Dark Stores & Micro Fulfilment Centers: what is the future of grocery delivery?

The buzzword for 2020 was Dark Stores, the one for 2021 is Micro Fulfilment Centers. What's the right approach?

Grocery is the most complex Retail sector. Many factors need to be managed collectively: fulfilment method and location, consumer’s choice, shopping frequency, variable shelf life, delivery lead times, are just some examples. 

When the pandemic struck, the sector was not prepared for the sudden shift and ordering online became almost impossible in a matter of days, with unfindable time-slots and deliveries scheduled weeks ahead. But in reality, the online grocery boost started well before Covid knocked at doors, but it was a tamer affair, with a 10% growth in Europe between 2018 and 2019. Since then it suddenly grew 55% (data: McKinsey). For every supermarket chain, selling online and delivering was no more an option but a strategic business area to compete on the market. 

Grocers stood at a crossroads: the faster and cheaper solution was to rely on crowdsourced pickup and deliveries, with 30%+ costs for the consumer and eating away their already narrow profits. The other was to be equipped with a fleet (some already had) and re-organize shops for picking and curbside collection. The buzzword, during 2020, was Dark Store: usually, a supermarket-sized hub dedicated to only addressing online orders.  

Micro Fulfilment Centers

Then ultra-fast delivery became the new trend, providing consumers groceries in 15 to 30 minutes, suddenly raising billions in investments from venture capitalists. This model of quick commerce, as illustrated by Statista on the latest webinar – Grocery delivery is growing faster than ever before– has a delivery cost that averages 6.80€, against the 5.20€ of time-window delivery in 1-3 days. The operating profits average of quick commerce (only for delivery) drastically drop to -0.6€, while time-windows delivery successfully stands at 15.7€.  

Today’s buzzword is Micro Fulfilment Centers (MFC), a small, sometimes highly automated hub, located in an existing store or warehouse or a dedicated small distribution space, roughly 10,000 square feet, a very small area compared to standard warehouses in the 300,000-square-foot range. Automation can lower the fulfilment costs by about 75% but MFCs have inventory for 24-48 hours and must be restocked regularly, generating complexities in planning re-fulfilment in such a short time. 

As written by Luke Nuber on SupplyChainBrain: “Keep in mind that Micro Fulfilment Centers require a micro-strategy approach — factors such as real estate cost, traffic, labour cost and availability, store density, and population density all contribute to the determination of whether micro-fulfilment makes sense in a given region.” 

Considering the variety of Europe’s geo-social scenarios, we could assume that belts of MFCs could exist around major cities, satisfying a portion of the demand that comes with overcrowded, gentrified, metropolitan lifestyles. Bigger Dark Stores, instead, doubling as Regional Fulfilment Centers (RFC), might well take the lead almost everywhere else. 

In the end, Grocers need to define what is the best approach based on their business requirements!

What will be the future’s primary grocery fulfilment strategy? 

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