When Barcelona decided to crack down on dark shops, it opened a new chapter in the story of fast grocery delivery. In January, the city government new restrictions rolled out on buildings used by the likes of Glovo and Getir, which were expanding relentlessly.
These startups use dark shops as distribution centers for their fast deliveries. Couriers drive in and out of buildings all day to pick up goods for customers. However, the facilities have led to resistance in many European cities. Residents complain about noise levels, couriers congregating on the street and the encroachment of urban spaces that the public cannot reach.
The criticism has led to a wave of protests against dark kitchens. These restrictions are another obstacle to starting deliveries, job cuts, consolidation and a deteriorating economy.
These issues are changing the fate of an industry that boomed during the pandemic. Often with delivery times of 15 or 20 minutes, many companies with superfast speeds had started promising groceries to your door, even if all you wanted was a carton of milk, a loaf of bread, or a six-pack of beer.
The crucial tools to make this possible are dark stores or mini-fulfilment warehouses spread across a city in strategic locations close to densely populated areas. To achieve massive scale, you need a lot of facilities to cover a city’s main markets.
Therein lies the crux of the dispute with city officials — and more authorities are starting to take action.
Glovothe Barcelona-based delivery giant, is at the forefront of this changing fast delivery landscape.
The company, which began delivering food from restaurants, has invested heavily in the grocery segment in recent years. The company also has together with real estate company Stoneweg to purchase property to serve as dark shops. It now has 100 dark stores or micro fulfillment centers (MFCs) in multiple countries.
Sacha Michaud, co-founder of Glovo, told TNW that the new rules in Barcelona are the strictest the company has seen to date.
“Our position on this is that it’s a rather strict way of dealing with the problem that a lot of other cities haven’t taken,” he said.
“If you have a neighborhood and someone wants to set up a restaurant under your apartment building, the neighbors probably aren’t too keen on that. They will have a lot of people walking in and a lot more movement, but that doesn’t mean you have to do away with restaurants in our cities.”
Michaud said Glovo is investigating the new requirements in Barcelona and will comply with the standards rather than closing its dark stores.
Under the new rules, companies can refurbish their dark shops to also serve as walk-in shops or eateries. They can also create a space on site for couriers to wait, addressing the problem of crowds gathering outside in the street.
A spokesperson for the Barcelona City Council told TNW that companies have two years to comply.
The backlash had been brewing for some time. Last year, Amsterdam and Rotterdam took similar steps to curb the proliferation of dark shops.
The Dutch capital now requires delivery centers to have a specific operating permit, allowing officials to see how many are in use and where.
The permit rule came about after complaints from residents. Since dark shops are a new phenomenon, existing zoning laws had to be amended again to meet the challenges. About 30 dark shops in the city must comply with the new rules.
“We are open to discussions with all relevant parties and stakeholders.
Considerable, the Doordash-backed start-up, is active in the Netherlands. A spokesman said the company was the first of its kind to obtain a permit for a new store in Amsterdam. A second application is also pending.
“In consultation with this municipality, Flink has opted for shops with a ‘business’ destination in the zoning plan, close to the residents. The district chairman inaugurated the first location,” said the spokesperson.
While Flink said the new location is “close” to residents, dark shops should not be located in the middle of a residential area, as ordered by local authorities.
Flink is also in the middle of a dark store debate in France. In Nantes is the company under pressure to move one of the centers away from a residential area, following complaints from residents.
“We cannot confirm a move in Nantes to date, but are of course open to consultation with all relevant parties and stakeholders,” said Flink.
The landscape for fast grocery delivery has changed dramatically in just a few months.
Venture capital firms have pumped hundreds of millions of dollars into the industry’s start-ups, many of them recently founded, in a land grab for the emerging market. But there are many questions about the economics of 15-minute delivery – especially in a post-lockdown world with the rising cost of living – and what the road to profitability looks like.
Several thriving businesses had sprung up during the boom. Their meteoric rise was typified by the Berlin Gorillas, which was founded in 2020 and has raised more than €1 billion. The company quickly became the face of the fast-growing industry in Europe, while also expanding into the US.
However, progress came to an abrupt halt after market conditions turned, leading to hundreds of job cuts and some markets exiting. Last year was Gorillas purchased for $1.2 billion by Getir, an eight-year-old Turkish company in the sector.
Getir was also rapidly expanding in 2020 and 2021, gaining its own market share across Europe, and Pick up British rival Weezy. These deals have put Getir in a dominant position in several markets in Europe, where competition has shrunk. Getir declined to comment on this story.
Time to focus
Consolidation is widespread throughout the industry. In 2021 Fancy and Dija, two British newcomers, were both bought by US leader GoPuff. The following year was the Cajoo of France taken over by the German upstart Flinkwhile Jokr, a New York-based startup, drawn from Europe after only six months of use.
In this environment, other companies have recalibrated, often tightening their belts and narrowing their focus on key markets, abandoning the mindset of expanding at any cost.
Zapp, the British player founded in 2020, made this kind of adjustment after pulling out of international markets and cutting jobs. The company’s senior vice president of strategy, Steve O’Hear, said Zapp is focusing on owning the London market for now.
“Zapp has always been focused on winning London as its primary market, where we’re seeing tremendous success, with sales more than doubling in the last six months alone,” said O’Hear, adding that the company will look to expand into “similar megacities” in the future.
Like many of its industry peers, Zapp’s goal is now focused on achieving profitability in an industry that looks very different today than it did two years ago.
Glovo’s Michaud said that despite the challenges, there is still growth ahead for the wider food and grocery delivery industry. However, the industry is now facing another problem: rising costs.
From inflation to rising energy prices, Europe’s cost of living crisis is hitting people hard. Inflation also means higher costs of groceries and less consumer discretionary spending.
“If they have less money in their pocket, they will spend less and that is a fact. We may be growing a little slower than before,” Michaud said.
“Consumer slowdown is underway. We have 150,000 retail partners worldwide, 90% of which are SMEs and they are feeling the pain of the consumer slowdown.”