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While discussing our scaled-down Thanksgiving plans the other day, my wife and I decided it probably would be a good idea to go ahead and lay in the supplies we'll need. They're now in our freezer. We aren't alone. There are widespread reports of expected shortages of some of the requisite foodstuffs for that all-important holiday -- including smaller turkeys for smaller gatherings.
Grocers and their suppliers are getting ready
The signs of a second-wave buying spree have been around for a little while. For instance, The Wall Street Journal reported on Sept. 27 [subscription required] that grocery stores and food companies that supply them were getting ready.
For instance, Southeastern Grocers -- parent company of BI-LO, Harveys, Winn-Dixie, and Fresco y Mas grocery stores -- stocked up on holiday turkeys and hams over the summer, months earlier than usual.
Another example: United Natural Foods has added extra inventory of cranberry sauce, herbal tea, and cold remedies, President Chris Testa told the Journal. He said: "We started talking about Thanksgiving in June. That's earlier than we ever have."
Other distributors are stockpiling pallets of cleaning and sanitizing products in an attempt to avoid the empty-shelves scenario that occurred when the pandemic first took hold in March.
So, what does this mean for real estate investors?
All those supplies need to be held somewhere, and that means growing business for logistics-focused industrial real estate -- a segment that includes a number of strong real estate investment trusts (REITs) such as Prologis (NYSE: PLD), a provider of high-end warehouse space to leaders in e-commerce, e.g., Amazon (NASDAQ: AMZN); shipping, e.g., FedEx (NYSE: FDX); and home improvement, e.g., Home Depot (NYSE: HD).
Retail REITs also could stand to do well, at least those who have a large stake in shopping centers -- not malls -- either anchored by or including major retailers deemed essential -- Walmart (NYSE: WMT), Home Depot, and Walgreens (NASDAQ: WBA) -- and by, of course, grocery stores.
Just one of many possible examples: Realty Income (NYSE: O), whose latest quarterly report shows 550 leases with Dollar Tree (NASDAQ: DLTR), 19 with Home Depot, 22 with Kroger (NYSE: KR), and 88 with CVS Pharmacy (NYSE: CVS). In fact, any retailer who you think will survive the pandemic is likely in a position to benefit from buying surges.
There's also a specialty niche to consider: cold storage. Right now, there's just one publicly traded REIT that concentrates on temperature-controlled warehouses: Americold Realty Trust (NYSE: COLD). Americold and its biggest rival, Lineage Logistics, control nearly 60% of the cold-storage market share in the United States, and the latter is preparing to go public, too, the Journal says in an Oct. 6 article.
Finding opportunity in constant change
For smaller investors, REITs would seem the most obvious way to capitalize on panic buying, but it's also time to consider how permanent these changes will be.
One wouldn't expect buying online to subside in the years ahead, and because the only constant is change, alert real estate investors and owners can watch for opportunities to host smaller operations. That's a niche-within-a-niche MIT researchers say could emerge as nodes in a fast-changing distribution world driven by automation and artificial intelligence, according to a new report.
It all sounds like an apparent reversal from the just-in-time supply chain practices popularized by Toyota decades ago that have long become standard practice in almost all industries.
For more on that, check out this report from NAIOP, Commercial Real Estate Development Association, titled "The Evolution of the Warehouse: Trends in Technology, Design, Development and Delivery." But first, maybe go buy some right-sized frozen turkey.
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