For more on how the COVID-19 crisis is impacting supply chains, download the latest report from the Capgemini Research Institute: ‘The great supply chain shock – COVID-19 response and recovery’
Hello and welcome back to This Week in Retail. It’s been another challenging week for many retailers, but we can always look for a silver lining. We’ve read a lot recently about how consumer products companies are deploying innovative ways to pivot their supply chains towards sudden peaks in demand for certain products, such as hand sanitiser and face masks. In this edition, I’m going to take a look at how retailers too can pivot their operations, a pivot to the dark side…
Dark stores. Cool name, yes – but what are they and how do they work? In simple terms, a dark store is any store space (entire or partial) closed to the public, that maintains an online selling channel and fulfils orders via home delivery (or sometimes click and collect). Delivery time can be reduced by spreading locations across densely populated urban areas, closer to customers. Often retailers will team up with specialists such as Delivery Hero, in order to outsource the logistically tricky and often unprofitable last mile delivery part. We’ve seen some high-profile tie ups in this area lately, with Uber now offering grocery delivery from Carrefour stores in Paris, while Deliveroo has announced partnerships with Marks & Spencer and Co-op.
Faced with a sudden surge in demand from online channels in recent weeks – or a total shut down of physical stores for some – retailers have been looking at ways to convert areas of their store estate with spare capacity over to dark store operations. For example, Sainsbury’s has turned its Blackfriars store dark, now trading exclusively online with a reduced assortment of around 4000 essential grocery and household items which can be delivered by cyclist anywhere within a 3-mile radius.
Dark store operations are akin to those in a full-size warehouse; it’s just that the receiving, storing, picking, packing and shipping are all done on a smaller scale, and picking is done at unit level rather than case level. Whereas traditional stores are laid out to maximise customer browsing time, dark stores should have an optimised layout to reduce picking time. Operations can be manual, or combined with some form of automation to speed up the picking process even further.
Automation presents a trade-off between increased CapEx and reduced labour costs that retailers need to weigh up, while an additional challenge here is to ensure that any automation or robotics solution is compact enough to fit into a typically smaller dark store space, hence the recent emergence of various micro-fulfilment solutions into the market, such as those developed by Fabric or Takeoff. Current events have shown however, that for a quick pivot, manual operations remain easier to adapt and faster to scale; Ocado’s automated operations are certainly leading edge but it was unable to cope with the recent jump in demand for online groceries, forcing Ocado to shut down its website temporarily.
A longer-term trend that we will likely see accelerated by current market conditions, is the emergence of “pure” dark stores. We have seen the likes of Delivery Hero setting up their own dark stores from scratch in basements or other cheap, undesirable locations, as long as they are situated close to customers. These pure dark stores are not competing directly with traditional supermarkets on range. The primary customer offer is to top up the weekly shop from a reduced core range of essential products. Another key part of the offer is speed. As part of Uber’s deal with Carrefour, Parisians can expect to receive their orders within 30 minutes.
Meanwhile in the UAE, dark store specialists Talabat have unveiled a 24/7 delivery service, with an astonishing target average delivery time of just 15 minutes. Out and out speed is important in certain use cases, such as dinner parties or other social occasions, but for me, the real value of speed comes from consistency and reliability. “You will receive your order in 15 minutes” is a lot more appealing than “you will receive your order on Thursday sometime between 9am and 3pm.” Or perhaps, as is more likely these days; “sorry, we have no more slots available.”
Given the current situation, I think we can expect to see an expansion of new dark stores (or rather, we won’t see them), as well as existing brick-and-mortar stores turning dark – either fully or partially. Recent events have made it clear that in order to survive, retailers need the flexibility to suddenly shift some or all of their operations online. Setting themselves up to operate physical and online channels out of the same space means that retailers can to adapt to sudden changes in demand. In tough times like these, the ability to pivot and repurpose space could be the lifeline that retailers need, even if it means picking up your groceries from the dry-cleaners.
Stay healthy and safe,
Consultant, Retail Supply Chain (Operations Transformation)
Ed has a proven track record of helping multiple major international retailers through large scale business transformation programmes, with a strong interest and recognised expertise in Business Process Design, across Grocery and GM.