that happens, distribution networks may be forced adopt the regional approach that dominates in European food distribution even if all other trends are ignored.

I believe that if you extrapolate the current trends I’ve noted we’ll ultimately have a food distribution network that is comparable to Europe. What are your thoughts on the direction of U.S. food distribution? Where do you think that our food distribution networks are heading? Please leave your thoughts in a comment below.

A special thanks to Frank Dell, President of Dellmart & Company, for providing his insights for this article. Thumbnail image created by NatalieMaynor.

 
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