#5 Connected Retail
DARK STORES OR
The food and grocery delivery industry now comprises two main models: the retailer model and the marketplace model. The retailer model involves delivery from a centrally located dark kitchen or dark store, while the marketplace model involves delivery from geographically distributed restaurant partners or partner stores. So how can we determine which model is the best fit for fashion, beauty, and lifestyle products?
Dark stores, which we refer to as cloud stores, is generally easier to operate since the company has direct control over the entire supply chain. This means that customers will always receive one delivery per order, and value-added services such as gift wrapping can be easily applied. However, from a business perspective, this model can be very capital-intensive. The company needs to purchase and manage stock, rent warehouse space, and employ warehouse workers, which can be costly. On the other hand, the company can charge higher margins.
The marketplace model, which we refer to as connected retail, is much less capital-intensive since inventory risk is shared with partners. A customer's order might be split into multiple deliveries coming from different partner stores, which can be less convenient for customers. Additionally, the company has less control over the supply chain, as it depends on the partner stores. This model also provides no influence on prices and can only charge lower margins.
While the question of which model is better remains inconclusive also for us, it is easier to determine which model provides a better user experience. The retail model is closer to traditional ecommerce, while the marketplace model runs of a store/restaurant listing. Our insights clearly proof that customer prefer a product-centric (ecommerce like) experience over a store-centric (food delivery like) experience. Thus we settled for a blended experience that aggregated inventory from different stores under the same products and brands. This resulted in the highest conversion rates.