If an order is called into a dark store and there are no customers to hear it, you can bet your bottom dollar it still adds up to big money.
Nearly $6.5 trillion in big money, according to industry estimates. This is what ecommerce sales are expected to reach by 2023, thanks largely to new fulfillment concepts including dark stores (shuttered stores opportunistically converted into fulfillment centers), warerooms and automated order facilities.
By 2023, however, even these fulfillment center roles will likely undergo a conversion as retailers innovate to meet burgeoning delivery demands on the fly. In the United States and abroad, we’re seeing the early stages of such change already.
The Warehouse’s Job Is Changing, A Hundred Million-Fold
Kroger, Wendy’s and Giant Company are among major U.S. chains that are now dedicating significant sums to find delivery-focused alternates to traditional stores – beyond dark stores and typical fulfillment centers. Indeed, by early 2021, U.S. companies had taken over nearly 100 million square feet of industrial and warehouse space. An additional 376 million square feet of space was under construction, according to news reports.
Dark stores, the lemonade solution to former “lemon” stores, are simply a gateway; they’re helping retailers envision and squeeze out the next, most cost-effective systems for reaching more customers. Here are some examples.
Boldly Going Where No Stores Have Gone
Several dark store variations, through delivery, are enabling merchants to enter markets where they do not operate physical locations via “ghosting.” Wendy’s, Chick-fil-A and other fast-food chains, for example, have introduced “ghost” kitchens that operate expressly to serve delivery orders – no dining room or carryout. Wendy’s has said ghost kitchens would play a significant role in its expansion strategy, including in markets where it did not operate stores. Other brands also are using shared retail, or ghost kitchen locations, to expand their reach.
Supermarket chain Kroger, too, is exploring “ghosted” delivery as a method for entering new regions through its partnership with the tech company Ocado. The companies are building automated (read: robotic) fulfillment facilities and “Zoom” micro-fulfillment sites in Florida and the Northeast, where Kroger doesn’t operate physical stores. Importantly, the Florida microsites are dedicated to fast service – as fast as 30 minutes.
Similarly, the regional chain Giant Company is using automated fulfillment center delivery to penetrate markets in parts of New Jersey where it does not own stores. These robot-run centers introduce other growth opportunities for Giant.
New Models Introduce Third-Party Sales Streams
Giant Direct, the online division of Giant, opened its automated e-commerce fulfillment center (EFC) in November 2021. Engineered by robotics company Swisslog, the facility can handle orders that are five to 10 times the size of what Giant’s locations can, thanks in part to two fulfillment systems (one for cold foods, one for shelf-stable) that use order-picking robots. Giant projects the center will eventually be able to fill 15,000 orders a week – and this is where the real growth opportunity exists.
The EFC’s robot-enabled capacity empowers Giant to serve the delivery needs of third parties, including competitors like Instacart, complete with dedicated space for its vehicles to sweeten the appeal. In this way, Giant might have found a way to reduce the need for the middleman and position itself to take back the lead from these deliverers.
Which introduces another partnership worth watching: Kroger (hello again) has launched a virtual convenience store – with Instacart. Called “Kroger Delivery Now,” the service is available to as many as 50 million households. It brings to mind Gorillas and other super-fast (10 minute) delivery apps that launched in Europe and in 2021 expanded to the U.S.
Best Of Both: Making The Ultimate Hybrid
These various fulfillment roads don’t necessarily have to run alongside each other. In Shanghai, they merge in a concept that integrates online, offline, logistics and data under one shopper-friendly roof. It’s called Hema, an Alibaba-operated “smart” supermarket chain where customers combine digital and physical shopping as one seamless experience.
At a Hema store, shoppers can scan their purchases as they go, have orders delivered for free in 30 minutes and even have their meals cooked while they shop – choose a fresh piece of fish straight from the counter and then be served the prepared dish at the in-store restaurant. Lastly, the stores serve as fulfillment centers for both Hema and other brands – customers shop right alongside workers picking the orders.
A hybrid can also embody a less-techy but no-less-flexible format. Whole Foods has proven so much in 2020, when it temporarily turned six traditional stores into dark stores, and then transformed four of them back to regular stores. (Fun fact: Whole Foods’ started planning its first dark store, in Brooklyn, in 2019 well before the pandemic to meet fast-growing demand for online fulfillment.)
Going Dark Is Just The Start
These dark store hybrids very well may represent what customers, and merchants, could expect as feasible, functional alternates to the traditional “slow-store” concept. But retailers also recognize that plenty of customers – even those who order online – still occasionally want that “slow” shopping experience.
Consumers want it all. There are those who will be committed to one type of experience and those who will pick and choose how they shop based on need. And sometimes the same customer will want each at different times. What we know is if the consumer wants it all, then the retail community will need to not just hear the orders, but take the orders and deliver them as needed.
Bryan Pearson is a Featured Contributor to The Wise Marketer and currently serves as a director and strategic advisor to a number of loyalty-related organizations. He is the former CEO of LoyaltyOne.