Dark Stores for Grocery Retailers: What Are They and How Do They Work?

What are the challenges of running Dark Stores from an inventory planning perspective?

Delivery is now the cornerstone of the customer experience. Grocers are offering super speedy deliveries that can get groceries to their customers’ doors the same day or even within hours or minutes. To keep their pledge of instant shipments, retailers need to build up a new network of fulfillment and delivery centers.

Even though Dark Stores make online ordering fulfillment as simple as possible, they come with a few challenges.

1. Delivering customer service excellence at a low cost

Inventory management is central to delivering cost-effective service excellence. For grocery retailers, being a cost-leader and service-leader at the same time might seem counterintuitive. However, it’s possible to achieve this with sufficient supply chain visibility and execution.

By positioning inventory efficiently, grocers can maximize their ability to most profitably fulfill their customer demand. They can start winning on ‘customer experience’ by being more predictive when meeting customer demand, providing greater product availability in a more cost-effective manner and offering the best service, pricing and overall experience.

2. Achieving highest forecast accuracy

Accurate demand forecasting is vital for grocery retailers who want to keep up with their customers’ delivery requests. Existing replenishment and forecasting systems with old data structures don’t provide accurate, granular forecasting that separates online orders from in-store demand. They fail at making the most profitable replenishment decisions for stores and Dark Stores that fulfill the demand streams.

Unlike traditional forecasting data structures, Dark Store forecasting needs to generate highly accurate forecasts by making use of the online channel data as well as taking promotional events, local demand and competition into account.

By creating accurate, short-term baseline forecasts at the SKU/zip code/day/fulfillment preference level and forecasting demand at each location, grocers can position their inventory at the right amount at each location so that they can successfully increase their order fulfillment performance.

3. Overcoming the perishables challenge

A typical grocery order can consist of both perishable and non-perishable items. And the majority of grocery items such as dairy, meat, fruits and vegetables have a short expiration window. If the product is not fresh, it’ll result in an unpleasant customer experience.

The challenge is to make sure that every perishable item is delivered to the customer’s doorstep in its prime form. Yet, this can easily become a burdensome process for a grocery retailer.

Using Dark Stores to store and manage perishable items is a great way to overcome this challenge. Once grocers have enough space, visibility for pickers and flawless inventory management capabilities in their Dark Stores, they can maintain the ideal freshness level for perishable items and minimize the time between home delivery.