How to stay ahead of the competition in the changing retail landscape.
It’s fair to say that the trend for dark stores that swept the retail industry mid-pandemic touched almost every national retailer.
Interestingly, even before the pandemic:
- Amazon was kicking off a trend of converting empty anchor spaces in malls into warehouses
- Walmart, Albertsons, Stop & Shop, Meijer, Hy-Vee and others were converting underperforming stores into dark stores
- And in QSR, both Wendy’s and Chick-fil-a were testing “ghost kitchens”
So this business strategy has been on the horizon for some time. Then, the pandemic hit and forced everyone to consider the concept.
According to the full-service omnichannel partner Vaimo, Investments in dark stores in 2021 were at a record high:
With all that said, the real questions Canadian retailers (of all sizes) are facing are:
- What does a dark store strategy look like here at home?
- How can smaller retailers, say those with 10-30 locations, take advantage of this growing trend?
- What are people who have done it saying?
We’re going to dig into all of that and more.
WAIT, WHAT’S A DARK STORE?
What’s the first thing that comes to mind when you hear the word ‘dark store’? Most people think… dimly-lit, dank, terrible experience.
Of course, we know that dark stores, also known as ghost kitchens in the restaurant industry, are unadvertised retail locations that are not open to the public. Therefore, they’re dark.
Typically located in lower-cost spaces, these brick-and-mortar locations are purpose-built fulfillment centres. Giving shoppers options like BOPIS or same-day delivery. And giving retailers local, last-mile access at potentially lower operating costs.
While e-commerce, grocery, fashion, and QSR are leaders in this space, the concept of setting up dark stores can be applied to almost any retailer.
Here are a few more benefits:
- Contact-free shopping
- Better distribution and faster delivery
- Improved inventory control and management
THE OPPORTUNITY FOR RETAILERS
When considering if a dark store strategy is right for your business, there are three main reasons:
- You have built out a network but have underperforming stores. To lower operating costs and make the most of the locations you’re locked into, you convert existing stores to dark stores.
- You are expanding into new geographies or high-cost areas. To test the waters or keep operating costs as low as possible, you look for lower-cost, non-traditional-retail spaces.
- You are an e-commerce business building out distribution. Not looking to operate a public-facing brick-and-mortar retail business, dark stores give you a local presence without taking on full retail.
This is a new-ish concept. Considering that, there’s no long-term data that proves an aggressive dark store strategy is more financially beneficial than traditional store-fronts or distribution centres. Even so, the opportunities for smaller retailers are intriguing.
Contact-Free Shopping – Dark stores allow shoppers to buy from a local store without going in. Combining online shopping with the instant gratification of getting goods (almost) immediately.
Better Distribution and Faster Delivery– Converting existing-underperforming stores or setting up mini-distribution centres in lower-cost locations is a smart way to speed up order fulfillment and efficiency – holding products closer to the market.
Broader Reach – If you’re a traditional retailer, by focusing online (think of reach) with the local presence, you now have your products accessible to everyone 24/7.
More Bang For Your Buck – Grocers have especially benefited from this concept as dark stores eliminate the need for “all things customer.” There’s no need for checkouts, prepared food, wide-open aisles, facing goods…really, anything aside from shelving and space for pickers.
Easier To Manage Perishables – Another reason grocery stores benefit is that fresh food can go straight from refrigerated spaces to home delivery – minimizing the time goods are sitting at the store.
You Can Increase The Number of Products – Since we’re already optimizing the store layout for storage and picking – with increased shelving comes the option of increased SKUs.
Improved Inventory Control and Management – Your products, on your shelves, are only ever touched by your team. Consider how this level of control reduces the number of times a product is handled and how it could affect shrinkage rates.
LESSONS LEARNED FROM THOSE WHO HAVE DONE IT
According to the recent article, The State of Ghost Kitchens in 2022 by Luca Piacentini:
“The key component to making sure off-premise stays strong is having a really fluid ordering and pick-up experience. The synergy has to be there. If you can execute a positive and seamless experience for the consumer, they will want to re-engage over and over again. Off-premise is all about convenience.”
In the QSR or restaurant industry, the idea of dark stores (or ghost kitchens) is based on a simple premise: you can operate multiple brands out of the same kitchen – offering a mix of dishes while sharing a single kitchen. This allows owners to purchase ingredients and run multiple menus with ingredient overlap to keep costs down.
In speaking with a local Guelph, Ontario news outlet, James Rilett from Restaurants Canada believes ghost kitchens are here to stay:
“People obviously think it may be competition to traditional brick and mortar restaurants, but there are some good sides as well. Some restaurants, particularly chains, are able to move some of the delivery of the business to a ghost kitchen and free up the brick and mortar restaurants to serve customers.”
Moving beyond QSR and restaurants – here’s what Hema (an Alibaba-operated “smart” supermarket chain in Shanghai) did to merge online, offline, logistics and data under one roof. According to an article called The Future of Retail: 9 Ways Alibaba is Redefining Retail Stores, they’re looking at exploring hybrid models:
“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 [approach] 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.”
WE BUILD EFFECTIVE RETAIL ENVIRONMENTS (EVEN DARK STORES)
Every retail business faces unique challenges. So, if you’re a Canadian retailer who’s looking to:
- Lower operating costs at your underperforming stores
- Pilot new markets
- Move from 100% online and own the final mile
Reach out to our retail design team and we’ll help you develop a custom strategy.
