Is the race for space in the dark grocery market short-lived?

COMMENT The dark grocery market has grown rapidly. As recently as the beginning of this year, very few people had heard of Weezy. Today we sell around 2,000 items, delivering goods in just 15 minutes from our dark warehouses or through a click-and-collect service in some of our stores. And we’re not alone – there are now six main dark grocery operators with similar business models and coverage across the UK, two of which have just been bought by a US food delivery company. There have been many drivers, not least the fact that Covid-19 encouraged people to shop locally and support local businesses, which is part of our customer offer; each fulfilment centre has partnerships with a local baker, butcher and greengrocer selling their fresh produce, allowing our customers to continue to “shop local”. As businesses have grown, there has been an immense race for space to capture market share and huge cash injections into the dark grocery market during this period. The question is: are fast grocery start-ups just a fad, or are they here to stay? We would argue the latter, if they have expanded in a sustainable way, with flexibility in the business model allowing them to have a sustainable long-term business. New spending habits First, consumer habits have changed for good. Customers rely on the convenience and speed of delivery, and people don’t want to wait three to seven days for a traditional online food shop.  The once-a-week traditional shop also doesn’t allow customers to have fresh perishables for the whole period until their next shop – fruit and vegetables account for 62% of our orders. Active customers are spending around half of their household grocery spend with Weezy. It’s a change in behaviour. An 80% majority of millennials state that, when buying groceries, quality is important to them, and 68% are willing to pay more for that. But if a change in consumer habits is here to stay, does the business model support it? When any new concept emerges in the market, there is a race for space. With the addition of demand outside the dark grocery market for industrial property, rents have rocketed since the pandemic began. We understand that a competitor has paid £78 per sq ft for industrial space, setting a new record. This is not sustainable. Having worked previously in the restaurant industry, I’ve seen the rise and collapse of restaurant chains, pumped with funding and paying over and above market rents to gain a market share. Weezy is the most conservative in the market when it comes to managing property costs. While this makes it more challenging for us to acquire properties when up against competitors, this is the right business decision for longevity. A flexible approach Flexibility in our leases is also paramount in our business plan. The number of orders and customers is rising daily. Three years from now, it is likely we will need more space to serve demand in the area, so we will need larger alternative accommodation. Having break clauses at the right time in your lease also protects you at rent review when the record rents per sq ft paid by competitors increases your rent so much that a site may not be financially viable for you anymore. Lastly, a model that adapts to change and consumer behaviour is really important. Offering a click-and-collect service in some of our stores – Weezy is the only operator to do this – allows you also to tap into more of a market share. As people return to normality from the pandemic, this is essential.   Dark grocery operators are here to stay, providing growth has been done sustainably, and there is flexibility in the leases and the offer. Erin Peyman is head of property at Weezy Photo © Weezy