Wegmans is spending $110M to take perishables off third parties

Wegmans is putting $110 million into three changes to its distribution network. The company says the point is to “reduce reliance on third-party providers.”

The largest piece is a new refrigerated building on its campus in Gates, New York, which will handle produce, meat and seafood, deli and restaurant foods. The returns center moves out of a leased building on Winton Road and into a modernized building on the same campus. The Winton Road general-merchandise warehouse, which Wegmans calls its oldest leased distribution facility, then folds into the existing Pottsville, Pennsylvania site by spring 2027. No jobs are being cut.

That gives the grocer owned perishable capacity in the market where it is most concentrated. It also takes two leased buildings out of the network.

National cold-storage vacancy reached a record 7.7% in the first half of the year, per Newmark, which on its face argues for renting space rather than pouring concrete. Net absorption turned negative for the first time since 2007, so tenants handed back more refrigerated space than they took even as 41 million cubic feet of new capacity opened. Cold space costs $130 to $350 a square foot to build, versus $80 to $150 for ambient space. A grocer pays that premium to own the building instead of leasing it.

Warehouses built before 2006 sit at 8.2% vacancy, while 2006-2019 buildings sit at 3.4%, so the slack is concentrated in old space with the wrong clear heights, dock counts and temperature zones. Newmark also names New York to Philadelphia as one of two large markets with almost no new cold storage under construction against an aging base. That corridor is Wegmans’ own.

So the decision in front of Wegmans was narrower than build or rent. Renting modern perishable space at scale in its home corridor was close to unavailable, which is the same conclusion the two lease exits point to.

The grocers who have run this play most recently show that the cost shows up during the switch, not after it.

Sprouts Farmers Market began self-distributing meat and seafood last year. Its annual report states the company “experienced third-party supply disruptions that led to availability challenges and customer disruption” through the transition, before fill rates improved at the converted centers. Sprouts phased it instead of cutting over at once: four of six distribution centers and roughly 70% of stores by the end of last year, with the rest taking the figure to about 95% this year.

Ahold Delhaize USA ran a larger version of the same move. It spent roughly $480 million moving off wholesaler C&S starting in 2019, but the automated frozen capacity built to support that network never ramped to its design throughput. Both warehouses came out of service this summer under a wind-down agreement that put a $309.6 million impairment on their operator, Americold. Its replacement is an $860 million automated fresh and frozen DC in North Carolina that Ahold directs itself.

Self-distribution held where the grocer phased the cutover by category and kept the ramp risk in its own hands, but it broke where the hardest part, automating a case-pick freezer, sat with somebody else on a twenty-year operating agreement.

Save Mart closed its Roseville and Merced distribution centers two years ago, cutting 527 jobs, and handed replenishment for all 194 of its stores to C&S.

The wholesalers are also getting bigger rather than smaller. C&S bought SpartanNash for $1.77 billion and has kept adding regional accounts since, which is hard to square with a broad retreat from outsourced grocery distribution.

Nicholas Pedneault, who runs the cold-storage operator Congebec, told a cold-chain trade magazine that some customers are “taking advantage of excess capacity to insource their cold chain needs,” which makes the move a response to a soft market rather than a verdict on third parties.

The Pottsville consolidation in spring 2027 is the test, because folding general merchandise into an existing building is the piece most likely to surface as gaps on the shelf. Sprouts finishes its own rollout to about 95% of stores this year. Its next fill-rate disclosure is the nearest thing to a read on whether the trade pays.