What is a Dark stores: How it is shaping the online grocery stores business in KSA

With ever-increasing demand and fluctuating market conditions, the retail business is now competing for customer satisfaction and speed is one of the most crucial factors. When a consumer orders a product online, they expect delivery as fast as possible. Speed of delivery creates a big advantage in retail, especially when the freshness of goods delivered is integral. With even small-scale grocers competing against retail giants for same-day or two-hour delivery, a micro-fulfilment strategy makes sense. As retail business shifts focus from in-store experience to new online channels, how can they expect to meet customer demands? Leveraging their retail spaces to store a large amount of inventory, fulfil orders, and provide options such as fast delivery and same day pickup, physical stores are now opting to what is known as “dark stores” to offer more of their products online.

What is a Dark Store?

Dark stores are “retail distribution centres” that serve as micro-fulfilment centres that cater exclusively to online customers. They can serve both click and collect services whereby clients order an item online and then collect it from the store and order fulfilment platform for online sales. The interior layout of an online dark store looks similar to a traditional brick-and-mortar store where products are laid out in aisles of shelves that contain groceries and other items, however, unlike the physical stores, dark stores are located in High streets or shopping malls but in grim outskirt areas of the city that are easily accessible by road. Once the order is placed, items are picked and packed in the dark store, this item can either be picked by the customer locally or shipped to the customer’s door.

The launch of Noon, a new dark store variant, has spearheaded the foray of dark stores in the KSA. A middle-eastern e-commerce platform, established in 2017, Noon is backed by the PIF (Public Investment Fund (PIF). Noon started its operations by offering a range of online products to its customers. The company then launched its grocery delivery service in 20021, called Noon Daily. This is closely followed by the launch of its restaurant delivery service rolled out across KSA by the second half of 2021.

Dark Stores Are the Future of Post-Pandemic Retail

Grocery stores have their own share of challenges such as the need for a significant number of SKU’s and perishability with fresh foods. With even small-scale retailers going online, e-commerce supermarkets need to aim at more than just fulfilling orders but also get customers to return day after day to their online platforms for grocery shopping. Let’s look at few issues that contributed to the growth of dark stores:

1. Rising Delivery Costs: Deliveries eat into a large portion of the margins of e-commerce players and many of them are absorbing these costs associated with last-mile deliveries. With the implementation of dark stores, it could improve the profit margins by a decent percentage.

2. Retain Customer Loyalty: Today’s customers are populated with varied options which compel the retail players to compete vigorously to maintain customer’s loyalty towards the brand and incorporate measures to improve delivery times and prevent erosion of market share. Dark stores strategy facilitates both faster delivery times and improved efficiencies.

Dark Stores: 4 Factors for Success

Here we put down three major important elements for the success of any dark store:

1. Location: Dark stores generally require a large amount of space to stock on the huge inventory of products. However, since they are not open to the public, they need not have an appealing storefront. Retail shops that have been underperforming in less desirable locations are ideal for opening a dark store. Ideally, a dark store should be in a densely populated area where they are accessible to the maximum customer base or close to other retail locations.

2. Order Management: A robust order management system is a must to satisfy customer expectations and to route orders to the right dark store, pick and ship to the customer earliest as possible. With an effective order management system, retailers can provide real-time updates to customers on the status of the orders on when those will be delivered to the customer.

3. Data Analytics: A concrete data analytics can monitor variables involved in inventory management, order management, demand and supply and order accuracy. It can track popular items and locations and where it will be easier for the consumer to pick up the order.

4. Inventory Management: handling situations when the customers cancel their orders, or return is possible only with a robust inventory management solution. A well-built inventory management solution will help analyze the right balance between stock availability and customer demands by recognizing items that are popular in specific areas.

Dark stores have the potential to accelerate online demand for their brand and open a wide window for the online customer base. However, it is imperative retailers carefully consider and analyze key factors like location quality, customer demand etc. before opening a dark store before employing fancy measures to optimize their customer satisfaction.

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