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 Stores

Dark 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:

  1. Build a Business Plan

    The first vital step is to create a comprehensive dark store business plan, i.e. the blueprint for the whole dark store, and it’s functioning. The business plan is a step-by-step guide defining the store’s roadmap laying down the nature of the business and its strategic goals and direction. The following are the key components of the dark store business plan:

Executive Summary: This is at the beginning of the plan and provides a brief description of the dark store’s mission statement and products & services portfolio.
Business Description: This is a general overview of the key aspects of the dark store, including the history, goals, mission and vision statement, target clientele, and the USPs of the business, products, and services.
Management Plan: The management segment of the plan outlines the organizational structure, staffing plan, and management roles and hierarchy.
Operational Plan: The operational part of the business plan should clearly and transparently describe the functioning of the dark store, including the logistics and operational side.
Industry/Market Analysis: This is a quantitative and qualitative assessment of the market and industry, into which the dark store is venturing.
Competitor Analysis: This analyses the dark store vis-a-vis its direct and indirect competitors, including their SWOT (Strengths, Weaknesses, Opportunities, and Threats), and may include their current and potential product and service development.
Marketing Plan: This will showcase the marketing strategy for the dark store, how its products and services will be priced, promoted, and sold, and the budgets for these marketing expenses.
Sales Strategy: A sales strategy plan is the business master plan for securing stable, long-term revenues through the acquisition and retention of new and existing customers. It also includes go-to-market strategy.
Funding requirements: This outlines the future funding requirements and financial plans for the dark store usually for the next five years, especially for start-up businesses.
Financial Projections: This key section shows anticipated revenue projections for the business. The section generally includes a sales forecast, expenses budget, cash inflows and outlays, income statement, balance sheet, and a profit and loss statement.

  1. Decide the product categories, as per local demand:

    A key consideration for establishing a dark store is to decide the right product categories and the best location for the store, based on prevalent local demand patterns. The dark stores UAE market is mainly characterized by grocery, apparel, footwear, consumer durables, and home goods retailers. All these business sectors enjoy good local demand in most areas. The grocery dark stores concept is the most popular and has been universally adopted worldwide, including the dark stores UAE landscape, where Talabat and Noon have been pioneers.

    Because of the convenience aspect and the home delivery advantage, most buyers prefer to buy groceries online nowadays, and online grocery order fulfillment and delivery is facilitated by the dark stores business model. A critical challenge here is inventory replenishment, as retailers need to ensure that they can handle the dark store model, where the order fulfillment window is short. Therefore, the order management system should be able to send real-time inventory updates to websites. They should also monitor real-time inventory and replenish it quickly to reduce potential sales losses due to out-of-stock items. Thus, YRC’s experts can help in regulating inventory for your dark store, setting up inventory and order management systems to modify picking slots, and govern the order pickup times.

Inventory management systems should also be able to handle situations when customers do not collect orders as per their scheduled timeslots. Scheduling and releasing the order for dark store pickups based on order creation is vital. Issues pertaining to order modification like the addition of new products, cancellation, etc. can also be managed through the inventory monitoring system, even if the order is ready for picking. YRC’s team of retail experts can help your dark store optimally handle order fulfillment, allowing customers to return products to dark stores, or their nearest supermarket, as also maintain product quality, especially for fragile, frozen, or chilled items.

  1. Dark Store Layout Plan

    A critical step in setting up the online dark store is its layout plan, which provides the store’s floor space design, and the management and placement of items there. Dark stores require a good amount of space
    to accommodate products in large quantities. Retail store layouts are based on commercial factors and product category groupings. According to YRC (Your Retail Coach), a dark store can be laid out to drive efficiency based on time and motion studies. Through pallet pick locations, and rear fill shelving, along with fast, slow, medium, or bulky product groupings, there will be a significant rise in picking efficiency.
    Ensuring the right pick face capabilities based on sales velocity minimizes product replenishment.

    Further, YRC strategists understand that site requirements vary across home delivery dark stores to standalone ones.

    Home delivery dark stores require dark warehouse facilities, besides adequate space to accommodate delivery vans in fleets along with loading positions. YRC (Your Retail coach) dark store consultants
    Middle East can help you choose locations with excellent transport linkages and access to abundant local labour reserves. Dark stores also need a proper planogram, which makes it possible to place more
    products on shelves, and address consumer needs better vis-à-vis competitors. YRC-designed planograms help in reducing out-of-stock products and generate greater revenue.

    Better balance between shelf inventory and consumer demand lowers cost. Planograms also optimize shelf layouts stimulating purchasing behaviour through higher revenue generation. Consistent branding and an optimal marketing message lead to better client satisfaction and higher client retention. This leads to improved use of retail space, higher ROI, and optimal use of staff during shelf resets, thereby
    lowering cost and lessening buyer inconvenience.

  2. SOPs for Dark Store operations

    Standard operating procedures (SOPs) or instruction manuals are crucial to managing a dark store setup. SOPs defining the type and size of product assortments influence the store’s site design. They also help drive storage and picking space requirements, shelf types, and racking, and determine the temperature control regions for the store. Also, these process manuals help to drive product launches, plan the store type, guide employees through job training, ensure system integration and also help in product assortments for fresh goods to minimize wastage. YRC will help you to chalk out effective SOPs governing the entire daily operational process framework and helping to optimally document customer lead times, from the initial order to the final delivery collection.

    Process manuals/ SOPs also come with various operational benefits. Defining the service proposition, SOPs are conducive to effective implementation of all end-to-end dark store solutions forming the basis of the retail ecosystem. During the dark store setup, critical decisions about specifically catering to the local customer base or acting as a fulfillment hub for delivery orders have to be taken. The primary focus can range across home delivery or click and collect, but SOPs from the YRC team enable daily operations to be effectively mapped to understand possible bottlenecks or challenges ahead of detailed design and conceptualization. Dark store SOPs are also used as the store set up guidelines, detailing a list of things to do and avoid. This consists of preparing the dark store’s unique warehousing model, with demand forecasting and operational management strategies, techniques, and methods built-in to minimize loss and maximize profits.
  1. IT System Integration: Customer Ordering App, Back-end Inventory Management System, Order Fulfilment system, Last-Mile Delivery tracking, After-sales Feedback mechanism

    Dark stores necessitate a fully operational Order Management System (OMS) and Auto-Replenishment System (ARS) to ensure an optimum procurement framework. YRC helps you to choose and invest in suitable and cost-effective technology, software, and infrastructure, also helping you to implement the dark store’s overall IT integration and automation process. YRC’s dark store-focused consultancy services help improve the customer ordering application and website features and functionalities, ensuring last-mile deliveries and click and collect points, all of which impact warehousing and logistics. Dark store warehousing space allocation impacts transportation dynamics, with items arranged according to picking convenience.

    Applications and websites enabling the online order fulfillment mechanism need careful planning and execution. YRC experts also help you to build a properly functioning back-end inventory management
    system, order fulfillment system, and an effective after-sales feedback mechanism, along with a successful Wireframes & AI strategy that helps your dark store’s mobile apps and websites to function optimally and increase its overall reach. An effective order fulfillment system, inventory management system, and an after-sales feedback process can help dark store retailers to optimize order processing and customer experience simultaneously. A proper inventory management system helps channel customer requests to the right store. Customer ordering apps and websites should integrate automation to trigger real-time automated updates.

    Dark Store Consultants Middle East – YRC

    Investing in the dark store space and its constantly evolving technology and infrastructure is not easy. Hand holding you every step of the way, YRC’s consultants make it simple for you. Learn more about retail dark stores, and start your own online delivery business, with the expert assistance of YRC’s strategists. Based out of Pune, India, Your Retail Coach (YRC) is a premier retail eCommerce consulting firm specializing in a wide range of customized retail services, notably dark store consulting services. The company has years of proven expertise in online supermarket consulting, order fulfilment, and supply chain management behind them, and has successfully established franchise business models, and SOP frameworks across critical business functions. Led by experienced retail industry experts and market strategists, YRC has also been a strategic and transformational partner for profitable retail start-ups.

    If you are an aspiring dark store startup looking to set up your dark store in the Kuwait, UAE or other Middle East countries, contact YRC retail experts to discuss, about starting a dark store, growing
    exponentially and staying ahead of the curve.