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Growth calendar    Mar 24, 2022

Dark stores: online shopping or a warehouse?

Online services are a sign of the times. They noticed huge growth and brought a new sales channel as an alternative to physical stores - like dark stores.

Dark stores entered the market with a huge boom. Online sales noticed huge growth during the COVID-19 pandemic and brought a new sales channel as an alternative to physical stores. Is this a change that will stay with us? 

Online services are a sign of the times, nowadays if we are in a need of something, it's enough to take your mobile phone out of your pocket, choose the right app and pick the right service. Transport, food, meeting at a hairdresser, and now your grocery shopping can be done online and delivered within 10-15 minutes. 

What are the dark stores?

They're something between traditional stores, small warehouses, distribution centers, or micro fulfillment centers. Term dark store got its name from the stores' design, which has usually darkened windows and is not easily recognisable from the outside. Why so? 

Dark stores are meant to be rather customer-free zones, available only for delivery companies employees, that are fulfilling online orders. It's not a traditional store you can enter and do your groceries. 

Apart from that, the shop looks like a regular store of grocery chains, with a similar layout and assortment. There are some differences, like for example labeling lanes and shelves to make the process of collection faster and easier. 

The dark store concept originated in Great Britain as an evolution of click and collect sales model. First dark stores were open in east London. Quick online shopping rapidly gained interest in other countries and has today a significant market share. 

Chart showing condition of post-pandemic retail industry.

Dark shops are expected to be key strategies to solve supply chain vulnerability for retail stores. The use of dark stores offers several benefits. A dark retail outlet lets customers shop online at stores that do not require a visitor to visit a retailer. The customer is either able to get the item online or have them shipped. Turning physical stores into dark stores accelerates the fulfillment of the goal. Using physical locations near the targeted market with a wide range of distribution options, last-mile distribution can be more efficient and faster. 

How do dark stores work? 

The typical dark store model can be described as a grocery shop with a special innovative technology allowing to complete order fulfillment. 

Basically, they are located in city centers or other easily accessible locations, so the delivery driver has no problem with fulfilling the order as fast as possible. Usually, they are also 24/7 centers, which gave them an additional advantage compared to regular grocery stores. 

No dark store can operate without a dedicated software system. It's a similar thing to typical order fulfillment, where all the operations are synchronised between all entities: customers, distribution centers, couriers. 

The shop floor of the dark store isn't very different from traditional retail, however, the store layout is simplified, to make the pickup process as easy as possible.  

What do the typical dark store operations look like? 

The flow is also similar to those handled by big warehouses for online shopping and online deliveries:

  • order is being placed by a customer in a dedicated app or website,
  • order is processed and sent to the shop for completing,
  • personal shoppers collect the items,
  • order is ready for home delivery.

Here also comes AI as a ubiquitous assistant, selecting the optimal picking routes for the store employees. The right SKU management and improved storage capacity for optimal product availability bring many benefits for such businesses. 

Some of the dark stores are called dark warehouses and refer to the other type of store, where goods ordered online are being fulfilled in contact-free shopping places, with automated processes. This dark store model makes sense for the retail businesses selling goods that require special storage conditions, for example, fresh food. 

When things get hard, merchants are inventive. In the last year, hotels converted empty rooms into coworking spaces for WFH, and restaurant offerings were introduced. Similarly, some stores have changed their store to dark stores in the past year. Even in confined areas, consumers never stopped consuming. Although incomes declined significantly for most consumers worldwide, overall shopping volumes rose and retailers gained 35% market capitalisation by April 2021. But some retail businesses struggled. 

Key takeaways 

It accelerates a shift from bricks and mortar to internet shopping. The change has forever altered the retail landscape and brand adaptation is needed to continue for their brand. The closing of certain locations and the transformation to dark store locations will likely help many brands. Dark stores have many useful advantages: When it gets hard, merchants have fun. By 2030 ecommerce is estimated by the World Economic Forum to exceed $5 trillion with dark stores bringing in more sales than ever before. 

Dark stores benefits 

A kind of hybrid, which is a dark store, offers many benefits to both the supermarkets and their customers. The closed or partially closed nature of these warehouses-stores allows for considerable savings in terms of the distribution of products in the store space and the entire marketing setting necessary in an ordinary hypermarket. With no need to distinguish the promoted products and arrange them attractively on shelves or dedicated islands, the dark store space is used much more efficiently than in the case of regular stores or even discount stores.  

There is also no need for additional packaging that would attract customers' attention with their colours, shapes, textures, etc. Also, products sensitive to temperature and mechanical damage, such as vegetables and fruit, can be stored in more suitable conditions than those in the store. Dark stores often offer a wider selection of products, including less popular brands and products. 

"Convenient shopping and hyperlocation are the key trends that have emerged from the pandemic. Dark stores provide flexibility of deliveries in terms of delivery time and service level. There are already companies on our market that offer delivery of products within 10 minutes of placing an order, which may turn out to be crucial for many consumers. These stores only support online shopping, which allows them to focus and specialise on a single sales channel" says Martin Oxley, Non Executive & Supervisory Board Director at Exorigo-Upos S.A. 

Picture of the storage trays with the sorted products.

In the case of a dark store, the ordering and delivery process itself is more efficient compared to regular stores. While a traditional hypermarket has to serve both on-site customers and online orders, the dark store focuses fully on online orders, thanks to which the goods reach the recipient in a shorter time.  

Faster response to changes in demand thanks to algorithms analysing the content of orders placed online, better coordination of activities between the procurement department, warehouse, and suppliers, lower costs related to storage, and better use of available space is also reflected in the quality of the goods offered, which are stored in more convenient conditions also have a longer shelf life. The number of benefits offered by the dark store makes more and more retail chains decide to launch their own outlet of this type. 

The bright future of the dark stores

Quick commerce, i.e. the segment of express deliveries of basic food products, beverages, sweets, household chemicals, or cosmetics to customers, is a format that is now enjoying a career, both in our country and around the world. Dark stores, distribution micro centers used only to handle orders placed online, already operate in the seven largest cities in our country. 

The future of this segment is brighter than its name suggests. By 2025, India’s consumables market is projected to hit roughly US$1 trillion while Southeast Asia’s online grocery market is expected to reach US$11.9 billion – a prime opportunity for operators of dark stores, as we can read on techinasia.com.

Photo of a boy holding a phone with the location of a shop and a glass window covered in Black Friday stickers in the background.

Will dark stores remain relevant after the Pandemic? 

The use of dark stores has been a method of saving money and improving the supply chains and online sales. Some retailers benefit from the concept and some retailers collaborate with e-commerce merchants to satisfy customers' needs. Grocery delivery and fashion retailers had dominated the dark market even before the epidemic. However, the pandemic has prompted other sectors to follow suit as well. In recent years ecommerce has become more popular curbside in order to facilitate immediate delivery. 

Even if many new dark stores are being opened, also many people are coming back to traditional shopping in grocery stores. Seems like there is a place for every sales channel in the omnichannel future.

Content Marketing Specialist at Linker Cloud. A digital marketing expert with a demonstrated history of working in the IT industry.

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