With rising competition in the quick commerce segment, optimising dark store locations has become critical to growth. Leading q-commerce players Zepto, BigBasket’s BB Now, Blinkit and Swiggy Instamart are now extensively looking at several data points such as shopping patterns, traffic during peak and non-peak hours, road conditions, demographics and internet connectivity, among others, before choosing a particular location for their dark stores, say industry sources.
TK Balakumar, COO, BigBasket, told FE that on a scale of 1-10, in terms of factors determining turnover at a dark store, he would rate location a 9. “We are an incumbent player. Even though quick commerce picked up pace recently, we have been in the grocery delivery space for over 10 years. This has given us mammoth data on customers’ buying patterns,” he said.
Besides, he said, the team seeks regular external inputs, such as traffic, road conditions, the number of traffic signals a delivery executive would have to cross, number of property (flats) handovers that may happen in the area, among others. “We then use our internal tools to collaborate this data and finalise a location,” he added.
The opportunity in the fast-delivery segment is huge. As per Statista, the quick commerce market in India is estimated to generate a revenue of $3,349 million in 2024. This market is expected to exhibit a compound annual growth rate of 24.33%, leading to a projected market volume of $9,951 million by 2029.
To cater to the demand, launching more dark stores is natural progression for these players. Swiggy Instamart reportedly has around 500 dark stores, while Blinkit and Zepto have around 400 and 340, respectively. And, to choose locations for their operations, these businesses have to use a strategic approach, focusing heavily on proximity to high-density urban areas.
“The goal is to be close enough to consumers to allow for rapid order fulfilment, sometimes within 15 minutes, leveraging data-driven models to optimise warehouse operations and coordinate effectively with delivery logistics,” Shashank Randev, founder VC and co-founder, 100X.VC, told FE.
Dark stores are typically set up in the back alleys or industrial complexes such that there is a sizeable high-mid income population in a 3-4 km radius. “Consumer behaviour is usually such that they keep switching to the business that they feel is faster, more reliable and not just cheaper. And, the reliability and speed are impacted highly by the location,” Harmanpreet Singh, cofounder and managing partner, Prath Ventures, and an e-commerce expert, said. He explained further with an example. In Mumbai, Todi Mills and Kamala Mills are close to each other, but most players are in Todi. “The choice for Todi is because there are less cumbersome entry and exit points and the rent is cheaper for the same PIN code,” Singh added.
Additionally, these players sometimes also have primary and secondary stores, which are strategically located and may take up each other’s orders depending on factors such as traffic patterns during peak hours. Zepto, for instance, operates up to five stores within a 4-5 km radius in certain areas of Gurgaon to service nearby residential areas more effectively.
Industry sources say because of an effective location strategy, along with other factors, Blinkit has seen a consistent reduction in the time it takes for newly launched stores to reach a volume of 1,000 orders per day, which is typically when stores reach contribution break-even. “The average duration has come down from 5.8 months for stores added in Q4FY23 to around two months for the most recent cohort of stores launched in October 2023,” Randev said. It is also important to understand the profile to gauge the trajectory of a market and select a location. “Younger demographics are early adopters and proxies such as the number of e-commerce orders already generated in the micro market is a good indicator of the market potential and current demand,” said Singh.
With the inclusion of non-grocery items by Zepto, Swiggy Instamart and Blinkit, the number of stock-keeping units (SKUs) in dark stores is only going to increase. So, the availability of ample space for expansion is key. As of today, a typical dark store, often repurposed from closed buildings or businesses, needs 2,000-3,500 square feet with around 2,500-3,000 SKUs. Even though, unlike kirana stores and supermarkets, dark stores do not need to allocate space for checkout counters, they need to stack up products such that they can be located, picked and packed quickly.
Since dark stores are not customer-facing, another major factor that decides the location is the cost of warehousing and delivery. The cost of delivery is dependent on the average time to complete one delivery to and fro and the average distance travelled, both of which are heavily influenced by the location. For a mature store, the cost of delivery is Rs 40-45 per order and the warehousing cost around Rs 20-25 per order.
“Warehousing cost includes cost of staff, picking and packing and rent. Rent constitutes a smaller part of warehousing cost than other elements. Hence, rent is an important factor but not as important in driving economics unlike in a customer-facing retail store,” explained Singh.
Many on-ground factors, such as the ease of access for riders to the location (ground floor rather than higher floors), road infrastructure, water clogging conditions, presence of traffic signals that can eat up time, parking availability and the ability to run a 20–25 people operation without impacting the neighbouring businesses, are also taken into account. “Assessing transportation networks, access to major roads, and availability of reliable utilities and storage facilities is crucial for efficient operations and timely deliveries,” Ankur Bansal, co-founder and director, BlackSoil Capital, said.
He added that selecting areas with less competition also provides strategic advantages. The competition could be other q-commerce dark stores or stores inside high-rise complexes that deliver within minutes or kirana stores that are upping their game today.
Experts also say that if the location remains discreet, it is an added advantage as it helps brands maintain a competitive edge. “Zepto, which operates 200-250 dark stores in major cities such as Mumbai, Delhi-NCR, Bengaluru, Hyderabad, Pune, and Chennai, maintains strict confidentiality about the structure and stocking of its dark stores, viewing it as a competitive advantage in the burgeoning quick-commerce landscape,” Randev said.
Further, these businesses also change location based on whether they can achieve the target sales within the first few months. “By the end of 6 months or so, we check our sales milestones to see if they are yielding the expected returns. Else the store will not be profitable, so we quickly move,” Balakumar said. He added that they also move or split the store when the store outgrows and does more orders than expected because of market growth and growth in that pincode.