Business Strong in European Coldstores,
But So Too is the Heavy Competition

Inventory and turnover both up, but industry is in no hurry to lay out euros for more space after years of overcapacity. Smart management and smart technology make the most of existing space – but the market keeps driving down prices for services.

Business is booming at coldstores in Europe, according to returns from the Quick Frozen Foods International/International Association of Refrigerated Warehouses 2004 Global Frozen Foods Refrigerated Services Trends Survey. Some 82.7% of the weighted sample reported an increase in both turnover and inventory.

Inventories generally seem to be up in value-added products like pizza and ready meals, and down in commodities like meat and “EU intervention products,” although one operator said stock on hand was down in fish and up in chicken. Turnover trends, by contrast, were pretty much the same across the board.

European operators of public refrigerated warehouses are apparently making better use of their space than those elsewhere. Although business is hotter, not many European warehouses seem to be keen on investing in new construction, and it appears that relatively few are building additions. Net freezer space gain is reported by 16%, far less than in the Americas or the Pacific Rim.

Another indication that the Europeans are making the most of their space is that 58.7% of the weighted sample plans purchases of mobile racking systems this year, compared to only 27.3% in the Americas for all racks other than standard, gravity or automatics. Some 29.3% of the Europeans are seeking automatic racks, versus only 2.6% in the Americas.

QFFI’s data base for Europe includes some direct responses from individual operators, plus a collective response for others solicited by the Theo van Sambeeck of the European office of the International Association of Refrigerated Warehouses (IARW); and Willem van Schipstal, chairman of the European IARW Council. The group response is characterized as 80% of the total response, and answers to specific questions are expressed as percentages of the collective response.

One thing that may set Europe apart from the rest of the world is a preference for carbon dioxide compressors. Much of the weighted sample – although just how much is ambiguous – points to plans to buy CO2 compressors this year. The figure is more than 13.3%, and could be a lot higher. Still, ammonia units are clearly the most popular at (96.6%). Europe is more aggressive than the Americas in purchasing plans for not only compressors but condensers (96.6%), coils (83.3%) and fans and blowers (80%). Some 80% have central station systems.

Europe has more in common with the Pacific Rim than the Americas in some of the basic materials handling equipment purchasing plans, with 93.3% signing off on conveyor systems, conveyor belts, cranes and pallets. Metal dock boards rated a 96% response. Yet European operators are showing far less interest in lift trucks (16%) and batteries for same (13.3%) than their counterparts in other regions.
Closer relationships with customers are evidenced by the fact that 100% of the European sample offers freezing, and 72% repacking services – about the same as the Pacific Rim, and more than the Americas. Some 96% rent office space to customers, but 97.3% rent space to others. Yet on the other hand, only 21.3% rent out space for processing.

When it comes to door purchasing plans, mechanical doors and plastic strip curtains are far and away the favorites at 86.7% each. Automatic doors are favored by 21.3%, and air curtains by 13.3% – but only 1.8% are interested in manual doors. None of the European operators said they owned any refrigerated trucks or trailers, but many apparently lease some – as 76% reported using mechanical transportation refrigeration systems versus four percent CO2. Polyurethane panels are overwhelmingly the first choice for warehouse insulation.

Keeping computer systems up to date is a priority with European warehouses; 93.3% plan upgrades this year, with 80% adding terminals and 85.3% getting new software – a lot more in each case than in the Americas. Some 98.7% have their own mainframes, with 94.7% also using networked microcomputers and 93.3% minicomputers – higher rates than anywhere else. It’s the same with using computers for business communications: 94.7% versus 84% for fax (telexes are extinct). And 98.7% have websites – the few who don’t soon will.

The one electronic area where Europeans seem to be lagging is bar-coding technology – just 40%, far below the rates in the Americas or the Pacific Rim. But in quality control, again, the Europeans are way ahead – 96% have ECR/TQM programs, 73.3% have HACCP programs and, even at 32%, they’re ahead of the Americas in ISO-9000 certification.

Quick Frozen Foods International asked Derk J.B. van Mackelenbergh, managing director of Rotterdam, the Netherlands-headquartered Eurofrigo BV, for his insights into the European market. The questions and answers follow.

QFFI: European coldstore operators seem to be doing a lot more business without adding that much more space. Is this the case? If so, is it being accomplished through faster turnaround, or by use of highly efficient technologies such as automatic or mobile racking, or both?

Van Mackelenbergh:: It’s difficult to speak for the entire EU including some neighboring countries, but there seem to be a lot of business during the past few months. Especially in our area everyone realizes that there is already an overcapacity in coldstores, so only in the luxury situation that one has a structural capacity problem, one will build additionally. The rumor goes that indeed more companies are using, or will be using mobile racks as an alternative to the standard drive-in racks.

QFFI: Now that the EU is 10 members stronger, there is obviously going to be a lot more trade in food products between Western and Eastern Europe. How is this going to impact the refrigerated warehousing industry, and how should the industry respond to resulting opportunities and challenges?

Van Mackelenbergh:: It is obvious that there will be more trade, but to what extent the coldstores will notice this, will depend entirely on the location of the store. In the western ports we will not notice so much of the extension. However, in ports like Hamburg (for Poland and the Czech Republic) and Livorno/Genova (for the Czech Republic and Hungary), there may be more direct business.

If you like to take a piece of the cake, one should invest in stores in one of the new member states.

QFFI: Intervention stocks used to be big business for European coldstore operators, but demand for government-subsidized storage has been greatly reduced for many years now. Aside from intervention stocks, however, what is the balance between commodities and value-added products today?

Van Mackelenbergh:: The volume of value-added products will increase compared to the commodities, however, for certain products the EU, in spite of enlargement, becomes more dependent on the import of foodstuff (poultry from South America, fish from everywhere) Manufacturing is moved to, for example, China. So in addition to commodities, the ports will see a lot more ready-made products.

QFFI: Are you doing much business in chilled food warehousing and distribution? In any event, do you see chilled food logistics requirements growing at the expense of frozen food distribution, or are both segments expanding?

Van Mackelenbergh:: As far as I can judge both markets are growing, although to different extents. The major markets for chilled convenience food are found in the UK and limited places in other countries. In southern Europe the consumers are still very traditional, preferring fresh products and preparing meals themselves.

QFFI: What are your coldstore’s occupancy rates at the moment? How about rates at coldstores inland? Is this typical of the European scene?

Van Mackelenbergh:: We still feel a lot of pressure on the rates due to the less favorable situation in the interior of our country. Unfortunately a lot of clients are familiar with this situation and are trying to get lower rates for a higher service level.

QFFI: Finally, what is the trend on pricing? There has been great pressure on prices for some time, as squeezed food producers have in turn squeezed their suppliers. Have you been able to raise prices in some instances? If so, how much and for which services?

Van Mackelenbergh:: In Holland, the retailers are fighting each other with all means. Suppliers are forced to finance this war, which comes also on the expense account of the service providers. Overcapacity created partly by dedicated mega stores has had a major impact on the business as already mentioned above. I do not foresee any price rise for the near future for general commodities. What I have learned from others in the interior is that price drops of 20% to 30% are not exceptional!