Dark store clampdowns are the newest headache for rapid grocery delivery in Europe

When Barcelona decided to clamp down on dark stores, it opened a new chapter in the story of rapid grocery delivery. In January, the city's authorities rolled out new restrictions on buildings used by the likes of Glovo and Getir, which had been relentlessly expanding.

These startups use dark stores as distribution hubs for their speedy deliveries. Couriers zip in and out of the buildings all day to collect goods for customers. The facilities, however, have sparked a backlash in many European cities. Residents are complaining about the noise levels, the gatherings of couriers on the street, and the taking up of urban spaces that the public can't access.

The criticisms have unleashed a wave of actions against dark kitchens. These restrictions add another obstacle for delivery startups, joining job cuts, consolidation, and a worsening economy.

These issues are changing the fortunes of an industry that surged during the pandemic. Often touting delivery times of 15 or 20 minutes, many companies had sprung up promising groceries to your door at super-fast speeds, even if you only wanted a carton of milk, a loaf of bread, or a six-pack of beers.

The crucial tools in making this possible are dark stores or mini fulfilment warehouses dotted around a city in strategic locations close to densely populated areas. To reach mass scale, you need a lot of the facilities to cover a city's key markets.

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Therein lies the crux of the dispute with city officials -- and more authorities are starting to take action.

'Strict' rules

Glovo, the Barcelona-based delivery giant, is at the coalface of this changing landscape for rapid delivery.

The company, which started by delivering food from restaurants, has invested heavily in the grocery segment in recent years. The company has also partnered with real estate firm Stoneweg to source property to serve as dark stores. It now has 100 dark stores, or micro fulfilment centres (MFCs), across multiple countries.

Glovo cofounder Sacha Michaud told TNW that the new rules in Barcelona are the most stringent that the company has seen to date.

"Our position on this is that it's quite a strict way of trying to deal with the problem that many other cities haven't taken," he said.

"If you have a neighbourhood and somebody wants to set up a restaurant underneath your block of flats, probably the neighbours are not too keen on that. They're going to have a lot of people walking in and a lot more movement, but it doesn't mean you have to abolish restaurants in our cities."

Michaud said Glovo is examining the new requirements in Barcelona and will comply with the standards rather than shut its dark stores down.

Under the new rules, companies can refurbish their dark stores to additionally serve as walk-in retail or dining premises. They can also create a space on-site for couriers to wait, which addresses the issue of crowds gathering outside on the street.

A spokesperson for Barcelona City Council told TNW that companies have a two-year window to comply.

New permits

The backlash has been brewing for a while. Last year, Amsterdam and Rotterdam made similar moves to rein in the spread of dark stores.

The Dutch capital now requires delivery centres to have a specific permit to operate, which gives officials oversight on how many are in operation and where.

The permit rule arose after complaints from residents. Given that dark stores are a new phenomenon, existing zoning laws had to be re-jigged to address the challenges. About 30 dark stores in the city will need to comply with the new rules.

"We're open to discussions with all relevant parties and stakeholders.

"We're open to discussions with all relevant parties and stakeholders.

Flink, the Doordash-backed start-up, operates in the Netherlands. A spokesperson said the company was the first of its kind to secure a permit in Amsterdam for a new store. It also has a second application pending.

"In consultation with this municipality, Flink has opted for stores with a 'business' destination in the zoning plan, close to residents. The city district chairman inaugurated the first location," the spokesperson said.

While Flink said its new location is "close" to residents, dark stores cannot be located in the middle of a residential area, as ordered by local authorities.

Flink is also in the midst of a dark store debate in France. In Nantes, the company is under pressure to move one of its centres away from a residential area, following complaints from residents.

"We can't confirm a move so far in Nantes but are of course open to discuss with all relevant parties and stakeholders," Flink said.

Shifting markets

The landscape for rapid grocery delivery has changed drastically in just a few months.

Venture capital firms have pumped hundreds of millions of dollars into the sector's startups, many of them just recently founded, in a land grab for the emerging market. But questions abound about the economics of 15-minute delivery -- especially in a post-lockdown world and with the rising cost of living -- and what the path to profitability looks like.

Several thriving companies had emerged during the boom. Their rapid rise was typified by Berlin's Gorillas, which was founded in 2020 and has raised more than EUR1 billion. The company quickly became the face of the burgeoning industry in Europe, while also expanding into the US.

The progress, however, came to a screeching halt after market conditions swerved -- leading to hundreds of job cuts and exits from a number of markets. Last year, Gorillas was acquired for $1.2 billion by Getir, an eight-year-old Turkish company in the sector.

Getir had also been quick to expand in 2020 and 2021, scooping up its own share of the market across Europe, and snapping up British rival Weezy. These deals have put Getir in a prevalent position in several markets across Europe, where the competition has shrunk. Getir declined to provide a comment for this story.

Time to focus

Consolidation has been rife across the sector. In 2021, Fancy and Dija, two British newcomers, were both bought by the US leader GoPuff. The next year, France's Cajoo was acquired by German upstart Flink, while Jokr, a New York-based startup, pulled out of Europe after just six months in operation.

Amid this environment, other companies have recalibrated, often by tightening their belts and narrowing their focus on key markets, abandoning the expand-at-all-costs mindset.

Zapp, the British player founded in 2020, made these types of adjustments after pulling out of international markets and shedding jobs. The company's senior vice president of strategy, Steve O'Hear, said Zapp is concentrating 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, having more than doubled the business in the last six months alone," O'Hear said, adding that the company will look to expand in "similar megacities" in the future.

Like many of its peers, Zapp's target is now aimed at reaching profitability in an industry that looks very different today than it did just two years ago.

Glovo's Michaud said that despite the challenges, there is still growth ahead for the broader food and grocery delivery industry. However, the sector is now contending with another problem: rising costs.

From inflation to surging energy prices, the cost-of-living crisis in Europe is hitting people hard. Inflation also means a higher cost of groceries and less discretionary spending by consumers.

"If they have less money in their pocket, they're going to spend less and that's a fact. We might grow a little slower than we were growing before," Michaud said.

"Consumer slowdown is happening. We have 150,000 retail partners worldwide, 90% of those are SMEs and they're feeling the pain of consumer slowdown."