Online Betting via Grocery Dark Stores

Whilst grocers are cutting back on megastores, rising internet food sales will see supermarkets sign up for twice as much online warehouse space in 2014.

Tesco, Asda and Waitrose will this year commit to doubling the space devoted to internet dark stores, according to property agent Jones Lang LaSalle. Around 1.8m sq. ft. of warehouse space is devoted to dark stores, but that is set to increase as online shopping transforms the retail sector.

Tesco is expected to open its seventh dark store in Didcot, Oxfordshire, later this year. They opened two dark stores in 2013 and have previously said they are scouting for further sites in Birmingham and Manchester. Their newest centre in Erith, south east London, can process 4,000 orders a day and offer 30,000 different items, 50% more than the average store. The site has also been designed to help Tesco launch same-day deliveries, a service already offered by Asda and Ocado.

The combination of faster picking, more delivery slots and increased use of ‘click & collect’ means acceleration of online growth, mainly at the expense of less efficient competition.

However, faster online supply of goods – especially bulky items – has to also accelerate the redundancy of large space retailing, and given that there are no obvious alternative use options – i.e. selloff- available, then the major retailers will seek to optimise available space via a combination of instore theatre and franchising.

Providing the numbers add up, this new availability of space has to represent a major opportunity for suppliers and retailers to fundamentally re-think the application of shopper marketing, a process conceived at a time when retail space was at a premium….

Tesco to build national network of online-only 'dark stores'

They are not open to the public but used to assist nearby shops unable to keep up with internet orders. Tesco already has four dark stores in London but internet boss Ken Towle said on Monday that another two would open in Crawley and Erith, near Dartford, and it was scouting other cities, including Birmingham and Manchester, for locations.

Future dark stores
Towle said Tesco's would need "tens" rather than "hundreds" of dark stores. Speaking last week, Tesco chief executive, Philip Clarke, said Tesco.com "provides all the growth we have in our core food businesses these days".

Where this is heading
Besides representing a threat to Ocado, Tesco with 50% of an online grocery market that will be worth 6% of total grocery spend by 2016 (IGD), the market leader is still at an early stage in its rebalancing of online-and physical store presence that will reflect online demand, with an increasing dark store weighting that will provide a means of reducing online overheads and help to subsidise the cost of home delivery.

In other words, it will always be difficult for online grocers to break out of the '£5-per-drop' mode, so lower-cost dark stores will help by releasing more of the retail margin to help cover delivery cost losses   (See posting below)

Tesco Dark Stores – a boost to their reality-store business?

With 48% share of the UK online grocery market, Tesco’s critical mass allows it to increase efficiencies via a pivotal distribution centre just opened in North London.   

The 115,000 square foot facility in Enfield is not only Tesco's fourth so-called customer-free "dark store", but is also its most automated to date, which enables staff to pick twice as many products an hour as the existing three virtual stores.

The latest site in Enfield provides a much higher level of automation, with conveyor belts dispatching trays to pickers, who have handheld devices strapped to their arms, to fulfil orders from 178 stations. In the other dark stores, pickers move around with a trolley.

Full assortment

Another difference is that the Enfield facility delivers all of Tesco's 26,000 groceries, as well as a full range of prepared foods, such as sliced cheese and meat, from its deli counters.

Less well-known is that the dark stores, such as the one at Enfield, also help to increase sales in the big stores in surrounding areas, as customers prefer less staff picking in the aisles.

Issues for suppliers?

However the new 'dark stores' raise a couple of issues for suppliers:

1. POS (Tesco spokesman: '…not the same point-of-sale advertising…' This means there could be some other form of product-prompts in the aisle, (in cases of Out-Of-Stocks?) and how might it differ from normal store POS? One idea might be to colour code shelf-edge price labels to reflect (darkness permitting!) gross margin or favoured suppliers…?

2. Role of Brand: if the brand is meant to attract the customer into the store, there to be confronted by the private label equivalent (better/cheaper than brand) and the possibility of a switch-sale, the supplier's use of shopper-marketing in the aisle can help to reduce the odds on losing a sale to a private label. The dark-store environment removes that facility…

This suggests that suppliers need to find a way of opening a 'dark-store dialogue' with Tesco in order to attempt to maintain the status quo as the business shifts online... 
This means gathering evidence via store visits.

One way might be to sneak into the store under cover of darkness?