Q-commerce companies like Getir and Gorillas are raising delivery expectations, so dark stores are here to stay
Q-commerce companies like Getir and Gorillas are raising delivery expectations, so dark stores are here to stay
Dark stores are retail outlets or distribution centres that cater exclusively for online shopping. Transportation Director Peter Farmer predicts a long future, hand in hand with the growth of Quick Commerce. The new faces on the market, who we detail at the end of this paper, are already having an impact on traditional retailers.
Dark stores experienced dramatic growth due to COVID-19. According to a report from OneStock[i], 67% of European consumers used dark store retail formats during the pandemic.
The latest Local Data Company[ii] data suggests 8,700 stores closed on UK High Streets in the first half of 2021. Due to the pandemic, there was an increased demand for online shopping, prompting retailers and brands to re-evaluate store formats, with many choosing to turn traditional shop spaces ‘dark’ and reallocating them to process and fulfil online orders.
INSERT GRAPHIC OF ON LINE ORDERING
Online grocery shopping was growing prior to COVID-19 however the pandemic has created huge acceleration in growth. Towards the end of 2021 and the lead up to Christmas, there was a swing back to in-store shopping however this did not fully correct the online gains over the last two years.
The online share of grocery shopping in the UK was 5.4% in February 2020[iii] (according to the ONS). By February 2021, this had risen to 14.7%[iv]. It should be noted that in-store food sales also increased as a result of the hospitality sector being restricted.
According to the latest European report from OneStock, more than two thirds (67%) of consumers used dark store retail formats during the pandemic, choosing to click-and-collect or have online orders fulfilled from a non-essential retail store that was closed to the public during lockdown.
However, even as stores have reopened and COVID-19 restrictions have eased, demand for dark store retail formats has continued, buoyed by the continued acceleration of e-commerce demand, transforming stores into mini-warehouses. 90% of current online grocery shoppers plan to keep shopping for their groceries online post-pandemic and demand is higher still amongst Millennial demographics, rising to 91% of 25 – 44 year-olds.
In 2021, over 40 per cent of shoppers in the UK believed they would continue food shopping online at the same level as 2020, once the pandemic had eased. However, Mintel forecasted that the UK online grocery shopping spend would decline in 2021, to £19.4b[v], a decrease of 13% compared to 2020. Regardless, the online grocery market will have a ‘legacy boost’ from the pandemic: Mintel forecasts the market will be worth £22.4 billion by 2025 – a £4.9 billion increase over pre-pandemic forecasts[vi]. While some of the rapid boost to the format may be lost the overall trend is growth.
Fulfilment
Most of this growth has been fulfilled by traditional supermarkets but there has also been significant growth in ‘dark stores’ and ‘dark kitchens’.
As long ago as 2013 Tesco opened its fourth-generation dot com store in Erith, Kent to serve the East End of London. This is a warehouse in which the supermarket caters for online orders only. Now there is a greater urban expansion of start-up companies focused purely on ‘dark’ facilities.
The term ‘dark kitchen’ or sometimes referred to as a ghost, cloud or virtual kitchen is one that caters for online order delivery meals. These may be online dedicated facilities or part of a more traditional restaurant dedicated to online orders. We will examine these facilities in a separate paper.
The term ‘dark sore’ is quite broad and essential refers to a property or part of a property that caters exclusively for online shopping.
INSERT GRAPHIC EXPLAINING THE CONCEPT
New delivery start-ups like Gorillas and Getir are forcing traditional supermarkets to re-evaluate
Until recently the fulfilment of grocery orders has been relatively relaxed in respect of delivery windows, with slots being booked sometimes several days in advance and through traditional supermarkets. However, the new start-ups such as Gorillas, Getir, Dija (see below) and the diversification of existing companies such as Deliveroo, means that the stakes are being raised. These companies are responding to the increased demand by consumers for Q Commerce (quick commerce) capabilities. This demand expectation is for much narrower delivery times of as little as 15 – 20 minutes from order. Inevitably these services are focused on dense urban areas. As urban demand increases the national supermarket chains are looking to respond by either dedicating more of their current store space or by setting up their own complete dark stores.
Currently, the types of orders through dark stores are small order convenience. The nature of items is dependent on the customer - missing breakfast items, cooking ingredients (you don’t want to stop preparing the pop to the shops), snacks and alcohol.
The Pandemic has also encouraged, or forced, local producers to emulate the model. A trend that has been further fuelled by our increased appetite for locally sourced, low carbon mile foodstuff.
Locations and aesthetics
The timescales involved and the nature of the market means that these facilities need ideally to be a part of the urban areas they serve. If you consider a 15min delivery journey you could cover a significant urban area by cycle, for example.
_____INSERT MAP______.
Currently, many dark stores look a lot like supermarkets less the customers and trollies. They tend to be relatively open spaces full of what looks like supermarket shelves stocked with goods. Customers are replaced by pickers. The lack of customers removes the need for considering customer psychology, so no need for aesthetics, advertising and daylight. The focus is on stock and staff efficiency and, depending upon the company’s ethos, staff welfare. The carpark is replaced with small van or more likely scooter and cycle parking. In many cases, the micro-delivery mode is electrically powered and there are multiple changing points.
Due to the nature of the facility, dark stores can be accommodated in less attractive areas and buildings, should these exist. They can be utilitarian and nondescript from the outside as they are not having to deal with the public or be the face of the brand.
Rental levels can be an issue. In marginal property, landlords may be looking to redevelop at some point and lease lengths may be limited. When still in start-up mode relatively short leases may not be an issue but in time, if this trend continues, investors may look for more stability.
Stock
Currently, stock ranges tend to be limited from around 1,000 to around 2,000 items. Stock churn is relatively swift and items are generally handpicked so currently there is no great demand for clear height in these facilities. That being said, in some locations floor space is used more intensively with the use of double level shelving, walkways and mezzanine access. In time there may be more of a challenge as market competition may force companies to increase stock levels and ranges. If the business model matures then automation may also become viable.
Delivery models
Delivery staff tend to be paid a small retainer and then per delivery, with some companies offering performance bonuses. The frenetic nature of the business has led to some criticism of poor employee terms and conditions, pay and injuries exacerbated by the urgency of deliveries and busy urban streets in dense urban areas. As awareness and competition increases some companies have started to give more attention to staff conditions, such as providing operatives with better rest areas and mobility mode support.
Chapman Taylor previously considered the traffic impact of ‘Last Mile Warehouses’ (____SEE____) and ‘dark stores’ follow a similar pattern of large consolidated inbound deliveries and small multiple outbound fulfilment. Consolidated inbound stock deliveries arrive from existing national supply chains to what can be dense residential urban areas. In domestic dominated areas operators must be sensitive to the hours of large truck activity avoiding busy domestic hours.
Conversely many micro-mobility deliveries need to weave their way to the customer at any time of the day. Local planning approval conditions can be an issue if they restrict hours of operations. The use of electric vehicles, managing light split and internal noise attenuation all help these discussions.
The more traditional online grocery fulfilment sector, in other words the supermarket, has started to look at rail connectivity. There is potential to consider rail side sites within the heart of urban areas to upscale to the Q-Commerce (Quick Commerce) level. It is likely that dark stores in these locations will be part of a greater mixed-use development but it would be a shame not to consider this option. Large-scale low-carbon grocery distribution can remove large numbers of trucks from our urban road networks.
INSERT PARIS SCHEME WITH BRIEF EXPLANATORY NOTE
The sector is currently very pragmatic and focused on human-operated street level delivery. In the future, we anticipate that street level and aerial automated modes may start to feature. Given that this sub-sector is largely domestically dominated, aerial drone delivery would need to overcome the constraint that each house needs a safe and secure delivery location. Some companies have started to explore ideas such as dormer-like roof adaptions, wall mounted delivery ledges and ground-based top opening parcel boxes.
Is Q-Commerce a fad?
We are aware that as quickly as this Q-Commerce model has grown, it could pass maturity. There are many trends that seem to go against the pursuit of Q-Commerce. There is, in some demographics, a move towards ‘slow living’[vii] and consuming ‘slow food’[viii] coupled with a greater awareness of provenance and low food miles. However, when you consider the level of investment funding being secured by some of these new companies, it is hard to consider that this is a momentary movement.
Delivery Hero has invested $235 million in Gorillas, launched in the UK in March 2021, as part of a $1 billion funding round. The online grocery delivery firm is now valued at $3.1 billion following the cash injection[ix]. Dija raised £14.4m and Weezy (operating in London, Bristol, Brighton, and Manchester), raised $20 million (nearly £14.6M) in January 21[x].
A recent study by Property Week in London[xi] highlighted that online sales are forecast to rise from 27% to 30% by 2025. The study goes on to state that this could result in an additional £37bn worth of sales. Property Week calculate that with every billion pounds of online retail sales requiring around 320,000 sq. ft. of urban logistics space, this could drive 12m sq ft of additional last-mile fulfilment space requirements over the five years.
Chapman Taylor understands the market
At Chapman Taylor we believe it is important for us to understand all aspects of our client’s business in order to design the correct facilities for them. Dark store specialists make their return by adding a thin margin to the product price and charging a flat fee. As the level of competition increases the flat fee, which is more visible, becomes under pressure.
The challenge for these companies is to find suitable affordable space within dense urban areas inhabited by a population with enough disposable income to sustain the business model.
It would appear that dark store facilities are here to stay. They may develop to meet very specific local needs and are likely to remain, for the time being, in cheaper more marginal buildings integrated into our dense urban fabric.
An overview of the new faces in the Q-Commerce market.
Gorillas launched in the UK in March 2021 and aims to deliver goods to consumers within ten minutes of ordering. At present, the company operates in 12 cities including London and Manchester, and is already advertising for staff in Bristol, Cambridge, Nottingham and Southampton.
Dija¸ launched by former Deliveroo employees, is offering groceries delivered to doors in under ten minutes. If the order is not delivered, Dija will deliver groceries free for the next three months under the terms of their no-quibble turnaround guarantee. Currently, Dija operates in South Kensington, Fulham and Hackney in London and will open 20 more hubs covering areas including Clapham, Wandsworth, Acton, Islington, Mayfair, Stockwell and Clerkenwell. After buying local operator Genie it plans to enter all major UK cities by the end of this year including Manchester, Birmingham, Bristol and Edinburgh.
Weezy delivers groceries within fifteen minutes. Born in London during the virus crisis, the company operates in London, Bristol, Brighton and Manchester. Expansion is planned to all major cities in the UK for this year and beyond.
Jiffy’s co-founder Vladimir Kholyaznikov ran a similar grocery-delivery start up in Moscow before coming to London to launch here in April 2021. Jiffy is planning up to 100 dark stores in London and other cities this year. It also recently raised capital to make the service available in Westminster, Waterloo, Lambeth, Battersea, Clapham Town, Shoreditch, Bethnal Green, Hackney, Whitechapel, Stepney Green and Leytonstone in London.
Getir is now operating in the UK, Turkey and in the Netherlands. Currently operating in London it is planning to expand its operations to Birmingham and Manchester.
Zapp launched in London and operates a dark store model with its own micro-fulfilment centres in places like London’s Kensington, Chelsea, Fulham, Notting Hill, Hammersmith, Shepherd’s Bush, Shoreditch, Islington and Angel. Zapp is currently recruiting in Manchester.
Cortilia is an Italian company that offers country-fresh products to consumers, placing them directly in contact with farmers and artisans.
Rohlik is a grocery delivery company that offers a 90-minute same-day delivery service.
Glovo is a Spanish on-demand delivery app that lets users order anything locally and get it delivered within 60 minutes.
Delivery Hero is a network of online food ordering sites with over 100 restaurant partners worldwide. It currently operates its service in over 40 countries across Asia, Europe, Latin America, the Middle East and North Africa. In Europe, it operates in Germany, the UK, Austria, South Korea, Sweden, Finland, Poland, Australia, Switzerland, China, India, Colombia, Mexico, Argentina, Chile, Uruguay, Brazil, Peru, Venezuela, Panama and Puerto Rico.
[i] European Omnichannel Study | OneStock | EN (onestock-retail.com)
[ii] https://www.localdatacompany.c...
[iii] https://www.ons.gov.uk/busines...
[iv] https://www.ons.gov.uk/busines...
[v] UK Online Grocery Retailing Market Report 2021 (mintel.com)
[vi] UK Online Grocery Retailing Market Report 2021 (mintel.com)
[vii] https://en.wikipedia.org/wiki/Slow_living#:~:text=Slow%20living%20refers%20to%20a,a%20relaxed%20or%20leisurely%20pace.&text=However%2C%20slow%20living%20does%20not,access%20to%20goods%20and%20services.
[viii] https://www.slowfood.org.uk/
[ix] https://www.cnbc.com/2021/10/19/delivery-hero-leads-1-billion-investment-in-grocery-start-up-gorillas.html
[x] Weezy secures £15M funding, UK-based 15-min local delivery startup all set to combat Amazon Prime services - UKTN | UK Tech News |
[xi] https://www.propertyweek.com/insight/the-dark-store-revolution/5117413.article
Online grocery shopping was growing prior to COVID-19 however the pandemic has created huge acceleration in growth. Towards the end of 2021 and the lead up to Christmas, there was a swing back to in-store shopping however this did not fully correct the online gains over the last two years.
The online share of grocery shopping in the UK was 5.4% in February 2020[iii] (according to the ONS). By February 2021, this had risen to 14.7%[iv]. It should be noted that in-store food sales also increased as a result of the hospitality sector being restricted.
According to the latest European report from OneStock, more than two thirds (67%) of consumers used dark store retail formats during the pandemic, choosing to click-and-collect or have online orders fulfilled from a non-essential retail store that was closed to the public during lockdown.
However, even as stores have reopened and COVID-19 restrictions have eased, demand for dark store retail formats has continued, buoyed by the continued acceleration of e-commerce demand, transforming stores into mini-warehouses. 90% of current online grocery shoppers plan to keep shopping for their groceries online post-pandemic and demand is higher still amongst Millennial demographics, rising to 91% of 25 – 44 year-olds.
In 2021, over 40 per cent of shoppers in the UK believed they would continue food shopping online at the same level as 2020, once the pandemic had eased. However, Mintel forecasted that the UK online grocery shopping spend would decline in 2021, to £19.4b[v], a decrease of 13% compared to 2020. Regardless, the online grocery market will have a ‘legacy boost’ from the pandemic: Mintel forecasts the market will be worth £22.4 billion by 2025 – a £4.9 billion increase over pre-pandemic forecasts[vi]. While some of the rapid boost to the format may be lost the overall trend is growth.
Fulfilment
Most of this growth has been fulfilled by traditional supermarkets but there has also been significant growth in ‘dark stores’ and ‘dark kitchens’.
As long ago as 2013 Tesco opened its fourth-generation dot com store in Erith, Kent to serve the East End of London. This is a warehouse in which the supermarket caters for online orders only. Now there is a greater urban expansion of start-up companies focused purely on ‘dark’ facilities.
The term ‘dark kitchen’ or sometimes referred to as a ghost, cloud or virtual kitchen is one that caters for online order delivery meals. These may be online dedicated facilities or part of a more traditional restaurant dedicated to online orders. We will examine these facilities in a separate paper.
The term ‘dark sore’ is quite broad and essential refers to a property or part of a property that caters exclusively for online shopping.
INSERT GRAPHIC EXPLAINING THE CONCEPT
New delivery start-ups like Gorillas and Getir are forcing traditional supermarkets to re-evaluate
Until recently the fulfilment of grocery orders has been relatively relaxed in respect of delivery windows, with slots being booked sometimes several days in advance and through traditional supermarkets. However, the new start-ups such as Gorillas, Getir, Dija (see below) and the diversification of existing companies such as Deliveroo, means that the stakes are being raised. These companies are responding to the increased demand by consumers for Q Commerce (quick commerce) capabilities. This demand expectation is for much narrower delivery times of as little as 15 – 20 minutes from order. Inevitably these services are focused on dense urban areas. As urban demand increases the national supermarket chains are looking to respond by either dedicating more of their current store space or by setting up their own complete dark stores.
Currently, the types of orders through dark stores are small order convenience. The nature of items is dependent on the customer - missing breakfast items, cooking ingredients (you don’t want to stop preparing the pop to the shops), snacks and alcohol.
The Pandemic has also encouraged, or forced, local producers to emulate the model. A trend that has been further fuelled by our increased appetite for locally sourced, low carbon mile foodstuff.
Locations and aesthetics
The timescales involved and the nature of the market means that these facilities need ideally to be a part of the urban areas they serve. If you consider a 15min delivery journey you could cover a significant urban area by cycle, for example.
_____INSERT MAP______.
Currently, many dark stores look a lot like supermarkets less the customers and trollies. They tend to be relatively open spaces full of what looks like supermarket shelves stocked with goods. Customers are replaced by pickers. The lack of customers removes the need for considering customer psychology, so no need for aesthetics, advertising and daylight. The focus is on stock and staff efficiency and, depending upon the company’s ethos, staff welfare. The carpark is replaced with small van or more likely scooter and cycle parking. In many cases, the micro-delivery mode is electrically powered and there are multiple changing points.
Due to the nature of the facility, dark stores can be accommodated in less attractive areas and buildings, should these exist. They can be utilitarian and nondescript from the outside as they are not having to deal with the public or be the face of the brand.
Rental levels can be an issue. In marginal property, landlords may be looking to redevelop at some point and lease lengths may be limited. When still in start-up mode relatively short leases may not be an issue but in time, if this trend continues, investors may look for more stability.
Stock
Currently, stock ranges tend to be limited from around 1,000 to around 2,000 items. Stock churn is relatively swift and items are generally handpicked so currently there is no great demand for clear height in these facilities. That being said, in some locations floor space is used more intensively with the use of double level shelving, walkways and mezzanine access. In time there may be more of a challenge as market competition may force companies to increase stock levels and ranges. If the business model matures then automation may also become viable.
Delivery models
Delivery staff tend to be paid a small retainer and then per delivery, with some companies offering performance bonuses. The frenetic nature of the business has led to some criticism of poor employee terms and conditions, pay and injuries exacerbated by the urgency of deliveries and busy urban streets in dense urban areas. As awareness and competition increases some companies have started to give more attention to staff conditions, such as providing operatives with better rest areas and mobility mode support.
Chapman Taylor previously considered the traffic impact of ‘Last Mile Warehouses’ (____SEE____) and ‘dark stores’ follow a similar pattern of large consolidated inbound deliveries and small multiple outbound fulfilment. Consolidated inbound stock deliveries arrive from existing national supply chains to what can be dense residential urban areas. In domestic dominated areas operators must be sensitive to the hours of large truck activity avoiding busy domestic hours.
Conversely many micro-mobility deliveries need to weave their way to the customer at any time of the day. Local planning approval conditions can be an issue if they restrict hours of operations. The use of electric vehicles, managing light split and internal noise attenuation all help these discussions.
The more traditional online grocery fulfilment sector, in other words the supermarket, has started to look at rail connectivity. There is potential to consider rail side sites within the heart of urban areas to upscale to the Q-Commerce (Quick Commerce) level. It is likely that dark stores in these locations will be part of a greater mixed-use development but it would be a shame not to consider this option. Large-scale low-carbon grocery distribution can remove large numbers of trucks from our urban road networks.
INSERT PARIS SCHEME WITH BRIEF EXPLANATORY NOTE
The sector is currently very pragmatic and focused on human-operated street level delivery. In the future, we anticipate that street level and aerial automated modes may start to feature. Given that this sub-sector is largely domestically dominated, aerial drone delivery would need to overcome the constraint that each house needs a safe and secure delivery location. Some companies have started to explore ideas such as dormer-like roof adaptions, wall mounted delivery ledges and ground-based top opening parcel boxes.
Is Q-Commerce a fad?
We are aware that as quickly as this Q-Commerce model has grown, it could pass maturity. There are many trends that seem to go against the pursuit of Q-Commerce. There is, in some demographics, a move towards ‘slow living’[vii] and consuming ‘slow food’[viii] coupled with a greater awareness of provenance and low food miles. However, when you consider the level of investment funding being secured by some of these new companies, it is hard to consider that this is a momentary movement.
Delivery Hero has invested $235 million in Gorillas, launched in the UK in March 2021, as part of a $1 billion funding round. The online grocery delivery firm is now valued at $3.1 billion following the cash injection[ix]. Dija raised £14.4m and Weezy (operating in London, Bristol, Brighton, and Manchester), raised $20 million (nearly £14.6M) in January 21[x].
A recent study by Property Week in London[xi] highlighted that online sales are forecast to rise from 27% to 30% by 2025. The study goes on to state that this could result in an additional £37bn worth of sales. Property Week calculate that with every billion pounds of online retail sales requiring around 320,000 sq. ft. of urban logistics space, this could drive 12m sq ft of additional last-mile fulfilment space requirements over the five years.
Chapman Taylor understands the market
At Chapman Taylor we believe it is important for us to understand all aspects of our client’s business in order to design the correct facilities for them. Dark store specialists make their return by adding a thin margin to the product price and charging a flat fee. As the level of competition increases the flat fee, which is more visible, becomes under pressure.
The challenge for these companies is to find suitable affordable space within dense urban areas inhabited by a population with enough disposable income to sustain the business model.
It would appear that dark store facilities are here to stay. They may develop to meet very specific local needs and are likely to remain, for the time being, in cheaper more marginal buildings integrated into our dense urban fabric.
An overview of the new faces in the Q-Commerce market.
Gorillas launched in the UK in March 2021 and aims to deliver goods to consumers within ten minutes of ordering. At present, the company operates in 12 cities including London and Manchester, and is already advertising for staff in Bristol, Cambridge, Nottingham and Southampton.
Dija¸ launched by former Deliveroo employees, is offering groceries delivered to doors in under ten minutes. If the order is not delivered, Dija will deliver groceries free for the next three months under the terms of their no-quibble turnaround guarantee. Currently, Dija operates in South Kensington, Fulham and Hackney in London and will open 20 more hubs covering areas including Clapham, Wandsworth, Acton, Islington, Mayfair, Stockwell and Clerkenwell. After buying local operator Genie it plans to enter all major UK cities by the end of this year including Manchester, Birmingham, Bristol and Edinburgh.
Weezy delivers groceries within fifteen minutes. Born in London during the virus crisis, the company operates in London, Bristol, Brighton and Manchester. Expansion is planned to all major cities in the UK for this year and beyond.
Jiffy’s co-founder Vladimir Kholyaznikov ran a similar grocery-delivery start up in Moscow before coming to London to launch here in April 2021. Jiffy is planning up to 100 dark stores in London and other cities this year. It also recently raised capital to make the service available in Westminster, Waterloo, Lambeth, Battersea, Clapham Town, Shoreditch, Bethnal Green, Hackney, Whitechapel, Stepney Green and Leytonstone in London.
Getir is now operating in the UK, Turkey and in the Netherlands. Currently operating in London it is planning to expand its operations to Birmingham and Manchester.
Zapp launched in London and operates a dark store model with its own micro-fulfilment centres in places like London’s Kensington, Chelsea, Fulham, Notting Hill, Hammersmith, Shepherd’s Bush, Shoreditch, Islington and Angel. Zapp is currently recruiting in Manchester.
Cortilia is an Italian company that offers country-fresh products to consumers, placing them directly in contact with farmers and artisans.
Rohlik is a grocery delivery company that offers a 90-minute same-day delivery service.
Glovo is a Spanish on-demand delivery app that lets users order anything locally and get it delivered within 60 minutes.
Delivery Hero is a network of online food ordering sites with over 100 restaurant partners worldwide. It currently operates its service in over 40 countries across Asia, Europe, Latin America, the Middle East and North Africa. In Europe, it operates in Germany, the UK, Austria, South Korea, Sweden, Finland, Poland, Australia, Switzerland, China, India, Colombia, Mexico, Argentina, Chile, Uruguay, Brazil, Peru, Venezuela, Panama and Puerto Rico.
[i] European Omnichannel Study | OneStock | EN (onestock-retail.com)
[ii] https://www.localdatacompany.c...
[iii] https://www.ons.gov.uk/busines...
[iv] https://www.ons.gov.uk/busines...
[v] UK Online Grocery Retailing Market Report 2021 (mintel.com)
[vi] UK Online Grocery Retailing Market Report 2021 (mintel.com)
[viii] https://www.slowfood.org.uk/
[xi] https://www.propertyweek.com/insight/the-dark-store-revolution/5117413.article
Until recently the fulfillment of grocery orders has been relatively relaxed in respect of delivery windows, with slots being booked sometimes several days in advance and through traditional supermarkets. However, the new start-ups such as Gorillas, Getir, Dija (see list below) and the diversification of existing companies such as Deliveroo, means that the stakes are being raised. These companies are responding to the increased demand by consumers for Q Commerce (quick commerce) capabilities. This demand expectation is for much narrower delivery times of as little as 15 – 20 minutes from order. Inevitably these services are focused on dense urban areas. As urban demand increases the national supermarket chains are looking to respond by either dedicating more of their current store space or by setting up their own complete dark stores.
Currently, the types of orders through dark stores are small order convenience. The nature of items is dependent on the customer - missing breakfast items, cooking ingredients (you don’t want to stop preparing the pop to the shops), snacks and alcohol.
The Pandemic has also encouraged or forced, local producers to emulate the model. A trend that has been further fuelled by our increased appetite for locally sourced, low carbon mile foodstuff.
Locations and aesthetics
The timescales involved and the nature of the market means that these facilities need ideally to be a part of the urban areas they serve. If you consider a 15min delivery journey you could cover a significant urban area by cycle, for example.
Currently, many dark stores look a lot like supermarkets less the customers and trollies. They tend to be relatively open spaces full of what looks like supermarket shelves stocked with goods. Customers are replaced by pickers. The lack of customers removes the need for considering customer psychology, so no need for aesthetics, advertising and daylight. The focus is on stock and staff efficiency and, depending upon the company’s ethos, staff welfare. The carpark is replaced with small van or more likely scooter and cycle parking. In many cases, the micro-delivery mode is electrically powered and there are multiple changing points.
Due to the nature of the facility, dark stores can be accommodated in less attractive areas and buildings, should these exist. They can be utilitarian and nondescript from the outside as they are not having to deal with the public or be the face of the brand.
Rental levels can be an issue. In marginal property, landlords may be looking to redevelop at some point and lease lengths may be limited. When still in start-up mode relatively short leases may not be an issue but in time, if this trend continues, investors may look for more stability.
Stock
Currently, stock ranges tend to be limited from around 1,000 to around 2,000 items. Stock churn is relatively swift and items are generally handpicked so currently there is no great demand for clear height in these facilities. That being said, in some locations floor space is used more intensively with the use of double level shelving, walkways and mezzanine access. In time there may be more of a challenge as market competition may force companies to increase stock levels and ranges. If the business model matures then automation may also become viable.
Delivery models
Delivery staff tend to be paid a small retainer and then per delivery, with some companies offering performance bonuses. The frenetic nature of the business has led to some criticism of poor employee terms and conditions, pay and injuries exacerbated by the urgency of deliveries and busy urban streets in dense urban areas. As awareness and competition increases some companies have started to give more attention to staff conditions, such as providing operatives with better rest areas and mobility mode support.
Chapman Taylor previously considered the traffic impact of ‘Last Mile Warehouses’ and ‘dark stores’ follow a similar pattern of large consolidated inbound deliveries and small multiple outbound fulfilment. Consolidated inbound stock deliveries arrive from existing national supply chains to what can be dense residential urban areas. In domestic dominated areas operators must be sensitive to the hours of large truck activity avoiding busy domestic hours.
Conversely many micro-mobility deliveries need to weave their way to the customer at any time of the day. Local planning approval conditions can be an issue if they restrict hours of operations. The use of electric vehicles, managing light split and internal noise attenuation all help these discussions.
The more traditional online grocery fulfilment sector, in other words the supermarket, has started to look at rail connectivity. There is potential to consider rail side sites within the heart of urban areas to upscale to the Q-Commerce (Quick Commerce) level. It is likely that dark stores in these locations will be part of a greater mixed-use development but it would be a shame not to consider this option. Large-scale low-carbon grocery distribution can remove large numbers of trucks from our urban road networks.
The sector is currently very pragmatic and focused on human-operated street level delivery. In the future, we anticipate that street level and aerial automated modes may start to feature. Given that this sub-sector is largely domestically dominated, aerial drone delivery would need to overcome the constraint that each house needs a safe and secure delivery location. Some companies have started to explore ideas such as dormer-like roof adaptions, wall mounted delivery ledges and ground-based top opening parcel boxes.
Is Q-Commerce a fad?
We are aware that as quickly as this Q-Commerce model has grown, it could pass maturity. There are many trends that seem to go against the pursuit of Q-Commerce. There is, in some demographics, a move towards ‘slow living’[vii] and consuming ‘slow food’[viii] coupled with a greater awareness of provenance and low food miles. However, when you consider the level of investment funding being secured by some of these new companies, it is hard to consider that this is a momentary movement.
Delivery Hero has invested $235 million in Gorillas, launched in the UK in March 2021, as part of a $1 billion funding round. The online grocery delivery firm is now valued at $3.1 billion following the cash injection[ix]. Dija raised £14.4m and Weezy (operating in London, Bristol, Brighton, and Manchester), raised $20 million (nearly £14.6M) in January 21[x].
A recent study by Property Week in London[xi] highlighted that online sales are forecast to rise from 27% to 30% by 2025. The study goes on to state that this could result in an additional £37bn worth of sales. Property Week calculate that with every billion pounds of online retail sales requiring around 320,000 sq. ft. of urban logistics space, this could drive 12m sq ft of additional last-mile fulfilment space requirements over the five years.
Chapman Taylor understands the market
At Chapman Taylor we believe it is important for us to understand all aspects of our client’s business in order to design the correct facilities for them. Dark store specialists make their return by adding a thin margin to the product price and charging a flat fee. As the level of competition increases the flat fee, which is more visible, becomes under pressure.
The challenge for these companies is to find suitable affordable space within dense urban areas inhabited by a population with enough disposable income to sustain the business model.
It would appear that dark store facilities are here to stay. They may develop to meet very specific local needs and are likely to remain, for the time being, in cheaper more marginal buildings integrated into our dense urban fabric.
An overview of the new faces in the Q-Commerce market
Gorillas launched in the UK in March 2021 and aims to deliver goods to consumers within ten minutes of ordering. At present, the company operates in 12 cities including London and Manchester, and is already advertising for staff in Bristol, Cambridge, Nottingham and Southampton.
Dija¸ launched by former Deliveroo employees, is offering groceries delivered to doors in under ten minutes. If the order is not delivered, Dija will deliver groceries free for the next three months under the terms of their no-quibble turnaround guarantee. Currently, Dija operates in South Kensington, Fulham and Hackney in London and will open 20 more hubs covering areas including Clapham, Wandsworth, Acton, Islington, Mayfair, Stockwell and Clerkenwell. After buying local operator Genie it plans to enter all major UK cities by the end of this year including Manchester, Birmingham, Bristol and Edinburgh.
Weezy delivers groceries within fifteen minutes. Born in London during the virus crisis, the company operates in London, Bristol, Brighton and Manchester. Expansion is planned to all major cities in the UK for this year and beyond.
Jiffy’s co-founder Vladimir Kholyaznikov ran a similar grocery-delivery start up in Moscow before coming to London to launch here in April 2021. Jiffy is planning up to 100 dark stores in London and other cities this year. It also recently raised capital to make the service available in Westminster, Waterloo, Lambeth, Battersea, Clapham Town, Shoreditch, Bethnal Green, Hackney, Whitechapel, Stepney Green and Leytonstone in London.
Getir is now operating in the UK, Turkey and in the Netherlands. Currently operating in London it is planning to expand its operations to Birmingham and Manchester.
Zapp launched in London and operates a dark store model with its own micro-fulfilment centres in places like London’s Kensington, Chelsea, Fulham, Notting Hill, Hammersmith, Shepherd’s Bush, Shoreditch, Islington and Angel. Zapp is currently recruiting in Manchester.
Cortilia is an Italian company that offers country-fresh products to consumers, placing them directly in contact with farmers and artisans.
Rohlik is a grocery delivery company that offers a 90-minute same-day delivery service.
Glovo is a Spanish on-demand delivery app that lets users order anything locally and get it delivered within 60 minutes.
Delivery Hero is a network of online food ordering sites with over 100 restaurant partners worldwide. It currently operates its service in over 40 countries across Asia, Europe, Latin America, the Middle East and North Africa. In Europe, it operates in Germany, the UK, Austria, South Korea, Sweden, Finland, Poland, Australia, Switzerland, China, India, Colombia, Mexico, Argentina, Chile, Uruguay, Brazil, Peru, Venezuela, Panama and Puerto Rico.
[i] European Omnichannel Study | OneStock | EN (onestock-retail.com)
[ii] https://www.localdatacompany.c...
[iii] https://www.ons.gov.uk/busines...
[iv] https://www.ons.gov.uk/busines...
[v] UK Online Grocery Retailing Market Report 2021 (mintel.com)
[vi] UK Online Grocery Retailing Market Report 2021 (mintel.com)
[viii] https://www.slowfood.org.uk/
[xi] https://www.propertyweek.com/insight/the-dark-store-revolution/5117413.article