Start a Dark Store Business

A dark store is a retail distribution center or outlet that caters exclusively to online or app shopping. It is the shop equivalent of a ghost kitchen, it does not have a shopfront and has industrial type shelving rather than shopfitting and caters exclusively to online shopping and is often a warehouse-type operation that acts as a delivery depot but can also be used as a collection point. We use this to refer to a “pure-play” e-commerce operation that does rapid delivery within an area or offers a “click and collect” service. It is often differentiated from traditional e-commerce that orders from suppliers and then uses a courier and takes a few days to arrive.

I am going to quickly dismiss both the grocery retail model and the general goods model as viable business models in South Africa.

Grocery retail
In many places around the world, there are dark retailers that or cater to local communities, however in South Africa where there is a shopping mall on every corner this is not a viable strategy. Also, shopping mall retailers are selling on apps direct from stores that is why your local Checkers parking lot looks like an African Union convention and you can walk from your car to the shop door and only hear foreign languages being spoken. Those are the drivers that take care of the last-mile delivery.

General goods
Then there is the general goods business. And here again is heavy competition, with Takealot being the largest, most collection points and their African Union powered delivery network Mr D.

In order to compete and get ahead as a small business the sweet spot might be niche products at faster delivery times. Dark stores also has the cost savings of not having to operate a retail outlet, cheaper floorspace means either a bigger range of one type item or smaller ranges of various different kinds. There is also the opportunity to live and work from the dark store premises (like a house zoned for business) and save money something not possible in a retail outlet. We do currently see vape equipment and ejuice delivered in this way and even alcohol, as mentioned below this is for people that cannot or don’t want to go out to shops now but also still want it today. From a company perspective, there are various delivery routes and a cutoff time. Any orders before that time will still be able to be delivered that same day if it comes before the delivery goes out. This will allow an operator to to target various areas, southern or northern suburbs, do one in the morning, come back to base, do the other in the afternoon etc.

Faster delivery
To me the main advantage of dark stores is the faster delivery. The store comes to me, I don’t have to go to it and I don’t have to wait. If I notice I ran out of something in the morning, I can order it and have it delivered to my work. I don’t have to waste my lunchtime in shops nor do I have to go to shops after work after sitting in peak hour traffic. The same advantage can be said for people such as stay-at-home moms looking after children, no need to go to the shop when an app driver can deliver it. For many people, it is simply cheaper and convenient to have it delivered than go out themselves, doubly so in a country with the high crime that SA has. No need to risk your life dodging taxis or risking hijacking or people who bought their licenses.

Niche goods
We have seen niche dark stores take on Takealot with niche items such as computers that offer same-day delivery in a certain area if ordered before a certain time. But that is a very competitive industry and capital is required to hold stock.

I personally see potential in two business models:

Specialty high-value, not commonly available items
Such as high-end sports supplements. I just see it as very expensive and risky to offer a broad range of products from a dark store, if there is an existing retail brick and mortar store which can be used for delivery as well then fine, as we saw with Toys R Us in the US.

Again like most other things, the least risky strategy is often to sell the shovels during the gold rush and in this case, provide products and services to companies that want to operate dark stores.

There might be opportunities in B2B with components or niche’s like hardware that will benefit from faster delivery, but I think there has to be a balance of the right product at the right time (factoring in location), the price might be a secondary consideration if it is something that is needed right now and the quick delivery removes a problem. There is another thing that I want to point out, now that a lot of people are working from home and with COVID killing the nightlife it might be cheaper for them to just order in anything and not use or even own a car at all and if they need it just Uber around. These are also the type of trends that will benefit dark stores.