Online food delivery services in India tap ‘dark store’ concept to cater to faster delivery demand, says GlobalData

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The COVID-19 pandemic has given a big boost to the online food and grocery delivery services in India. Companies like Dunzo, Swiggy and Grofers are using the ‘dark store’ concept to capitalize on the growing online food and grocery market, which is expected to grow at a compound annual growth rate (CAGR) of 20.5% during 2020-2025 to reach US$117.4bn in 2025, according to GlobalData, a leading data and analytics company.

Dunzo, an e-commerce and delivery company, launched Dunzo Daily in Bangalore that promises to deliver groceries within 19 minutes of placing the order. Similarly, in August 2021, Swiggy expanded its Instamart service to five more cities in India with a commitment to deliver grocery items within 15-20 minutes. On similar lines, Zomato- backed Grofers has also started 10 minutes deliveries in 10 Indian cities.

Ankita Roy, retail analyst at GlobalData, comments: “Instant delivery models hold huge potential due to two key drivers, convenience and time-saving benefits for consumers. With busy lifestyles and hectic daily commutes, consumers prefer to get their favorite items delivered and save time. The launch of Dunzo daily in Bangalore has been widely appreciated by users and the company has taken appropriate steps such as opening more mini-warehouses or dark stores across each neighborhood and assigning a Dunzo daily delivery executive within just a 5km radius for grocery deliveries.

“The dark stores are malls created by Dunzo which enable it to provide Q-commerce services seven days a week. Matching delivery time with customer convenience has always been a challenge in last-mile delivery. But as the delivery industry in India continues to advance, it is not just about getting products to customers faster than competitors but also to meet a certain standard, meaning fast is never just enough.”

While these models are new in India, similar initiatives are already prevalent in Europe and the US. For Instance, Delivery Hero, an online food delivery company that operates in more than 50 countries internationally in Europe, Asia, Latin America and the Middle East, delivers orders in less than one hour while Cajoo, a French startup delivers in 15 minutes.

Roy concludes: “Economies of scale remain crucial with intense competition in the food delivery industry, so the delivery companies in India must focus on expanding their geographical reach in tier 2/3 cities, similar to Delivery Hero, which opened more centrally located Dmarts (cloud stores) within the city to cater to the demand for faster deliveries. However, with the fast proliferation of these services, and increasing competition, there is likely to be consolidation as companies seek scale and profitability.”