The Changing Face of Urban Logistics: Dark Stores

COVID -19 has disrupted traditional retail completely. Since customers were locked into homes limiting their travel in the city, offices, cinema halls, old malls & marriage halls lay abandon. This gave rise to a new trend - Dark Stores.

Dark stores are un-traditional stores/spaces which have been converted to local fulfilment stores. These are just places to keep groceries or other essential items to meet ultrafast delivery needs.

Zepto, backed by Y Combinator, has revamped grocery delivery in India. Due to this, Grofers rebranded to Blinkit and focused on the same value proposition. They have opened 200 dark stores since December 2021 to cater to their lucrative proposition of “Delivery in 10 mins”. Virus infection fears, convenience, and cheaper prices have sparked a war in Quick-commerce. This has led to an increase in online orders. In contrast to physical stores, dark stores are not open to the public and do not require prime real estate. It means that the retailer has to identify a low-cost space i.e no retail planning. These mini-warehouses have an area of 2000-5000 sq ft.

The pandemic has made brands like pureplay online grocery retailers Bigbasket, Zepto, Blinkit household names. Big guns like Reliance, Godrej, BigBazaar have moved into the same to cater to the demands of customers. The Indian online grocery market size was valued at USD 2.9 billion in 2020. With an expected growth of 37.1% CAGR from 2021 to 2028, it remains one of the most lucrative & safer options to invest in.?

The major task lies in fulfilling the demand, and the continuous growth is a result of more orders. Here, the dark stores come into the picture. The addition of robotics or automation in these stores have changed the face of the grocery retailing business.?

Benefits of Dark Stores -

1. Real Estate Expansion - Dark stores do not require large spaces, flashy retail & branding aspects to attract customers. An old cinema hall, a two-storey empty block, a small warehouse would be sufficient to fulfil the demand. It is necessary to find the store within a 5 km radius within 10 minutes, so it should be close to the location of the order. Here, technology comes into the picture. It also explores the possibility to rent out dead spaces that have poor customer-facing locations in the market.
2. Investment in Technology - Identifying store spots, fulfilling the right orders first and automating store operations have grown rapidly to meet the 10-minute delivery objective. More investment will be done to meet the customer’s needs & demands. Easy task management inside the store & operations optimization through auditing & smart analytics companies identify the exact pain points at each location and adopt better processes.?
3. Reduction in distribution costs & product damage - Brands can reduce distribution costs by 20-30% and product damage by 40%. This can be done by continuous re-filling of inventory levels using technology & optimizing for relevant locations.?
4. Jobs! Jobs! Jobs! - The dark stores have given rise to an increase in the number of jobs. The job seekers are mostly in their early or mid-twenties. Some have passed Class 12, some are graduates who are paid Rs. 18000-20000 monthly to meet their ends. They usually work in shifts in dark stores to meet the 24*7 demands of customers in Metro & other urban cities. Thus, promoting local talent.?

?Key Challenges -?

1. Compact areas & roads - While these are not your regular retail outlets, accessing them might become logistically challenging. Companies need to ensure that they have enough parking space for trucks & delivery vehicles. In case of an emergency such as a fire outbreak or electric short circuit, the building or infrastructure should be able to handle it.??
2. Increase in traffic - The increase in two-wheelers, delivery trucks will certainly increase the traffic. The '10-minute delivery' proposition might lead to accidents in order to satisfy consumer demand. Companies need to ensure that proper helmets are provided & worn by the riders. In addition to this, they must emphasize that an order is no less than important than the life of the rider’ safety.?
3. Permission from regulatory bodies - Setting up of dark stores will require permission (NOCs) from regulatory bodies because they are not the usual retail outlets. There are chances that their operations 24*7 can disturb the locals. So permission becomes mandatory here.

The Indian grocery industry is undergoing a transformation. Investors are betting heavily on new-age startups who could disrupt the way people get groceries delivered to their homes. Maybe in near future, we can see groceries delivered by drones and the elimination of dark stores. Retail industry expert Phil Lempert says that an initial influx of investment isn’t always a sign of sure-shot long term success. Brands in this space may face major threats from the growing competition. Flipkart, which already has warehouses and automation in place, can play on prices and increase competition.?

However, based on the trends, demand, and change in consumption patterns, Dark Stores are here to stay. Let me know your thoughts in the comments section!

References -

• https://economictimes.indiatimes.com/small-biz/sme-sector/the-rise-of-dark-stores-unused-cinemas-marriage-halls-become-hub-of-10-minute-delivery-services/articleshow/88964566.cms
• https://www.forbes.com/sites/blakemorgan/2020/04/25/dark-stores-are-the-future-of-post-pandemic-retail/?sh=5c348a2d7826
• https://www.fastcompany.com/90549066/the-rise-of-dark-stores-and-how-they-could-save-struggling-retail
• https://info.retailspacesevent.com/blog/dark-stores-three-factors-for-success
• https://www.warehouseautomation.ai/blog/visit-to-a-dark-store-heres-what-it-takes-to-deliver-that-bag-of-groceries-to-you-in-10-minutes-gj7bn
• https://www.propmodo.com/are-dark-stores-biting-off-more-than-they-can-chew/