15 January 2015

We have been used to the big supermarket players opening attractive, bright, airy superstores with seductive background music and bakery smells wafting over us: everything to make our trip to the supermarket as pleasurable as possible.  This may .be about to change with many of us getting our big grocery shop from an anonymous warehouse set in an industrial estate – welcome to the “dark store” – the next development from Sainsbury’s, Tesco and Asda.  Of course we won’t be encouraged to enter this somewhat menacingly termed dark store because it will purely be used to service on-line orders.

Most of us are familiar with on-line shopping and whilst food retailing was slow to embrace the concept, it is gathering pace.  In 2013, the proportion of on-line grocery shopping in the UK stood at approximately 5.5%, however, by 2018 this is expected to rise to at least 12%.  Currently  supermarket operators use their own staff, “pickers”, to walk around the store, fill a trolley on our behalf and pack the goods ready for delivery to our home or left at a “click & collect” station.  As the volume of on-line sales increases, this model becomes increasingly inefficient with pickers competing with customers to get to the shelves.  More importantly the way in which supermarkets service their on-line business is completely uneconomic.

Experts estimate that whilst an on-line delivery costs the customer £2.00 - £6.00, it costs the supermarket in the region of £20.00 when one factors in additional staff, fuel and vehicle costs.  The big three in Northern Ireland are effectively subsidising their delivery service in order to retain our loyalty.  Since they are committed to increasing on-line sales the challenge for them is to reduce the cost of servicing this business bringing us back to the aforementioned dark store.

Local supermarket rents range from £15.00 to £20.00 per sq ft with rates £8.00 to £10.00 per sq ft.  A warehouse on the other hand, which would not need a retail planning consent, typically costs between £3.00 - £5.00 per sq ft in rent and £1.70 to £2.50 per sq ft in rates.  

If Sainsbury’s, Tesco and Asda could replace retail space with warehousing space the occupational cost saving would be in the region of 75%.  Also, warehouse layouts are more efficient allowing orders to be collected more quickly and at least part of the process to be automated.

Of course none of this cost-saving potential has been lost on the business-savvy supermarket giants.  Tesco have six dark stores, or “dot com centres” as they prefer to call them, positioned around London alone.  Sainsbury’s and Asda have also started opening similar centres in England.  The key driver to opening a dark store is the volume of on-line sales; therefore, it  is not surprising that London and the south-east have been the main focus of this development.  As the number of on-line orders increases, the dark store model will undoubtedly spread to other large centres of population. Whether any of the supermarkets have the critical mass of on-line shoppers in Northern Ireland to warrant such a development is debatable, but as the trend continues it will become more likely.

The typical supermarket model is under attack, not least by the discounters such as Iceland and Lidl.  On-line is a medium through which the big three can fight back and that is what they are doing.  If you are already a convert to home delivery service remember to be pleasant to the man or woman carrying your groceries into your kitchen.  They haven’t been employed for their driving ability, rather for their ability to make you comfortable inviting them into your home and leaving you with a warm positive feeling about their employer!

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