United States 

Department of 

Agriculture 

Forest Service 

Pallet Use in Grocery 

Distribution Affects Forest 

Northeastern Forest 

Experiment Station Resource Consumption 

Research Paper NE-651 Location: A Spatial Model 

of Grocery Pallet Use 

R. Bruce Anderson 
Abstract 

To assess the impact of grocery pallet production on future hardwood resources, 

better information is needed on the current use of reusable pallets by the grocery 

and related products industry. A spatial model of pallet use in the grocery 

distribution system that identifies the locational aspects of grocery pallet production 

and distribution, determines how these aspects influence the demand and supply 

of grocery pallets, and assesses the overall impact of grocery pallet consumption 

on the forest resource is described. Also presented is a method for estimating the 

overall quantity of new grocery pallet consumption by grocery distribution centers. 

This method is useful in assessing the effect of changes in grocery pallet 

consumption on the hardwood resource in a particular region. 

- - -.. - 

The Author 

R. BRUCE ANDERSON received a B.S. degree in forest science from The 

Pennsylvania State University in 1965 and an M.S. degree in wood science from 

the same institution in 1970. He received a Ph.D. in forest economics from Virginia 

Polytechnic Institute and State University in 1988. For the past 20 years he has 

been engaged in research on improved marketing and economic utilization of lowgrade hardwoods in various forest products industries at the Northeastern Forest 

Experiment Station's Forestry Sciences Laboratory at Princeton, West Virginia. He 

is currently working as an economist with the Northeastern Station's Advanced 

Hardwood Processing and Technical Resource Center at Princeton. 

Manuscript received for publication 11 November 1990 

Northeastern Forest Experiment Station 

5 Radnor Corporate Center 

100 Matsonford Road, Suite 200 

P.0. Box 6775 

Radnor, Pennsylvania 19087 

February 1991 
Introduction 

Pallet production quadrupled during the last 2 decades, 

from 126 million pallets in 1970 to over 504 million pallets in 

1989. The pallet industry's use of wood raw material 

increased from 3.1 billion board feet in 1970 to 7.9 billion 

board feet in 1989. Hardwood pallets now account for nearly 

50 percent of total hardwood lumber production or more 

than 6.0 billion board feet of hardwood raw material in 1989. 

Part o.f this growth can be attributed to pallet use by the 

grocery and related products industry. An estimated 75 

million hardwood pallets were consumed by this industry in 

1989, or more than 1.4 billion board feet of hardwood raw 

material. Reported growth in retail sales dollar volume of 

grocery and related products, measured in real dollars, 

averaged about 2.5 percent from 1980 to 1989. And 

projected growth in manufacturer's production in the 

grocery industry, measured in real dollar volume of products 

shipped, can be expected to equal or exceed this reported 

growth through 1995. 

If current pallet use continues and construction methods do 

not change, the resulting demand for pallets by the grocery 

and related products industry might have an uneven effect 

on the availability and price of the hardwood resource in 

various regions of the country. Some regions have large 

quantities of currently under-utilized hardwood resources 

that are available to meet the needs of increasing demand 

for pallet raw material (Anderson 1986, 1987). And because 

raw material costs are a substantial portion of the 

production cost of pallets, regions that can provide lower 

cost raw material will have a decided advantage in future 

pallet production. 

To assess the impact of grocery pallet production on future 

hardwood resources, better information is needed on the 

current use of reusable pallets by the grocery and related 

products industry. In this paper, I describe a spatial model 

of pallet use in the grocery distribution system that can be 

used to identify the locational aspects of grocery pallet 

production and distribution, determine how these aspects 

influence the demand and supply of grocery pallets, and 

assess the overall impact of grocery pallet consumption on 

the forest resource. 

As an intermediate product, grocery pallets are not 

demanded directly by the final consumer in the sense that 

grocery and related products are. However, the final 

demand for the latter directly affects pallet demand by the 

grocery distribution system. The link between the final 

demand for grocery and related products and for pallets is 

the movement of grocery and related products from point of 

manufacture to point of retail sales. The distinction between 

pallet demand and supply points and the movement of 

pallets between grocery demand and supply points is the 

key element in understanding the locational aspects of 

grocery distribution. 

Locational Aspects of Grocery Production 

and Distribution 

The location of grocery production and distribution activities 

within various regions of the country is determined by 

factors such as regional endowment of resources, 

production costs for intermediate and final products, 

transfer costs, and demand for the final products. The 

relative level of these factors determines the comparative 

advantage of one region over another, which, in turn, 

influences both the direction and extent of the growth and 

development of grocery production and distribution in a 

region (Nichols 1969). For example, the 1987 Census of 

Manufactures (U.S. Department of Commerce 1990) 

reported more than 20,600 establishments that manufacture 

food and kindred products (SIC Code 20). However, only 33 

companies are reported as manufacturing cereal breakfast 

foods (SIC Code 2043). The 8 largest of these 33 firms 

account for more than 90 percent of the value of shipments, 

which are reported to exceed $6.5 billion in 1987. More 

important, cereal breakfast food companies in the North 

Central Region account for more than 70 percent of the 

value of shipments. Thus, the firms in this region have a 

comparative advantage over those located in other areas in 

resource availability, lower costs for raw material inputs, 

and lower production costs resulting from economies of 

scale. The comparative advantage for cereal breakfast food 

manufacturers in the North Central Region results in a 

concentration of firms in that region. 

As shown in the preceding example, grocery production 

activities often are centered in regions spatially separate 

from the location of demand for grocery products. Because 

food production, distribution, and corisumption tend to be 

separated geographically in the food production chain, each 

stage in processing generates a demand for the movement 

of products (Fig. 1). This demand is satisfied, particularly in 

the latter stages, by materials handling devices that include 

pallets. In relating the demand for movement of grocery 

products to the demand for pallets, it is necessary to 

understand how pallets are used within each stage of the 

chain, that is, by grocery manufacturers, distribution 

centers, and retail stores. 

Grocery Manufacturers 

In the initial stage of grocery production, raw materials 

frequently are shipped to manufacturing facilities using bulk 

material handling devices other than pallets. However, 

finished products leaving the manufacturing facility are 

moved almost exclusively on pallets. This means that the 

more than 20,600 establishments that manufacture food 

and kindred products are all pallet demand points or 

potential purchasers of new pallets. 

An example of raw material movement is the shipment, by 

railcar, of bulk grain products from grain elevators in the 

North Central Region to Kellogg Company in Battle Creek, 
Manufacturer 

Distribution 

Manufacturer 

B 

Distribution 

Producer 

Manufacturer 

C 

Figure 1 .-Product movement in grocery distribution. 
Michigan, and Ralston Purina Company, in Cincinnati, Ohio, 

both manufacturers of cereal breakfast foods located in the 

North Central Region that distribute their products 

nationally. Finished products leaving these two 

manufacturing facilities are shipped on pallets to grocery 

distribution centers throughout the country. 

An exception to this movement of finished products on 

pallets directly to distribution centers is found with grocery 

and related products manufacturers that maintain regional 

warehouses, spatially separated from their manufacturing 

facility, from which products are supplied to grocery 

distribution centers. Examples of these include General 

Foods, Morton-Norwich, and Quaker Oats Company. Thus, 

the shipment of a palletized product from grocery 

manufacturer to grocery distribution center may involve a 

transshipment through a grocery manufacturer's regional 

warehouse. But the shipment is originally palletized at the 

grocery manufacturing facility (the pallet demand point) and 

the palletized product moves through the manufacturer's 

regional warehouse without being unloaded from the pallet. 

Thus, movement of grocery and related products to grocery 

distribution centers requires the same number of pallets 

even though the palletized product may not proceed directly 

from a manufacturer to a grocery distribution center. 

Grocery Distribution Centers 

The I990 Progressive Grocer's Marketing Guidebook (1989) 

identifies 373 distribution centers located throughout 53 

areas of the country. These distribution centers, along with 

the grocery manufacturing facilities, are pallet demand 

points or potential purchasers of new pallets. The location 

of these grocery distribution centers is independent of the 

location of grocery manufacturing facilities in terms of 

transfer costs using pallets and the demand for grocery 

products. However, both the demand for grocery products 

and the cost of transportation are critical in determining the 

location of grocery distribution centers. 

The demand for grocery products must be sufficient to 

justify the investment needed to operate a distribution 

center. From values reported by Kaylin (1968), adjusted to 

reflect current prices, it is estimated that a distribution 

center can be operated profitably with the value of products 

shipped by the center as low as $20 to $26 million annually. 

Thus, the retail stores served by the distribution center must 

be expected to generate sales equal to or exceeding this 

range to justify establishing a distribution center in a 

particular location. However, transfer costs place a limit on 

the area that can be profitably served by a distribution 

center. The maximum distance that a retail store can be 

located from a distribution center and still be profitably 

served varies according to the transfer costs for each 

distribution center. However, Kaylin (1968) noted that 150 

miles is the average limit on distance between distribution 

center and retail store to maintain acceptable ratios of 

expense to total volume of products transported. Industry 

sources indicate that this distance is still valid in 

transportation of grocery products to retail stores in the 

current market, particularly in the eastern half of the United 

States (Anderson 1988). 

Shippers of grocery products must consider the full 

transport cost and not just the freight rate. The full transport 

cost is the freight rate plus any nonprice costs associated 

with the service quality offered by the mode of 

transportation. These characteristics include speed, 

reliability, flexibility regarding scheduling, routing, shipment 

size, load-handling and monitoring characteristics, and 

claims handling procedures (Beilock and Casavant 1984). 

The magnitude of the full transport cost is determined by 

the cost and availability of a dependable and flexible 

transportation system, the cost of labor and other materials 

handling techniques, and the distances between shippers 

and receivers. To minimize transport costs and maintain the 

flexibility required in grocery distribution to retail stores, 

most distribution centers maintain their own fleet of trucks, 

commonly referred to as a captive fleet. However, products 

are shipped to the distribution center by common carrier 

truck, captive fleet truck, or railcar, depending on cost 

efficiencies. 

Retail Stores 

The final link in the grocery distribution system is the retail 

store that provides grocery and related products to the 

consumer. While retail stores are demand points for the 

movement of grocery products, they are not directly 

demand points for pallets. Palletized products are shipped 

to retail stores to satisfy consumer demand for grocery and 

related products. At the retail store, products are moved 

from the pallets onto retail shelves. Empty pallets are 

returned from the retail stores to the distribution center 

where they are recycled for further shipments of products to 

retail stores. 

The locations of retail stores served by each distribution 

center can be illustrated as a circle around each distribution 

center (Fig. 1). In reality, the distance of retail stores from 

the distribution center is not as uniform as the distance from 

the center of the circle to its circumference; however, the 

circle serves to indicate the geographic area within which a 

distribution center operates. Distribution centers may serve 

some retail stores located in the same geographic area, 

which can be illustrated by overlapping circles. However, 

few distribution centers serve retail stores in exactly the 

same geographic area even though their service areas 

frequently overlap. 

It is important to note that retail stores typically are served 

by a single distribution center. Thus, even though retail 

stores are located in the same geographic area, they may or 

may not be served by the same distribution center; whether 

they are or are not depends primarily on the corporate 

affiliation between the retail store and the distribution 

center. 
Locational Aspects of Pallet Production 

and Distribution 

In general, pallet manufacturers are located near the 

purchaser 3f their pallets, primarily because of the limits 

that transportation costs place on pallet distribution. The 

average limit on the distance between pallet manufacturer 

and purchaser is 50 miles.' However, the average distance 

between distribution centers within the same corporate 

organization is approximately 300 miles based on the fact 

that distribution centers may serve retail stores located 150 

miles away. Thus, it is likely that a pallet manufacturer 

servlng one distribution center in a corporate chain like 

Kroger would not serve another distribution center in the 

same chain. 

Pallet Supply and Demand Points 

Pallet supply points are identified by the location of pallet 

manufacturers that produce grocery pallets. Although 2,470 

pallet manufacturers were reported in a recent survey,' the 

number of pallet manufacturers actually producing grocery 

pallets is not available but is considered to be less than the 

total number of pallet manufacturers ~n the industry. The 

market for grocery pallets is considered to be highly 

competitive primarily because pallet manufacturers have 

considerable ease of entry and exit in the market for 

grocery pallets, and the technology for producing pallets is 

relatively constant regardless of the type of pallet produced. 

Grocery pallet demand points are ~dentified by the location 

of grocery manufacturers and distribution centers that use 

pallets to move and store grocery and related products. The 

373 dlstrlbution centers identifi?d earller are considered 

pallet demand points in that they all use pallets to move and 

store grocery products wlthin the d~stribution center 

warehouse and to distribute products to retail stores. In 

addition, the location of these distribution centers can be 

specified by region and by market area within a region. 

On the other hand, the more than 20,600 grocery 

manufacturers can be identified only as potential pallet 

demand points. The number of grocery manufacturers 

actually using pallets IS not known, and the locations of 

grocery manufacturers that use pallets cannot be identified 

as precisely as with distribution centers. This creates a 

major obstacle in determining grocery pallet demand and 

ident~fying forest resource consumption based on the 

demand for grocery pallets. 

- - - -- - -- - 

'Anderson R B , and Wisdom, H W 1990 Pallet inventory 

estimation for the grocery dlstributlon system (In 

preparation) 

'Emanuel, D. M. 1985. Wooden pallet manufacturers. 

Unpublished report on f~le at USDA Forest Service, 

Northeastern Forest Experiment Statlon. Rt. 2. Box 562-8 

Princeton. WV 24740. 

The movement of grocery and related products from 

grocery supply points to grocery demand points generates 

the demand for grocery pallets at each point of shipment 

origin. Had this demand for grocery pallets been satisfied by 

supply of grocery pallets from pallet manufacturers each 

time the demand occurred, a simplified demand model 

would have been possible. However, grocery pallets are 

considered a durable input t3 the production and 

distribution of grocery products, that is, there is an Inventory 

quantity of pallets in the grocery distribution system. While 

an aggregate level of demand for grocery pallets results 

from the movement and storage of grocery products, the 

demand for new grocery pallets supplied by pallet 

manufacturers is a function of the quantity of pallets 

available in the system and the cverall level of aggregate 

pallet demand. The circular nature of pallet flows in the 

system is indicated simply because grocery pallets are 

recycled through the system so long as they remain in 

serviceable condition. 

Forest Resource Consumption 

To assess the effect of new grocery pallet demand on 

forest-resource consumption, the quantity of new pallets 

entering the grocery distribution system must be known. 

However, neither the quantity of new grocery pallets nor the 

total inventory quantity of pallets in the grocery distribution 

system can be identified from published data. It is possible 

to estimate the quantity of new grocery pallets consumed 

based on assumptions about the relation between the dollar 

value of retail grocery sales and the quantity of pallets in 

inventory (Anderson 1988). Based on these estimates of 

new grocery pallet consumption, the 1.4 billion board feet ot 

hardwood raw material used to produce grocery pallets in 

1989 represents more than 23 percent of the estimated 6.0 

billion board feet of hardwood raw material consumed in the 

manufacture of all types of pal~ets.~ 

Consumption of pallets by the grocery distribution industry 

is important in overall new pallet production, but it has a 

disproportional effect on the hardwood resource in relation 

to the quantity of grocery pallets consumed. With more than 

23 percent of the total hardwood consumption for all types 

of pallets attributed to the manufacture of grocery pallet 

parts, the effect on the hardwood resource in a particular 

region resulting from changes in grocery pallet consumption 

can potentially be greater than that resulting from changes 

in the consumption of other pallet types, particularly those 

produced from softwood raw material. However, until more 

precise estimates of the regional production leiels for 

pallets of all types are available, such a comparison cannot 

be quantified. 

-- -- -- -- -- - - -- - -- - - - - - - -. -- . --- -- 

3~allin, W. 0. 197.7. Characteristics of the U.S. pallet 

industry. Unpublished report on file at USDA Forest 

Service. Northeastern Forest Experiment Station. Rt 2. Box 

562-8, Princeton, WV 24740. 
Summary Literature Cited 

To determine the effect of demand for new or reconditioned 

pallets used in grocery distribution on forest resource 

consumption, one must first consider how pallets move 

through the grocery distribution system. The movement of 

pallets between grocery demand and supply points does not 

represent trade in pallets but rather the utilization of pallets. 

The trade is in grocery items. As a result of grocery trade, 

pallets move from place to place, thereby influencing the 

net demand for pallets at a given point. It is the geographic 

movement of pallets in the course of their use that makes 

the estimate of pallet demand unique from, say, the 

demand for construction lumber where the demand for 

lumber at one point cannot be satisfied by the supply of 

lumber at another point. 

The movement of food from place to place influences the 

demand for pallets at each point of shipment origin, which 

may be either a grocery manufacturer or a grocery 

distribution center. If at each point of shipment origin the 

supply of pallets from incoming cargo, including pallets 

involved in backhaul shipments, is inadequate to handle 

outgoing cargo, the deficit must be met by new or 

reconditioned pallets. 

Estimation of the overall quantity of new grocery pallets 

consumed is possible based on assumptions about the 

relation between the dollar volume of retail grocery sales 

and the quantity of pallets in the grocery distribution 

system's inventory. Although the regional impact on forest 

resource consumption attributable to new pallet 

consumption by grocery distribution centers can be 

identified, th~s is only a partial solution to the identification 

of regicnal forest resource consumption resulting from 

grocery pallet production. Additional information is 

necessary to include the impact on forest resource 

consumption from pallet demand by grocery manufacturing 

facilities. Once this information is developed, it will be 

possible to estimate the effect on the hardwood resource in 

any region that results from changes in grocery pallet 

consumption. 

Anderson, R. 6. 1986. Future availability of pallet raw 

material in the South. Pallet Enterprise. 6(6): 44-46. 

Anderson, R. B. 1987. Future availability of pallet raw 

material in the North. Pallet Enterprise. 7(3): 31-32, 34. 

Anderson, R. B. 1988. Regional utilization of reusable 

pallets by the grocery and related products industry. 

Blacksburg, VA: Virginia Polytechnic Institute and State 

University: 205 p. Ph.D. dissertation. 

Beilock, R.; Casavant, K. 1984. Perishables-the new 

intermodal battleground. American Journal of 

Agricultural Economics. 66(5): 651-656. 

Kayl~n, S. 0. 1968. Understanding today's food 

warehouse. New York: Chain Store Publishing Corp. 

226 p. 

Nichols, T. E., Jr. 1969. Transportation and regional 

development in agriculture. American Journal of 

Agricultural Economics. 51(5): 1455-1463. 

Progressive Grocers lnformation Sales. 1989. 1990 

marketing guidebook. Stamford, CT: Progressive 

Grocers lnformation Sales. 814 p. 

U.S. Department of Commerce, Bureau of the Census. 

1990. 1987 census of manufactures. Ind. Ser. 

MC87+20D, food and kindred products. Washington, 

DC: U.S. Department of Commerce, Bureau of the 

Census. 30 p. 
Anderson, R. Bruce. 1991. Pallet use in grocery distribution affects 

forest resource consumption location: a spatial model of grocery 

pallet use. Res. Pap. NE-651. Radnor, PA: U.S. Department of 

Agriculture, Forest Service, Northeastern Forest Experiment Station. 5 p. 

To assess the impact of grocery pallet production on future hardwood 

resources, better information is qeeded on the current use of reusable 

pallets by the grocery and related products industry. A spatial model of 

pallet use in the grocery distribution system that identifies the locational 

aspects of grocery pallet production and distribution, determines how these 

aspects influence the demand and supply of grocery pallets, and assesses 

the overall impact of grocery pallet consumption on the forest resource is 

described. Also presented is a method for estimating the overall quantity of 

new grocery pallet consumption by grocery distribution centers. This 

method is useful in assessing the effect of changes in grocery pallet 

consumption on the hardwood resource in a particular region. 

ODC 834.9 

Keywords: Spatial model; production; usage 

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