Grocery Delivery: Of Dark Stores and Micro-Fulfillment

By | 25 May 2021
Groceries delivery by bike: Dispatched from a dark store or micro-fulfillment center.

Ever more common in urban areas: Grocery delivery at lightning speed. Source: Paolo Feser / Unsplash.com

SERIES: RETAIL TRENDS THAT ACCELERATED DURING THE PANDEMIC

#1 — Grocery Delivery

The pandemic has hit few other industries as hard as retail and out-of-home dining and drinking. Stores, restaurants and bars had to close virtually overnight and were only allowed to reopen, if at all, under tight restrictions. To cope with this situation, businesses have adapted and introduced new concepts and sales models. Consumers have also changed their shopping habits, reinforcing existing and breeding new retail trends. These developments appear to permanently alter the role of brick-and-mortar stores.

In this new series, we’ll discuss some of the retail trends, which are likely to be part of the “new normal”. The first big trend: Grocery delivery – when possible, within 10 minutes.

Location, location, convenience

One of the New Retail’s hallmarks is convenience. Grocery delivery, long present before the pandemic erupted in 2020, has been one of the main beneficiaries of this need. Both new order & delivery services as well as classic supermarket chains have tailored to increased demand for at-home deliveries of grocery products.

Some people simply don’t want to wait in line, others dislike finding empty shelves. When the pandemic hit, some didn’t want to visit any stores because of infection risks. Ordering online and getting it brought to your home has been the easy, safe answer. A single figure shows how the service has skyrocketed the past twelve months: Globally, there were more than 550 million downloads for food and drink apps in Google’s Play Store between March 2020 and April 2021, a 33% percent year-on-year increase. Experts estimate that 10% to 15% of US grocery sales moved online at the height of the pandemic last year, as much as five times pre-covid levels.

Clearly, quick grocery delivery offered by new retail entrants Gorillas, Gopuff, Weezy and others have seen a stellar rise during the pandemic. They are rapidly expanding across cities in Europe, the US and elsewhere. Early May, US-based Gopuff announced the acquisition of British peer Fancy. Some of them have already reached unicorn status ($1+ billion valuation) and set new records. Berlin-based Gorillas attained the much coveted valuation level in March, only ten months after its founding. It was the shortest time for any German startup to become a unicorn, and possibly in Europe. And that’s not all: Gorillas is currently in talks for a $500 million funding round, valuing the company at more than $6 billion, Bloomberg has reported.

Dark stores and micro-fulfillment

The high valuations and the intense interest in these new startups comes with a simple, but bold promise: Grocery deliveries in as little as 10 minutes. It is a radical break with 1- or 2-day delivery, the old norm of traditional supermarkets.

To keep their pledge of instant shipments, the startups are building up a novel network fulfillment and delivery centers. The new retailers operate so-called dark stores located in areas with a high population density. Dark stores are relatively small, local warehouses and are not open to visitors. They are also known as micro-fulfillment centers, from which orders are immediately processed and dispatched to the consumer as soon as orders come in. Contrary to large logistics centers on the outskirts of town, these dark stores are located in the neighborhoods where people live, guaranteeing ultra-short delivery times.

Grocery delivery: A map showing of Cologne, showing several micro-fulfillment centers in the German city.

Do you know how many people you can reach from your micro-fulfillment centers in 10 minutes by e-bike? Grocery delivery companies need to answer this question to set up an efficient network of dark stores. Source: TargomoLOOP

Established supermarket chains partner with delivery startups

Consumer’s demand for convenience and instant delivery has also pushed the incumbents to offer quick commerce services. In the UK, discounter Aldi and upmarket supermarket chain Waitrose have picked meal delivery company Deliveroo to offer delivery of groceries in 20 or 30 minutes. In the US, online order & delivery apps like Instacart and Shipt allow consumers to order from dozens of shops such as Whole Foods, Target and CSV, and get them shipped in as little as an hour.

Big delivery firm returns to Germany to set new benchmark

The rise of instant delivery has even prompted sformer players to return to the German home market with meal and grocery deliveries. Delivery Hero, the world’s biggest meal delivery company, had sold all of its German operations in 2018 to focus on emerging markets. But last week, the Berlin-based company announced it would launch its quick commerce service Foodpanda in Berlin and other German cities.Delivery Hero has also stepped up its game, promising delivery of food and non-food items in as fast as 7 minutes. It will partner with local restaurants and stores, as well as operate its own dark stores, which Delivery Hero calls Dmarts, or “dark markets”.

The move will further intensify competition in a nascent market. Experts think that eventually less than a handful of local players will survive. The winners need to corner the market with an optimal fulfillment network, a superfast delivery service and the right product mix.

All these developments, from young startups like Gorillas to decades-old family businesses like Aldi, imply that instant grocery delivery and the rise of micro-fulfillment centers will continue to spread – even when the pandemic has passed.

Location intelligence enables retailers to identify the best locations for micro-fulfillment centers and reach the optimal market penetration for entire networks. Book a demo to learn more.

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