Shedding Light On The Dark Store

For a long time the ‘Big Four’ supermarket chains have gorged themselves on property, snapping up available land sites and opening an unprecedented number of superstores around the country. That drive has seen a substantial decline in recent years, with chains such as Tesco very recently announcing the closures of 43 unprofitable stores and the abandonment of future projects. With the rising demand in online shopping and shoppers favouring discounters and smaller convenience stores, what should the big supermarkets objectives be?

Over the past few years retailers and grocers have seen an astounding surge in the popularity of online orders, click and collect, and grocery home shopping which is tipped to reach £14bn by 2018. This response can be attributed to Britain’s insatiable demand to shop for groceries from the comfort of their sofa rather than making the weekly trip to the supermarket.

Traditionally the demand for online grocery orders was met by sending pickers around conventional supermarkets, but as demand grew there was increasing concern about conflict with normal store operations and other customers. This lent itself to the idea of using dedicated sites using the same design and layout as pre-existing shops, but closed to the general public as hubs for the picking and distribution of online orders.  These were aptly named ‘Dark Stores’.

Over time these Dark Stores (or dotcom only stores) have evolved into distribution centres dedicated to online grocery shopping, which can leverage the sort of efficiencies we would now expect from a modern D.C. operation.  No longer will they be modelled on the generic layout of a traditional store, but can introduce productivity drivers like product zoning, pick-face profiling, efficient pick routes and a degree of automation such as ‘goods to person pick stations’ that is not possible in a traditional store environment . Concern is now centred on efficiency rather than aesthetics.

In addition, Dark Stores can also be situated in less expensive locations outside of prime/high rental areas with better on site access for local delivery vans and to the road networks that service their catchment area. Another benefit  according to industry experts is that the cost of a store picked home delivery is around £18-£20, whereas if a dark store is used for home delivery the cost comes down to around £12, making it far more profitable and appealing prospect  for supermarkets.

Based on recent growth projections however, supermarkets will need to fulfill more than half a million online orders and pick more than 26 million line items accurately per day. Therefore simply jumping on the idea of breeding Dark Stores and having a land grab mentality with the intent of gaining a superior share of the market will not serve them in the long run.

Looking towards the future, there is substantial credibility to the idea of Dark Stores propping up the supermarkets where previous business models have failed, but thorough planning and a fundamental understanding of the markets will need to be in place for this to work. Even so, no one knows exactly how much of our grocery shopping will eventually be done online, but everyone agrees it will be more, and soon.

 

17th February 2015