Feeding London: keeping food & drink moving in the capital

The logistics machine that feeds London is running hot. Operators that fail to reinvent food and drink supply chains in the coming years may find the mounting costs and complexities of shifting groceries across the capital will spiral out of control and leave them unable to compete.

London’s rising population, set to grow from 8.5 million to 10 million people in the next 15 years, is one source of pressure. A growing expectation of greater convenience, online deliveries and food to go from Londoners, which shows no signs of abating, is another.

And as if all that weren’t enough to contend with, worsening congestion and the imperative to fix Greater London’s deadly air pollution problem are challenges no business moving goods around the capital can ignore. Already London’s arteries are clogging up. Average traffic speeds are expected to fall from 8.4mph to 6mph or below in peak hours by 2030, according to analysis by Professor David Begg for sustainable transport organisation Greener Journeys, and this is already driving boroughs, as well as the Mayor’s office and the GLA, to consider how to restrict or minimise goods vehicle deliveries. From 2021 large artics will no longer be able to supply Oxford Street, for example.

“London population growth is a ticking time bomb, along with the congestion challenge and issues around air quality,” says Natalie Chapman, the Freight Transport Association’s head of policy for London. “We have to do something about all of this.”

Particularly given the backdrop of consumers demanding increasingly fast, efficient last mile fulfilment of their groceries. Already the rise of services such as Amazon Fresh and Deliveroo (which is set to boost its network of London kitchens to 79 in the coming months) are indicators of a troubling macro trend for traditional logistics operators.

According to an Institute of Grocery Distribution (IGD) survey, 60% of UK shoppers expect they will be getting groceries ordered online delivered to their door by 2022. The UK online grocery market will grow by 53.8% and the convenience market by 17.7% from 2017 to 2022, says the IGD, while the food to go sector growth will compound annually by 6.2%.

“The drive to be closer to the customer and to serve them more frequently is likely to further add to congestion as delivery vehicles may travel less full,” says Alistair Balderson, the IGD’s head of supply chain.

Any solution to these rising costs and complexities will therefore need to involve a radical combination of new space at scale, automation and other technological solutions, as well as collaborative approaches between food and drink operators.

Currently the abilities of the sector to adapt are limited by a dearth of industrial space. Overall demand for additional urban logistics space is expected to grow by 1.2 million sq m by 2021 in London and is already at a premium. Industrial rents are set to outpace other ­commercial space in London, averaging 6.1% annually over the next four years, according to JLL.

Food operators must also compete with other occupiers with less exacting demands for new facilities. SEGRO, owner of the biggest light industrial logistics portfolio in London with 12.5 million sq ft in 55 locations, reports vacancy rates of 4% - an all-time low. “There is clearly a need to upgrade and revitalise the supply chain but supply is low and limited,” says Alan Holland, its London business unit director. “A lot of F&B operators need better premises nearer to central London. At the moment I need 30,000 sq ft units but the way demand is going in central London from requests from our clients, these might be more like 50,000 sq ft soon.”

Multiple ‘micro’ sites of less than 10,000 sq ft inside zone two are also becoming strategic necessities as food and parcels operators look to get closer to the customer, adds Holland. Park Royal, supplying an estimated one third of London’s food, is in high demand. “Industrial rents there are accelerating rapidly at the moment, driven by a lack of supply. We are seeing rents of £15-£20 per sq ft in Park Royal,” says Tessa English, industrial research director at JLL.

But even Park Royal isn’t close enough for some operators, says Holland. “To get into the city from there still takes 40 to 50 minutes. Where we would like to be is much closer in the central activity zones.”

One large development currently in progress does at least hold the promise of meeting a good portion of the growing demand for space in and around the capital. iSec is clearing the site of what it hopes will be a huge new food cluster at a former oil refinery next door to DP World London Gateway (see box, above).

Thames Enterprise Park, as it is being called, would offer multiple solutions to London’s food supply pressures, claims the developer, providing a large expanse of new space for food operators to occupy and at the same time creating the opportunity to streamline the supply chain.

With few other sources of significant developable land in and around the capital, sweating the assets operators do have or that they can build will also be part of the answer. Building highly automated facilities is one means of increasing productivity, says Holland.

SEGRO has started looking at intensifying land use by adding more floors, either vertically or by digging down. It is also exploring the potential for mixed-use developments combining industrial with office or even residential space. Such efforts are helped, in theory at least, by a three-year trial easing permitted development rights in some urban areas. However, many London boroughs including Hackney, Islington, Southwark, Hounslow, Hammersmith & Fulham, Hillingdon and Brent have looked to limit developers’ freedom to originate such mixed-use schemes.

In a bid to share scarce space and limit vehicle movements it may be that multiple food suppliers will need, or be compelled, to band together to supply their end customers. Occupiers on Regent Street are already compelled to use the Clipper Logistics-run consolidation centre by their landlord, the Crown Estate, an initiative resulting in an 80% fall in lorry movements associated with retailers on Regent Street.

Consolidation facilities

Property group Savills has identified consolidation facilities for goods coming into town as a likely future sector in industrial space, says Bridget Outtrim, director in the company’s south east industrial team. A sign of things to come, she says, may be the recent development in the City of 22 Bishopsgate, which only got planning permission because deliveries are serviced from a remote consolidation centre.

The difficulty with industry-wide consolidation centres is getting the business model to work, says the FTA’s Chapman. “Generally they are heavily pump primed by public funding, and you are putting another link in the supply chain if the product is already well consolidated.”

In order to realise transformative logistics efficiencies required for London’s vast food sector, however, broad industry-wide collaboration may be needed, and may even be imposed.

Pilot schemes will be needed to explore the many practical difficulties and the commercial potential of such a venture in London, but interest in the idea of collaborating is growing among grocers and food service businesses. A shared ‘white label’ delivery network used by multiple members was mooted at a recent IGD conference, says Balderson.

“One of the most thought-provoking questions was whether we as an industry should be looking towards a shared van type solution, a delivery truck with eight or 10 supermarket logos on the side. Maybe that is the way things need to go. It happens already for manufactures and to some extent for retailers. Why not take it to the next level?” Particularly when the alternative might be a complete and utter breakdown in the flow of food and drink to the capital.