Dark stores with a bright future

Warehouse & industrial
‘Dark stores’ – that you cannot even enter – are now appearing in many Polish towns and cities. They’re populating what is still a small but growing niche, both when it comes to the retail market and urban real estate

Dark stores are a modern hybrid form of retail. In Poland, the first operators were launched just before the pandemic. Start-up brand Lisek was the first to offer such services in 2018, while other similar concepts emerged during the lockdowns that followed. But it was only really in the second half of 2021 that dark stores made any kind of impact on the Polish market. “The rise of e-commerce and the growing number of retailers seeking out new formats that combine the online and offline worlds are trends has been evident for some time. Nevertheless, the outbreak of the pandemic and two years of us all having to operate under new but constantly-changing circumstances has proven to be a catalyst for change across this sector,” claims Anna Wdowiak, the director of high street retail at JLL.

At the moment, there are around ten operators in Poland using this format, including such specialised firms as Jokr, GetnowX and Lisek, but companies like Bolt and Wolt, which provide takeaway deliveries, also use dark stores. Moreover, traditional grocery stores have also moved into the market, such as Żabka with its Jush! Brand and Biedronka with Biek. “Rumours have been circulating that such stores are even appearing in the construction market, but at the moment we’re mainly talking about FMCG,” says Krzysztof Wyrzykowski, a senior associate at Colliers.

However, one such company has left the market. In 2021, Polish operator Swyft closed down its operations, but despite this it is still becoming rather a crowded niche as other platforms prepare to enter Poland. Each of these has to set up its own network of small urban warehouses to make their deliveries in the magically-short times that they promise. However, the sector has vast room for growth in this market.

How does it work?

In essence, a dark store is a retail outlet that you cannot enter. You can’t do your shopping in it, but instead your shopping comes to you. You place your orders through an app and 10–20 minutes later (depending on the operator) your shopping arrives. This is no longer e-commerce but q-commerce (with the ‘q’ standing for ‘quick’). Even though they describe themselves as stores, it’s more accurate to call them chains of miniature warehouses networks or micro-distribution centres. Normally, each has an area of 150–500 sqm, although the ideal size in the most sought-after locations is 300–400 sqm. “Dark stores constitute a relatively young market in Poland, so there is no solid generalised data about their resources nor about the take-up of space by this retail sector,” admits Krzysztof Wyrzykowski of Colliers. “The way dark stores operate means that they have to look for space in the dense matrix of a city, and best of all within densely populated districts. They mainly train their sights on centrally-located premises that tend to be tucked away in locations near a district’s main arterial roads,” he adds.

Dark stores can, however, generate a lot of traffic in the local area. Goods are delivered to the centre many times a day and deliveries are constantly being dispatched to customers. “The couriers normally use bicycles, so a centre needs somewhere to park bikes and scooters, while delivery vans also need to be able to park near the entrance. Such a centre should also have a direct entrance without other hindrances,” explains Monika Igła, a leasing manager at Hines Polska, who goes on to list the other requirements for such centres: “The floor load capacity is also important, since it determines how many goods can be stored. Usually ground floor units with a ceiling height of 3m are needed to meet the requirements. A unit also needs a power supply of around 30–40 kW for the refrigeration unit.” Agnieszka Cymbała, the country manager of Bolt Market, adds further requirements to the list: “A unit’s security is also important. Our teams have to feel at ease; they need space to do their work and social rooms as required by the employment law,” she says. Anna Wdowiak of JLL also points out that the width of the doors is important as well as the air conditioning. There also shouldn’t be any stairs from the entrance leading up to the occupied space. In addition to this, it’s important that such centres are dispersed widely enough across large cities so that they can supplement each other and also avoid the necessity of making long journeys to customers, which would lengthen delivery times. Once you take into account all of these requirements, the supply of suitable locations, no matter what the city, shrinks dramatically and, for this reason, dark stores often use the ground floors of office and retail buildings.

Where, who and how many

A dramatic increase in the number of dark stores can already be seen in large cities such as Warsaw, where, in some of its districts, almost all of the platforms in Poland operate. (The exception is the German platform GetnowX, which has launched its Polish operations in Wrocław). Lisek has already spread to eight towns and cities (including the Warsaw satellite town of Piaseczno), Bolt Market now had five centres in Warsaw and Wolt Market, which is also present in the Czech Republic, Hungary and Slovakia, has one store in Poland. “Soon we’re going to be opening in new locations and cities,” reveals Jana Jarošová, the communications manager for the CEE region at Wolt.

Clearly, Warsaw is considered by most operators as the perfect place to start. One of these is the Jush! Platform, which is managed by Żabka subsidiary Lite E-Commerce. Most of its warehouses are in Warsaw, which now cover most of the city. “At the end of last year we also opened our first location in Gdańsk,” says Maciej Nowakowski, the COO of Lite e-Commerce. “We want to keep up the rapid pace of our development and are considering launching services in other cities,” he adds.

Budget supermarket chain Biedronka has also made something of a splash by entering the segment, by offering shopping and express deliveries in association with Glovo, which started up in October 2021. “Our Biek service is available in Poland’s six largest cities: Warsaw, Kraków, Gdańsk, Łódź, Wrocław and Poznań,” says Kamila Frąckowiak-Jankowski, the marketing manager at Biedronka responsible for Biek. “We’ve looked into enlarging our chain of mini-centres, which now numbers 14. Our greatest number of orders is in Warsaw followed by Kraków while Wrocław comes in third,” she adds. To start with 14 centres is quite impressive, but if we compare this number with Biedronka’s 3,000 stores, we can see that Biedronka still has a long way to go in developing this business line.

Quick and cheap

It seems that only problems with finding appropriate locations might limit the growth of dark stores. “What we have is a very dispersed rental market. These are individual companies or private investors who have put their money into commercial real estate. They often don’t have the resources to make their own contribution to the fit-out or provide rent-free periods and, generally, they cannot provide the conditions that are already standard on the market,” explains Krzysztof Wyrzykowski of Colliers. He also believes that the rental period is important. “Small investors often offer long-term contracts, but for dark stores what’s important is flexibility. It’s therefore something of a challenge to match up the needs of the tenant with the landlord,” he says. Monika Igła of Hines Polska also raises the same point. She claims that the decision to lease a unit often comes down to the landlord’s approach and openness to the short terms and the flexibility proposed by the tenant. “For the owner of a centre, such a partnership might mean a lack of stability while at the same time there would be a need to adjust to the space to the requirements of a specific service. However, judging by the opinions of the service users, it’s fair to say that there are already enough such centres that deliver shopping within ten minutes in most large cities in Poland,” she claims. Monika Igła also points out that dark stores are a type of service that does not need to be seen and so they can easily take up space at the back of a building that would not normally be suitable for a retail company. “Operators of dark stores also expect lower rents than other tenants have been prepared to pay up until now,” she points out.

In the wake of the disruption caused by the pandemic, dark store operators found themselves holding a strong hand at the negotiating table. “Currently, the service market in Poland is marked by a lot of uncertainty. A lot of service space has stood unused for a long time, so owners might temporarily lower their financial expectations to add something to their budget. From the point of view of an investor in commercial buildings, this is not a very good solution. Short-term leases and low rents have a negative effect on the valuation of a property,” points out Monika Igła.

Competitive advantage

Even though the dark store market is still at an early stage of development, operators are already fighting for clients. And brands created by the large supermarket chains are sure to represent even more serious competition that will be able to use their existing logistics chains. For them, dark stores will be just an extension of their online sales. And it cannot be emphasised too much that delivery times in this sector are crucial. “Deliveries carried out in under 15 minutes from the moment an order is placed now make up 20 pct of all internet transactions,” claims Kamila Frąckowiak-Jankowski. “Competition between operators will be largely over prices, but it seems to me that the role of technology is becoming more important, such as algorithms to predict the short-term future and customer needs. Whoever does this best will have a competitive advantage in a market that is rapidly filling up,” insists Krzysztof Wyrzykowski. Anna Wdowiak of JLL also points out that for most companies that have already entered this market or are thinking of doing so, what we have now is still just a pilot study to test out this new form of omni-channel sales. As well as q-channel there are also shop-in-shop concepts, or in other words, staff-less stores. “It’s still too early to predict exactly how many dark store brands there will eventually be and which approach will maintain the long-term interest of their customers,” she admits. According to Krzysztof Wyrzykowski of Colliers, the Polish market is still a long way behind what’s happening in the rest of Europe, where over the last year many dark store start-ups have emerged, including Weezy, Flink and Getir. “Nevertheless, we are an interesting market for investors, so I also expect that within two years we’ll be seeing the dark store scene develop rapidly here in Poland,” he predicts.