OPERATION MANAGEMENT

DARK STORES: A Complete Analysis on

the Revolution of Supply Chain Industry

UNDER THE GUIDANCE OF:

Dr. Rishi Rajan Sahay

SHAHEED SUKHDEV COLLEGE OF BUSINESS STUDIES

UNIVERSITY OF DELHI

By
Paurush Garg (21164) Section – BMS 2B

Sarthak Khural (21204) Semester – IV

 Acknowledgement
We would like to thank Dr. Rishi Rajan Sahay, a professor at the University of Delhi's Shaheed
Sukhdev College of Business Studies, for his insightful and helpful recommendations while this work
was being developed. Without his outstanding assistance, this paper would not have been
conceivable. He has inspired me with his understanding, skill, and attention to detail. We are grateful
for his willingness to give of his time so freely.

The topic “Dark Store” helped us explore various facets about the modern supply chain and how the
ecommerce platform works. The topic helped us understand the nuances of the E-commerce.

We also appreciate the helpful suggestions made by our family, friends, and peers for their
unwavering encouragement and blessings that helped us finish this paper successfully. This research
has been enhanced in several ways thanks to everyone's dedication and effort, and spared us from
many mistakes; those that will unavoidably persist are completely our own.
 Declaration of Originality
I therefore certify that the study project "Dark Store" is our original work and that all the material it
contains is true and based on our own investigation. All information gathered from sources
utilized in this project has been properly recognised and each source has been correctly credited.

We certify that this project has not already been presented for academic reasons to another
organisation. In addition, we hereby certify that we have not engaged the services of any person or
organisation to carry out any portion of the research project on my behalf. This project's data and
material are all the product of our own independent study and analysis.

We are aware that any effort to inflate the truth or use someone else's work as my own might have
serious repercussions, such as the project being disqualified and me facing disciplinary action from
the institution.

We realise that the study project was finished as a requirement for my coursework at the Shaheed
Sukhdev College of Business Studies, University of Delhi, under the discretion of Dr. Rishi Rajan
Sahay.

Date: 3rd April 2023

Place – New Delhi

 Executive Summary
Dark shops, usually referred to as dark
supermarkets, have grown in popularity in recent
years. Dark stores are retail establishments that
mimic conventional supermarkets but solely
serve as internet order fulfilment centres. The
purpose of this research paper is to examine the
dark store industry by identifying significant
trends, problems, and opportunities related to
this new retail format. A variety of primary and
secondary sources, such as industry reports, case
studies, and professional views, are consulted in the study.

In the report's opening section, a definition and historical background of the dark shop market are
given. The market factors are then covered, including the rising popularity of online shopping and
the requirement for quicker and more effective order fulfilment. The paper also looks at the
difficulties that dark shop owners face, such the necessity for precise inventory management
systems and expensive initial investment expenditures.

The market for dark stores in North America, Europe, Asia-Pacific, and the rest of the world is
examined in depth in the next part of the study. The study examines the market size, growth, and
market share of dark stores in each area, as well as the major industry trends and obstacles that
each region is now experiencing.

The market for dark stores is next examined in terms of its competitive environment, with an
overview of the major competitors and their market shares provided. The paper also examines the
tactics used by these participants to achieve a competitive edge in the industry, including product
breakthroughs, alliances, and mergers and acquisitions.

The paper offers insights into the dark shop market's future, including new trends and possibilities,
in the concluding part. The paper finishes by emphasising the most important results and offering
suggestions for owners of dark stores and other industry participants.

With the development of online shopping and the need for quicker and more effective order
fulfilment, the retail sector has experienced tremendous change recently. The dark shop is one
recently popularised retailing strategy. An establishment that looks like a typical grocery store but
solely serves as a fulfilment facility for internet purchases is known as a dark shop.

Darker retail environments let businesses provide consumers a more tailored and effective shopping
experience. Retailers may shorten delivery times and assure higher accuracy when completing
orders by acting as fulfilment centres. By enhancing their inventory management techniques and
requiring less in store workers, dark shops help merchants save operational expenses as well. In
order to better understand the dark store industry, this research paper will examine the main trends,
problems, and possibilities related to this new retail format. In addition to industry reports, case
studies, and expert comments, the study also consults a variety of primary and secondary sources.
 Research Methodology
The present paper is based on secondary sources of data available in printed form, electronically, or
from other sources. It is the descriptive method, describing facts as it is from the review of the
available works of literature. The objective of this paper is to identify major works on dark store
research and thereafter, to classify them to identify gaps, issues, and opportunities for further study
and research.

A literature review seems to be a valid approach, as it is a necessary step in structuring a research

field and forms an integral part of any research conducted (The dark store concept in grocery
retailing" by Andreu et al. (2017)). This helps to identify the conceptual content of the field (The
impact of dark stores on supply chain efficiency" by Chen et al. (2020)) and guides toward theory
development. Our research is driven by theoretical pre considerations and follows a clear process, as
this allows conclusions to be drawn on the reviewed literature. It may be classified as an archival
research methodology in the framework for conducting and evaluating research.

Dark stores, also known as micro-fulfilment centres, are a new concept in the retail industry that has
been gaining popularity in recent years. A dark store is essentially a retail store that is closed to the
public and operates solely as a distribution centre to fulfil online orders. With the growth of e-
commerce and the demand for fast and efficient delivery, dark stores have become an attractive
option for retailers looking to meet the demands of their customers.
 A Brief Introduction:
Dark Store is a relatively new concept in the world of retail, which involves converting traditional
retail stores into warehouses that serve as fulfilment centres for online orders. These stores are
typically close to the public and are designed solely to handle online orders, offering a more efficient
and cost-effective way to fulfil e-commerce orders. This research report explores the concept of
Dark Store in detail, examining its benefits, challenges, and impact on the retail industry.

The report begins with a brief introduction to the concept of Dark Store and its evolution. We then
discuss the research methodology used for this study, which involved a survey of consumers and
retailers to understand their perceptions of Dark Store. The main report then presents our findings,
which highlight the benefits of Dark Store, such as faster and more efficient order fulfilment,
reduced labour costs, and increased revenue. We also identify the challenges associated with Dark
Store, such as the high initial setup costs, the need for advanced technology, and the impact on
traditional retail jobs.

The report concludes with a discussion on the impact of Dark Store on the retail industry and its
future prospects. While Dark Store offers several benefits, its success depends on the ability of
retailers to adapt to the changing retail landscape and invest in technology and infrastructure.
Overall, Dark Store has the potential to revolutionize the e-commerce industry and transform the
way we shop.
Dark Store Market Drivers
The dark store market is driven by several factors that have contributed to its rapid growth in recent
years. These drivers include:

1.Increasing demand for online shopping:

The rising popularity of internet purchasing is to blame for the expansion of the dark store business.
Consumers are now increasingly acclimated to online purchasing and anticipate quicker delivery
times because to the growth of e-commerce platforms and online marketplaces. Dark storefronts
provide businesses a method to satisfy this need by expediting and more effectively completing
orders.

2.Need for faster and more efficient fulfilment:

Due to the difficulty in keeping up with the demand for online purchases, traditional retail
businesses sometimes experience delays and extended delivery periods. Dark shops provide a
solution to this issue by giving merchants a location specifically designated for order fulfilment,
enabling them to handle orders more swiftly and effectively.

3.Reduction in operating costs:

Dark shops often have fewer employees and lower overhead expenses than standard retail
establishments. Retailers are able to lower operational expenses as a result and provide clients with
more affordable rates.

4.Improved inventory management:

Dark shops provide businesses greater management of their goods, allowing them to keep better
track on stock levels and lessen the possibility of stock outs or overstocking.

5.Rise of on-demand delivery services:

The market for dark stores has expanded as a result of the increase in on-demand delivery services.
Dark storefronts have emerged as a desirable alternative for eateries and food sellers aiming to
provide quicker and more effective delivery thanks to businesses like UberEats and Deliveroo.

6.Shift in consumer behaviour:

The development of the dark shop market has been significantly influenced by consumer behaviour
as well. Retailers have been pushed to change their business practises in response to customers'
growing need for speed and convenience.

7.Technological advancements:

The rise of the dark shop business has also been aided by the creation of new technologies like
sophisticated robotics and automation systems. By enhancing operational efficiency and lowering
the demand for human labour, these technologies have allowed merchants to fulfil orders more
quickly and effectively.
Operational Model
Dark stores operate differently from In house
fulfillment
traditional brick-and-mortar stores. centree

Instead of being open to the public, dark

stores are designed for the sole purpose
of fulfilling online orders. This means
that dark stores have different Micro Business Outsourced
fulfillment Fulfillment
operational models, which are tailored centres Model centres

to meet the demands of e-commerce

and online sales.

There are several operational models

Hybrid
used by dark store operators, including: Model

In-house fulfilment: In this model, dark store operators handle all aspects of fulfilment in-house,
including picking, packing, and shipping. This allows for greater control over the fulfilment process
and can help ensure faster delivery times.

Outsourced fulfilment: Some dark store operators choose to outsource their fulfilment operations to
third-party logistics providers (3PLs). This can be a cost-effective option for smaller operators, as it
allows them to focus on their core business while still providing fast and reliable delivery.

Hybrid model: A hybrid model combines in-house and outsourced fulfilment, allowing operators to
balance control over the fulfilment process with cost-effectiveness. For example, a dark store
operator might handle some aspects of fulfilment in-house while outsourcing others to a 3PL.

Micro-fulfilment: Micro-fulfilment is a newer operational model that involves using small,

automated fulfilment centres to handle online orders. This allows for faster delivery times and can
help reduce the cost of last-mile delivery.

Each of these operational models has its own advantages and disadvantages, and the choice of
model will depend on a variety of factors, including the size of the operator, the nature of their
business, and their target market. Regardless of the operational model chosen, however, dark store
operators must be able to provide fast and reliable delivery to meet the demands of e-commerce
and online sales.
Challenges
While the dark store market presents significant
opportunities for retailers and logistics companies,
there are also several challenges that operators
face. These challenges include:

1.Real estate costs: One of the biggest challenges

facing dark store operators is the cost of real
estate. Dark stores require a dedicated space for
order fulfilment, which can be expensive in urban
areas where real estate prices are high.

2Logistics infrastructure: Operating a dark store requires a robust logistics infrastructure to ensure
that orders are fulfilled quickly and efficiently. This can be challenging for smaller retailers who may
not have the resources to invest in the necessary technology and logistics infrastructure.

3.Labour costs: While dark stores require less staff than traditional retail stores, labour costs can still
be a significant expense for operators. In addition, there is a shortage of skilled labour in certain
areas, which can make it difficult for operators to find and retain qualified staff.

4.Competitive landscape: The dark store market is highly competitive, with a range of players vying
for market share. This can make it difficult for smaller operators to compete with larger, established
players.

5.Operational efficiency: The success of a dark store operation depends on its ability to fulfil orders
quickly and efficiently. Any disruptions or delays in the supply chain can result in lost sales and
dissatisfied customers.

6.Customer experience: While dark stores offer the convenience of faster order fulfilment, they can
also be impersonal compared to traditional retail stores. Operators must find ways to enhance the
customer experience and provide a personalized touch to keep customers coming back.

7.Regulatory compliance: Dark store operators must comply with a range of regulatory
requirements, including health and safety regulations and labour laws. Failure to comply with these
regulations can result in fines and legal penalties.

8. Failing Brand Image: In a bid to deliver fast it is seen that there is a pressure on the delivery
person which affects the Public image of our company. This also brings another question of the
quality of products being delivered as every procedure has to be done in strict times.

In conclusion, while the dark store market presents significant opportunities for retailers and
logistics companies, it also comes with its own set of challenges. Operators must find ways to
navigate these challenges and adopt innovative strategies to stay ahead of the competition.
Geographical Analysis of Dark
Store Market
 North America, Europe, Asia-Pacific, and the rest of the world are the different geographic
segments of the dark shop market. Because to the rising popularity of online shopping as
well as the need for quicker and more effective order fulfilment, North America is the
region with the greatest market for dark storefronts. As there are many online shops in the
area, cutting-edge logistical infrastructure has been created to enable dark store operations.
 The UK and Germany are the two most important marketplaces in Europe, which is home to
the second-largest market for dark retailers. The development of the dark store business in
Europe has been fuelled by the rising demand for online shopping and the need for a quicker
and more effective fulfilment of orders. Also, the area has a strong logistical framework,
which has aided in the expansion of dark shop activities.
 Dark shop sales are expanding quickly in Asia-Pacific as a result of the region's expanding
middle class and rising internet use. The area has a large and quickly expanding e-commerce
sector, which has produced a lot of prospects for owners of dark stores. Yet, the area also
provides formidable obstacles including intricate logistical networks and the need for legal
and cultural adaptation.
 Africa, the Middle East, and South America are all included in the rest of the world
category. There is a lot of room for expansion in the market for dark shops in these areas,
which is still in its infancy. The areas do, however, also offer substantial obstacles, such as
legislative restrictions and a lack of a well-developed logistical infrastructure.

Depending on the nation and location, different regulations apply to dark shops, and these
regulations are continually changing as the business expands. Operators of dark shops are generally
subject to the same rules as those that apply to regular brick-and-mortar retailers, as well as extra
rules that apply to online sales and delivery.
 Regulations
Dark retailers, for instance, are governed by the same state- and location-specific sales tax laws as
physical businesses in the United States. Moreover, they are governed by laws pertaining to online
transactions, such as the Electronic Signatures in Global and National Commerce Act (ESIGN Act),
which establishes requirements for electronic contracts and signatures, and the Federal Trade
Commission's (FTC) e-commerce rules.

Dark shops must abide by the same food safety laws in Europe as regular supermarkets, in addition
to laws governing data security and e-commerce. For instance, the General Data Protection
Regulation (GDPR) of the European Union mandates enterprises to safeguard customer privacy
rights and preserve personal data.

Operators of dark stores must also abide by labour and employment rules, such as those governing
the minimum wage and worker safety. Zoning and land use restrictions may also apply to them,
which may limit where they may do business.

Overall, as governments and regulatory agencies try to strike a balance between consumer
protection and the expansion of e-commerce and online sales, the legal environment for dark shops
is complicated and continuously changing. Dark shop owners must thus be informed of regulatory
developments and be ready to modify their business practises as necessary.
Competitive Landscape of Dark
Store Market
The dark store market is highly WALMART

competitive, with a range of players

AMAZON TARGET
vying for market share. The
competitive landscape of the dark ALIBABA
store market includes both
DHL AND
established players and new UPS ZEPTO

entrants, each with their own

strengths and weaknesses.

1. Established retailers: Many

established retailers have entered the dark store market in recent years, leveraging their
existing brand recognition and logistics infrastructure. These companies include Walmart,
Tesco, and Target, all of which have launched dark store operations to meet the growing
demand for online shopping.
2. Pure-play e-commerce retailers: Pure-play e-commerce retailers like Amazon and Alibaba
have also entered the dark store market, leveraging their existing e-commerce platforms to
offer faster and more efficient delivery to customers.
3. Logistics companies: Logistics companies like DHL and UPS have also entered the dark store
market, offering their expertise in logistics and supply chain management to retailers looking
to set up dark store operations.
4. Start-ups: A number of start-ups have also entered the dark store market in recent years,
offering innovative solutions to help retailers improve their order fulfilment processes.
Examples include Take-off Technologies, which uses robotics and automation to reduce the
time and cost of order fulfilment, and Farmstead, which uses data analytics to optimize
inventory management.
5. Regional players: In addition to these larger players, there are also a number of regional
players in the dark store market. These companies may have a smaller footprint but can
offer localized expertise and a more personalized approach to customer service.

There will probably be more competition as the dark shop business expands. Operators of dark
stores will need to find methods to set themselves apart from the competition and provide cutting-
edge solutions that address changing customer requirements if they want to remain ahead of the
game. This can include making investments in cutting-edge technology like automation and robots,
collaborating with logistics providers to improve supply chain management, or creating distinctive
client experiences that set them apart from other businesses.
Key statistics
Here are some statistics about the dark store market:

 According to a report by Future Market Insights, the global dark store market was valued at
approximately USD 20 billion in 2020, and is expected to grow at a CAGR of 37.8% from 2022
to 2032.
 The same report found that food and grocery accounted for the largest share of the dark
store market in 2020, due to the growing demand for online grocery shopping.
 A report by Verified Market Research found that the North American region accounted for
the largest share of the dark store market in 2020, followed by Europe and the Asia-Pacific
region.
 A survey by Piplsay found that 62% of U.S. consumers said they would be willing to try
shopping at a dark store, while 54% said they would be willing to pay extra for faster delivery
options.
 A report by Precedence Research found that the key players in the dark store market include
companies such as Tesco PLC, Amazon.com Inc., Walmart Inc., Carrefour SA, and Kroger Co.
 According to a report by McKinsey & Company, dark stores can be up to 25% more efficient
than traditional brick-and-mortar stores, due to their focus on order fulfilment and inventory
management.
 Overall, these statistics illustrate the significant growth potential of the dark store market,
driven by the increasing demand for online shopping and fast delivery options.
Sustainability and
environmental concerns
Dark shops are not an exception to the growing importance of sustainability and environmental
issues in the retail sector. Dark shops have their own environmental effects to take into account,
even while they may assist regular brick-and-mortar stores have less of an environmental impact by
requiring fewer trips from consumers.

The energy use of dark storage is one matter for concern. The lighting, cooling, and heating systems
required to maintain the temperature and humidity levels required for storing and packing goods in
dark establishments generally use a lot of energy. Dark business owners may make investments in

Environmenta
l

Social Governance

energy-efficient technologies and renewable energy sources like solar or wind power to lessen the
effect.

The use of packing for online purchases raises additional environmental issues. Dark shops still
depend on packaging to preserve and convey goods, even if they may help typical stores use less
packing overall. Dark business owners may solve this problem by using recyclable or biodegradable
packaging or by enticing consumers to reuse or recycle their packaging.
Also, the delivery of goods from dimly lit establishments to consumers may have an adverse effect
on the environment, especially in terms of emissions from delivery trucks. Dark shop owners may
want to utilise electric or hybrid cars for deliveries to lessen this effect, or they may choose to
collaborate with third-party logistics companies that value sustainability and use environmentally
friendly shipping techniques.

Overall, sustainability and environmental considerations are a major factor for owners of dark
stores. By addressing these issues, owners may not only lessen the environmental effect of their
operations but also enhance their brand reputation and attract customers who are concerned about
the environment.
Textbook References
The concept of dark store supply chain is closely related to the objectives of operations
management, which aims to improve the efficiency and effectiveness of the production and delivery
processes. In the case of dark stores, the objective is to provide a faster and more effective order
fulfilment system for online customers.

The location decision for dark stores is influenced by various factors such as proximity to customers,
transportation and logistics infrastructure, labour costs, and regulatory requirements. Retailers
need to evaluate different location options using methods such as factor rating, which involves
assigning weights to different location factors based on their importance and rating each option
against those factors.

Capacity planning is also a critical aspect of dark store operations management. Capacity planning
involves determining the amount of resources needed to meet demand, including equipment,
labour, and space. Input measures of capacity include factors such as machine hours or labour hours,
while output measures include units produced or customers served. Different types of capacity
planning include short-term, medium-term, and long-term planning.

Decision tree analysis can be used in capacity planning to evaluate different scenarios and their
potential outcomes. For example, retailers can use decision trees to determine the optimal number
of dark stores needed to meet demand and the potential costs and benefits of each option.

Finding out the optimum location for a dark store is what makes a business successful as in such
business the location is the number one criteria as they compete on the taglines of quickest delivery.
Hence it is One of the most important strategic decisions made by companies. Because it affects
both fixed and variable costs (sometimes as much as 50% of total operating expenses—energy cost,
labor cost,etc.)

The objective of location strategy is to maximize the benefit of location to the firm.

1. For a quick ecommerce business model to be successful it must answer some questions like
2. What factors are affecting dark store location?
3. What is cost of acquisition of new customer in India and in far to reach places within India?
4. Is my average delivery distance within the industry range?
5. Which Mathematical Methods to follow for Evaluating Location Alternatives?
 Factor rating
 Locational cost-volume- profit analysis
 Transportation model
 Centre of gravity method

Ultimately, we need to Find location of a distribution centre that minimizes distribution costs
Personally, I feel we should follow centre of gravity method for grocery delivery.
 If quantities to be shipped to every location are equal, you can obtain the coordinates of
the center of gravity by finding the average of the x-coordinates and the average of the y-
coordinates

x=
∑ xi
n

y=
∑ yi
n
where
x i=x coordinate of destination i
y i = y coordinate of destination i
n=Number of destinations

 When the quantities to be shipped to every location are unequal, the coordinates of the
center of gravity are found as follows:

x=
∑ x i Qi
∑ Qi
y=
∑ y i Qi
∑ Qi
where
Qi=Quantity to be shipped to destination i
x i=x coordinate of destination i
y i = y coordinate of destination i

Some Variables Usually Considers

 Location of markets

 Volume of goods shipped to those markets

 Shipping cost (or distance)

 Method for locating a distribution center that minimizes distribution costs

We ultimately make a map containing points of delivery as find the center of gravity using the
above 2 formulas and then apply feasibility analysis to procure the land and purchase a dark store
there.

In conclusion, the dark store supply chain concept is an important aspect of operations
management, involving location decision-making, capacity planning, and the use of decision trees to
optimize operations. As the industry continues to evolve, retailers will need to stay abreast of
emerging trends and employ creative tactics to remain competitive and meet customer needs
effectively.
Is Future of Dark Store in a
Turmoil?
Dark shops have a promising future as the retail
sector continues to embrace them. The trend to
online buying has been expedited by the COVID-
19 epidemic, and dark businesses are now a
crucial part of the online retail ecosystem. The
need for quick and effective delivery solutions is
anticipated to grow as customers get acclimated
to the convenience of online purchasing. Dark
shop industry development will be further
fuelled by retailers' efforts to streamline their
supply chains and shorten delivery times.

Likewise, the future of dark shops is anticipated

to be influenced by technological improvements. Automation and robotics are already
revolutionising how dark businesses run, speeding up order fulfilment and cutting costs. Future
developments in fields like artificial intelligence, machine learning, and data analytics are something
we can anticipate. Operators of dark stores will be able to provide individualised consumer
experiences, enhance inventory management, and increase supply chain effectiveness thanks to
these technologies.

Dark shops have a promising future overall, and we may anticipate sustained expansion in the years
to come. Dark storefronts will be more crucial in satisfying customer wants and improving the online
shopping experience as companies continue to adjust to the shifting retail environment.
Our Conclusion
The desire for online shopping and the need for quicker and more effective order fulfilment are
driving the growth of the dark store market, a sector of the retail sector. Retailers may profit from
dark storefronts in a variety of ways, including as lower operating costs, better inventory control,
and quicker order fulfilment.

Several firms are vying for market share in this fiercely competitive sector. Amazon, Walmart, Tesco,
and Ocado are significant market participants. These companies dominate the industry and have
made major investments in logistics and technology to support their dark shop operations.

The dark shop business has a promising future and offers great potential for expansion and
innovation. The employment of sophisticated robotics and automation systems, the creation of new
technologies to improve the customer experience, and a focus on sustainability and green
technology are some of the market's emerging trends.

Dark business owners will need to remain on top of new trends and use creative tactics to stay
ahead of the competition as the industry continues to change. Retailers and logistics firms have a lot
of options to expand their businesses and better serve clients as a result of the dark shop industry.
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