Online Grocery Fulfilment: The rise of the dark store.
The rapid growth of the online grocery market in many countries has begun to put pressure on traditional store picking operations, leading to the rise of dedicated ecommerce grocery fulfilment centres, or so called ‘dark stores’. From the outset of online grocery services, the majority of retailers chose to develop store picking operations that enabled them to leverage their fixed assets, and also the store inventory.
As volumes have grown, retailers have increasingly found that their stores lack sufficient capacity to support ecommerce order volumes without impacting the offline store operation (aisle congestion, on shelf availability due to increased replenishment requirements, lack of back of house space, insufficient parking space for home delivery vans). Typically this happens when online sales are more than 10% of store total sales.
The answer to these capacity constraints is the dark store concept, which has developed significantly in the UK and France, and is also present in Germany and the Netherlands, among other countries.
Typical UK dark stores carry a full or extended supermarket product range, and most retailers’ first dark store was effectively a larger version of a store picking operation with familiar product layout and systems. The level of sophistication of dark stores varies across the UK retailers, but the progression towards automation is well demonstrated by Tesco which has increasingly automated each new dark store it has opened.
In addition to offering increased order processing capacity, dark stores can offer additional benefits including:
- Improved availability due to lack of competition from in-store customers
- Improved efficiency through use of specialist equipment, bespoke layouts, picking technology and potentially mechanisation/automation
- Range extension due to increased storage capacity
- Improved transport efficiency due to consolidated demand
Dark store design and implementation challenges
There are numerous challenges associated with dark store operations, which we have learnt from our engagements with six different grocery clients where we have modelled, designed, built and run dark store operations. Maximising efficiency is critical due to the high costs of fully dedicated fulfilment operations.
1. Clearly define the product proposition
Although this sounds second nature, it is imperative to understand the desired product proposition before designing the dark store.
The size and nature of the product assortment has a major impact on site design. The number of SKUs drives storage/picking space requirements, and the choice of types of shelving/racking. The split of temperature regimes is also important, as is the decision to use refrigerated chambers rather than refrigerated cabinets, which are typical in a store.
2. Clearly define the service proposition
This is generally more simple to define than the product proposition but again is crucial to dark store design.
Key questions to answer include:
- Will the dark store serve only its own local customer base, or will it act as a fulfilment hub and delivery orders to other sites for onward delivery or customer collection?
- What is the desired customer lead time from order to delivery/collection?
- Is the primary focus home delivery or click & collect?
- Will customers come to site to collect orders?
- Understanding these service requirements enables the daily operation to be mapped at a high level, helping to understand likely constraints or bottlenecks ahead of the detailed design.
3. Select the right location
Home delivery dark stores generally require a very large yard to accommodate the delivery van fleet, and also a large number of van loading positions. Not many existing buildings have sufficient external space, which has led to retailers commissioning development of brand new facilities in locations with good transport links, and access to a large local labour pool.
4. Optimising layout
Whereas retail stores are typically laid out based on commercial drivers and product family groupings, a dark store can be laid out to drive efficiency. Using pallet pick locations, and rear fill shelving, along with fast/medium/slow/bulky groupings of products can deliver significant increase in picking efficiency. Ensuring sufficient pick face capacity based on sales velocity also ensures replenishment is kept to a minimum.
5. Select the right technology
Where retailers have transitioned from store picking to dark stores, often a legacy picking system is also carried over. Dark stores are prime candidates for consideration of a WMS solution but this should be carefully evaluated in terms of potential productivity benefits versus the implementation and ongoing licence and maintenance costs.
6. Ensure labour is flexible
Online grocery order lead times are extremely short, so ensuring sufficient staff are available to fulfil orders is essential; equally it is difficult to accurately predict customer demand, particularly for new operations. Establishing flexible employee contracts and good relationships with agencies that can offer a trained pool of resource at short notice will help to minimise labour costs.
7. Consider automation
As with any warehouse operation, automation can potentially offer increases in capacity and productivity but implementing such technology always carries risk. Dark store operations are well suited to two types of automation; outbound crate storage and sortation, and picking.
As with all automation, it is first essential to fully understand the business profile; generally the operation needs to reach a stable footing before considering investing significant sums of money in software and machinery.
First published in: Essential Retail