Dark Stores MeaningTransforming the grocery retail landscape in Saudi Arabia in current times, dark stores are essentially retail distribution centres catering to the needs of online shopping. Also known as dark supermarkets or dot-com centres, these stores are also order fulfilment outlets that cater exclusively to nline shopping. Most of the time, the dark stores business model consists of warehouses that facilitate a click-and-collect service in which the customer collects items ordered digitally on an online shopping platform, website, or mobile application.Though not accessible to end consumers, customers browse through the dark store online via electronic media and applications which offer a near real-time view of the product shelves. Web-based purchases an then be made through these shopping platforms, with the purchased products home-delivered or collected by the buyer from a pre-chosen location.The dark stores concept advocates setting up of these stores in high-demand busy neighbourhoods or areas, or even the city outskirts.Advantages of the Dark Store Business Model:The following are the multi-pronged benefits that dark stores bring to the table, disrupting the grocery delivery model:• Extra Capacity: A dark store model helps online retailers to pack, deliver, and pick up goods in multiple areas characterized by high demand or order density.• Full range of products: Unlike a typical store, dark stores boast a full range of items• Higher Product Availability: Since dark stores fulfil orders that are made online, they have a much clearer view of inventory levels and have better product availability vis-à-vis a traditional pick-in store fulfilment centre.• Increased Efficiency: Efficiency in dark store operations is optimally maintained with the widespread use of technology in the load, store and pick stages. These stores also have the capacity to increase the number of delivered units at any point in time, simultaneously ensuring that operations are efficiently maintained.• Enhanced Product Quality: The dark stores concept helps in efficient stock rotation management, with operating zones that are separately chilled. This leads to high-quality fresh food (with guaranteed product life) being stored at ambient temperatures while they are loaded into vans or delivery trucks.• Improved Picking Accuracy: Improved picking accuracy in dark stores incorporates the latest technology which ensures that the conveyor belts do not move tray groups to the next picking station unless the right goods have been scanned. This leaves very little margin for picking errors. Moreover, if the merchandise is out of stock, the system automatically identifies a perfect substitute instead of leaving this to the picker’s judgment.• 24/7 Operations at reduced costs, ensuring optimal customer service: Real-time visibility, space and time optimization, and efficient supply chain management in dark stores ensure greater financial viability. Moreover, these stores are not restricted by opening and closing hour regulations and can operate 365 days a year 24/7, thereby leading to round-the-clock order fulfilment, picking accuracy, and maintenance of high-quality standards.• Centralized Route Planning: Online darks stores use delivery bikes and vans for their operations, banking on centralized route planning. This helps to maximise the number of drops per order, with products being delivered in the shortest time window possible.Talabat – Spearheading the Middle East foray into grocery dark storesThe dark store model in the MENA (the Middle East and North Africa) region materialized on 23rd December 2019, with the launch of Daily, Talabat’s new dark store variant. Talabat is a popular online food ordering business in Saudi Arabia and the Middle East. Its new online dark store Daily ensures that grocery products are promptly delivered to the customer’s home in 15 minutes flat, with its family products portfolio consisting of quick snacks, fresh produce, and healthy food. With USP’s like the lowest delivery times and affordable price points, Daily can be accessed through the Talabat application, which can be downloaded on Apple Store and Google Play. There, Daily is available under the grocery filter card visible on the application. As per sales trends, the high-demand items of Daily include water, soft drinks, ice cream, and non-food items such as tissues and laundry detergent. Customers generally preferred to order for their immediate daily needs as well as their weekly grocery top-ups, mostly during the night and over weekends.Originally founded in Kuwait way back in 2004, Talabat is the largest online food ordering platform in the MENA region, operating in countries like Kuwait, Saudi Arabia, Bahrain, UAE, Oman, Qatar, Jordan, and Egypt. In February 2015, Rocket Internet acquired Talabat for $169.5M, which was in turn acquired by Delivery Hero SE, a European online food-delivery MNC headquartered in Berlin, Germany. Talabat made a foray into grocery delivery by incorporating a marketplace model in specific markets, and this move has been further strengthened by its launch of dark (virtual or delivery-only) stores.Dark Kitchens arrive to compliment Dark Stores and Online Food Delivery:According to Talabat’s parent company Delivery Hero, its dark stores are designed for an optimal picking process. This enables deliveries in less than fifteen minutes, a first for the Middle East region plagued by a lack of easy access to grocers and higher delivery wait times. Delivery Hero has been looking to further consolidate its dark store online delivery strategy by entering the ‘dark kitchen'(virtual restaurants) space across selected target markets. Dark kitchens, cloud or ghost kitchens are essentially non-gimmicky no-frills, attached kitchens that are designed to cater to high demand areas. They typically work as back-end kitchens that service online food delivery orders. Thus, dark-kitchens or delivery-only kitchens or restaurants, generally service areas where it is difficult to open a conventional restaurant. Ever since the Middle East went into a Covid-induced lockdown in March 2020, a lot of regional restaurants partnered with digital platforms like ChatFood, Taker, Zyda, Blink, and others to start their commission-free websites, thereby allowing customers to order directly from these websites.Noon – Saudi Arabia’s very own grocery dark store pioneerDark store setup in Saudi Arabia crystallized with the launch of Noon’s grocery delivery service. Based in Riyadh Saudi Arabia, Noon was established in 2017 as a Middle Eastern eCommerce platform. Backed by the Saudi sovereign wealth fund – the Public Investment Fund (PIF), Noon initially started its operations by offering a range of online products to its discerning customers. In February 2021, the company launched its grocery delivery service in Riyadh. Its new offering is called Noon Daily, and closely follows on the lines of Noon Food’s launch, the restaurant delivery service announced a few days earlier and set to be rolled out across Saudi Arabia in the second half of 2021. Noon Daily’s Riyadh offering provides products across the entire supermarket range, and in the wake of recent restrictions imposed to combat COVID-19 cases, Noon has been operating a 100% contactless service, both in terms of payment and customer deliveries. To cater to its dark store order needs, Noon possesses a big fleet of delivery vehicles and three operational customer fulfillment facilities in the Kingdom.Noon’s innovative dark store strategy takes the Saudi Arabian market by stormWhen it’s initial positioning as a soon-to-become ‘Middle East’s Amazon’ didn’t yield the desired results, Noon quickly changed its strategic focus to being the region’s ‘On-demand FedEx’, i.e. a regional logistics powerhouse. This helped to increase the scope of its playing field across diverse verticals and selective backward integration into potentially attractive business solutions like grocery dark stores, product white labels, and in the near future, ghost kitchens. This strategic positioning will also help Noon to address its food delivery core problems, namely low driver utilization and low customer loyalty, and significantly reduce delivery costs, making the economics of ordering more viable and offsetting low take rates.Reaping the benefits of a large sustainable ecosystemNoon has a large ecosystem, helping it to divide its marketing expenditure on a large set of businesses. Thus, it can offer its customers a multi-faceted loyalty program that encourages them to stay on their platform. The company launched its loyalty program Cue Noon VIP in late 2020, rewarding loyal customers with discounts, faster delivery, and other benefits. Even though the product is a loss-leader for Noon, it aims to retain customer loyalty and increase mental switching costs, similar to Amazon Prime’s successful business model.The future looks bright for dark stores Middle EastHere is a look at the possible future scenarios for various stakeholders in the region’s grocery delivery space:Customers: will be the overall winners, reaping the rewards of increased competition, as they would be enticed by great offers on multiple digital grocery delivery platforms. With negligible switching costs, they will also benefit from reduced take rates, which will partially come to them as discounts.Restaurants will also initially prosper, given their low take rates. They will however have to compete with aggregators like Noon Food, who use their generated data for backward integration and setting up their dark kitchens or virtual restaurants to deliver lucrative products with bargain discounts and offers.Grocery: As increasing competition gives rise to technological and business model restructuring in the online grocery delivery space, the future looks promising in Saudi Arabia and the Middle East, as the dark stores business model (complimented by dark kitchens) takes center stage, shaped by innovative players with deeper pockets like Talabat and Noon.
What is a Dark Store?With digital shopping driven by the global pandemic here to stay, dark stores have become increasingly popular across the retail landscape in recent times. Dark stores are most commonly physical retail outlets or supermarkets which have been converted into eCommerce warehouses or online fulfillment/distribution hubs. Thus, these stores combine the strengths of online shopping with the comfort and convenience of a physical store to provide an optimal and personalized customer experience.Nowadays, with live videos becoming a part of a dark store’s showcase, associates can connect with shoppers safely, making them feel more empowered to make a significant purchase. These D2C (Direct-to-Consumer) business entities ensure customer well-being through a dark store online order and purchase process, same-day delivery, and in-store pickups. Dark stores are generally not open to end customers to walk in and buy. However, buyers can make digital purchases through dark store online shopping platforms, i.e. web stores or mobile apps, with the ordered items home-delivered or collected by the buyer from a pre-chosen location. Advantages of Dark StoresDark stores are generally set up in and around customer strongholds or high-demand neighbourhoods, or even the city outskirts. A typical dark store consists of a 10,000 to 20,000 sq. ft space with around 15 to 20 workers present during a given time. The dark stores concept involves mid-size local warehouses used for storing, sorting, and managing orders, enabling a quick and cost-effective picking process, all of which can be easily automated. As retailers strive for customer acquisition and retention across multiple touchpoints, most retail businesses use a dark stores business model to reduce cart abandonment rates, lower rental costs, and boost overall profits by adding 3 to 4% to their overall bottom line. Since curb appeal isn’t a deciding factor, retailers can maintain a space in cheaper locations, and thus see the average order value dramatically increase by up to 200%. 05 Critical Steps to set up your very own Dark Store:Setting up a dark store requires careful conceptualization, meticulous planning, and execution. In the dark store consultants Middle East landscape, YRC (Your Retail Coach) is a leading retail management consultancy specializing in dark store set up. YRC’s expert team helps aspiring entrepreneurs to successfully kickstart their dark stores or online fulfillment centres, helping them to repurpose or convert an existing warehouse to a dark store to seamlessly cater to online consumer demand. The following are the various steps involved in setting up a dark store model:
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