Five Things You Need to Consider Before Setting up a Dark Store

The global hyperlocal delivery industry is booming as newer names set their feet as an extension of established online shopping brands, driving the need for dark stores. Recent research suggests that the global dark store market is growing at a CAGR of 37.80% and is expected to be USD 271.5 bn by 2032. Industry leaders call them the future of post-pandemic retail. Major retail stores are converting a decent share of their outlets to regional fulfillment centers with multiple options for fulfillment, such as in-store pickup, curb-side pickups, home deliveries, etc.

As the trends for quick commerce deliveries continue to rise with the current user penetration of 6.7%, more and more businesses are opting-in with multiple business models, such as third-party fulfillment, rented dark store spaces, etc. However, the success of a quick delivery hyperlocal dark store network depends on multiple factors. How many orders a particular zone or area is generating, what kind of fulfillment needs this area has, and the proximity of multiple customers – there are multiple strategic decisions brands need to make. 

Here, we share five key considerations for every business before setting up a dark store and discuss how intelligent quick delivery platforms can be of help.

#1 –  Delivery Volume

Opening a new dark store comes with fixed and variable costs, where dark store staff and maintenance etc., count as fixed costs and delivery fulfillment accounts for variable costs. Adding one more service node in the hyperlocal delivery network requires a careful consideration of the scale of delivery volume a particular area/zone is generating. 

Businesses can follow this three-step process: Check whether the current (and near future) delivery demands can be served by adding more capacity to the existing dark stores or by opening a new dark store. Calculate the costs (fixed and variable) in both scenarios. Finally, compare the effect of both steps – increasing the fulfillment capacity of the existing dark store network and opening a new dark store, on the delivery SLAs.

Such thorough cost and profitability analysis helps businesses steer away from costly investments in terms of assets, riders, and new dark stores and helps them make the best choice. Advanced quick delivery platforms come with in-built analytics and advanced capabilities that help businesses perform such assessments and reduce their fulfillment costs by optimizing the use of existing resources and leveraging the assets in an intelligent manner.

#2 – Fulfillment Requirements

Another crucial factor to consider before opening a dark store is the type of assets required for delivery fulfillment from the store. For example, in a densely populated area, opting for bicycle and on-foot deliveries might seem a lucrative solution. However, if the customer clusters are located far from each other, the on-foot delivery option might no longer work, and bicycle or scooter-based delivery might increase ETA SLA breaches owing to the manual effort involved in it.

Likewise, simply hiring bike riders for local fulfillment in a zone with high-rise residential apartments where the customer clusters are in close proximity can lead to higher operational costs. Further, if the deliveries are to be done via bike only, then businesses also have the option to add a few riders (dedicated or floating) to the existing dark store network.

Now, calculating such complex cost functions manually is tedious and prone to errors. On the other hand, intelligent quick delivery platforms offer in-built functionalities to perform such calculations and help make data-driven strategic decisions to ensure high operational efficiency and profitability.

#3 – Cost of Operations

As hinted earlier, a new dark store comes as a significant investment in the form of staffing, management, and inventory. Hence, it is vital to check whether the cost of operations exceeds the profit generated by the current order volume and the difference between them. While having a dark store for a residential area that generates a few thousand orders per month makes sense, having a dark store in an area with less than 100 order volume per month is a financial disaster. 

Further, the cost of delivery across the entire customer cluster in a zone, fuel costs, rider costs, the distance between multiple customer locations, time taken in every delivery, and other critical cost factors must be considered. Quick delivery solutions come with automated workflows, intelligent delivery routines, and highly configurable delivery flows that allow businesses to optimize their delivery operations and keep them cost-efficient. 

#4 – Proximity to Customer Cluster(s) and Other Dark Stores/Hub

Another critical consideration for opening a dark store is its proximity to the delivery locations and other dark stores or hubs in the network. It is extremely common for a dark store to face stock shortage or excess owing to customer demand variations. Having close proximity to other dark stores/hub ensures cost-efficient inventory movements. Likewise, having close proximity to all the customer clusters ensures rapid fulfillment, improved adherence to delivery SLAs, and more. 

Intelligent quick delivery platforms can process the delivery and customer data to draw out actionable insights and find the most strategic locations that improve the delivery operations. 

#5 – Analytics for Intelligent Decisions

Businesses must gather and check the data they accumulate over time, such as the most popular order categories for every zone, trends, and patterns in customer demands, predictive analysis for sudden order spikes and drops, etc. Also, they need to consider the fulfillment requirements based on their nature, such as home deliveries, or curb-side pickups, etc. 

Having this data, they can check and compare the operational costs for the currently existing network and the one they would have with the new dark store. This way, they would be able to make more strategic business decisions.

Such complex analysis requires intelligent technologies that enable businesses to leverage their data across multiple silos and draw critical insights. These solutions allow brands to analyze their data in a no-code format and get rich data visualizations for business development. They take out the guesswork from operations management and help reduce the cost of operations by 95% and steps for the delivery process by 77%. Businesses can drive 14% more deliveries per driver and increase on-time delivery by 24%.

As the demand for dark stores continues to grow, intelligent quick delivery platforms are going to be a critical game changer and major profitability driver in the quick delivery ecosystem.