Retail, CPG and Logistics

Dark stores and micro-fulfilment centres: The next big shift in retail

The retail industry is undergoing a rapid transformation with technological advancements in logistics and changing customer expectations for fast deliveries. One of the most significant developments in recent years is the growth of dark stores and micro-fulfilment centres (MFCs). These surging trends are reshaping inventory management, e-commerce logistics, and deliveries to customers at unprecedented speeds. With retail giants adopting the recent trends, the shift towards dark stores and micro-fulfilment centres has become necessary in intensified retail competition.

The evolution of retail logistics

According to a McKinsey survey in 2023, two-thirds of consumers spent more on groceries in the previous two to three months compared to 2022. Respondents around 60% spent a higher share of their income on groceries. Dark stores are dedicated fulfilment centres set up within urban areas, close to high-demand locations, allowing retailers to provide fast delivery. They are spread over large areas, like warehouses, and have optimised layouts ensuring speedy order picking and processing. Usually manually operated, they restrict walk-in customers but instead function as highly efficient hubs for order picking and last-mile delivery. It is a growing concept in grocery and fashion retailing, where convenience and quick deliveries are dominant.

Unlike dark stores, micro-fulfilment centres are spread over a small area, have compact storage, and function on highly automated technologies, like AI-driven inventory management and advanced robotics, to optimise e-commerce demand. They are typically located within or near existing retail stores, urban hubs, or strategic distribution points for faster last-mile delivery within an hour. This retail fulfilment solution supports the growing customer demand with efficient rapid deliveries and lower costs.

The key drivers for adopting dark stores and micro-fulfilment centres

According to a survey, in May 2023, grocery spending on e-commerce was 7.2% of total grocery expenditure, which was more than 35% of pre-COVID times. E-commerce logistics started as a necessity during the pandemic and has now become a lifestyle.

E-commerce demands

The exponential growth of online shopping demands faster and more efficient retail fulfilment solutions.

Changing customer buying behaviour

One-day and same-day deliveries have become the norm, forcing retailers to adopt emerging e-commerce logistics models.

Improved operational efficiency and cost reduction

Automated systems reduce labour costs and improve efficiency and accuracy, enabling retailers to process more orders in less time with fewer errors.

Urbanisation and space limitations

Adopting compact micro-fulfilment centres has come up as an effective alternative to large warehouses in limited spaces in urban areas.

Fast-paced competition

First-mover retailers are constantly improving their delivery services to meet customer demands, forcing others to keep pace with the growing competition.

Increased sustainability considerations

By 2030, more than 15 sustainability regulations are expected to come into effect. Micro-fulfilment centres reduce carbon emissions associated with long supply chains, supporting environmental goals.  

Advantages of adopting dark stores and micro-fulfilment centres

According to a survey, retailers around 85% are exploring new technologies to improve the customer experience and 35% are using AI to access reliable customer data, drawing the benefits of innovations in retail.

Enhanced customer experience

Faster order processing and last-mile delivery contribute to high customer satisfaction, resulting in customer retention and loyalty.

Scalability

Micro-fulfilment centres allow retailers to scale operations efficiently without major infrastructural changes.

Cost optimisation

Optimising last-mile logistics reduces supply-chain and transportation costs, and inventory maintenance and management costs.

Inventory management

AI-led inventory management systems ensure efficient stock levels to fulfil orders with reduced waste and spillage.

Competitive advantage

Meeting customer demands is the focal point of every business, requiring organisations to adopt agile e-commerce logistics models to outpace competitors by offering fast fulfilment solutions.

Challenges in implementing dark stores and micro-fulfilment centres

Growing opportunities in implementing dark stores and micro-fulfilment centres come with considerations that need attention.

Technology investment

AI-driven micro-fulfilment centres require substantial capital and expertise, increasing upfront costs with low returns. The need for third-party customer data management also requires incurring costs on expertise and advanced technology implementation.

Space limitations

Securing suitable locations in densely populated urban areas can be costly and complex. It may also require space management and vehicle accessibility solutions.

Automation and workforce integration

Though AI automation enhances efficiency, the workforce remains essential for many functions requiring decision-making.

Last-mile logistics complexity

Despite the location of micro-fulfilment centres in the proximity of high-demand areas, congested urban areas can cause delivery delays.

The future of e-commerce logistics

As retail continues to evolve, dark stores and micro-fulfilment centres are playing a pivotal role in meeting customer expectations. The integration of AI and robotics, agile and hybrid models is expected to grow further to enhance and redefine operational efficiencies. By adopting agile and innovative fulfilment solutions, retailers can enhance their services and customer satisfaction and loyalty.

How can Infosys BPM support retail fulfilment solutions?

Dark stores and micro-fulfilment centres are supporting retailers in meeting changing customer demands, increasing operational efficiencies, and gaining competitive advantage. Digital offerings for retail by Infosys BPM facilitate personalised consulting services and flexible transformation-as-a-service (TaaS) solutions for increasing efficiency, reducing costs, and improving customer satisfaction.