Dark store bonanza: can it be profitable?

Summary

Many VC investors perceive dark stores — the foundation for 15-minute grocery delivery startups — as a new business model with unproven unit economics and limited scaling potential. We are more optimistic. CM Ventures is an early investor in Buyk (we co-led their seed round) — so we obviously have skin in the game, but we have been following the model for quite some time and have extensively researched and benchmarked the space, having spoken with more than 30 emerging players.

In this article, we answer the main questions about dark stores, drawing our conclusions primarily from data on the four, already established, dark store operators with ca. $3B in revenue run-rate. Three of them are part of publicly-traded groups — Delivery Hero (Dmart), Yandex (Yandex.Lavka), and Mail.ru Group (Samokat) — while Getir is still private and has been valued at $7.5B. To supplement our findings, we leveraged our proprietary data platform to identify and screen around 100 emerging companies in this market.

• Question 1: Are the ‘Rising Stars’ (Gorillas, JOKR, Flink, Zapp) the early market leaders? Answer: no, they are far behind the real trailblazers and yet have to prove that they can scale. These four companies attracted ca. $1B in investment, but, based on our estimates, the cumulative number of dark stores they currently operate (250–300) is far from what the ‘Big Four’ do (Samokat, Yandex.Lavka, Dmart and Getir operate 2250+ stores). The revenues of the ‘Rising stars’ have only just begun to take shape — cumulatively ca. $500M run-rate vs. ca. $3B for the ‘Big Four’.
• Question 2: Could this business model be profitable? Answer: yes, and there are multiple facts supporting this view. The biggest source of confidence is Dmart: they improved their EBITDA margin from -42% in 1H2020 to -28% in 1H2021, while growing revenue sevenfold from $63M to $450M. This rare trajectory clearly indicates that profitability will develop following the growth phase. There are also several indirect signs supporting this view: for example, Getir reaching $800M+ revenue run-rate in Turkey with very limited funding before 2021.
• Question 3: How much capital is required to scale? Answer: it took Dmart about $440M of CAPEX and OPEX investments to scale to ca. $1.2B in revenue. It would appear that Getir spent less but it took them longer.
• Question 4: Won’t competition kill margins? Answer: no, there is space for at least two large players in any one market, and maybe more. The Russian market (Samokat and Yandex.Lavka) and the Turkish market (Getir and Dmart) both have 2 large players with a ca. 60/40 market share split.
• Question 5: Is the market close to saturation? Answer: not even close. Even if we assume all the companies would stay on their growth trajectories, by the end of the year they would have $5B in revenue, which is just 0.05% of the global grocery market, or 0.5% of the global convenience food segment. We foresee a decade-long growth story for many players.
• Question 6: Is this a global trend? Answer: definitely. We have spotted dark stores popping up in almost every geography and have prepared a concise list of 40+ players including the newcomers — from the east coast of Australia all the way to the west coast of Canada.

1. The ‘Big Four’: the largest dark store players show the scale

💥 In 2021, the term dark store was firmly entrenched in news about startup investment rounds. Companies like Gorillas, Dija, Flink, Jokr and others attracted the attention of the startup community. However, fewer people have been paying attention to the fact that the dark store business model has been working well in the market since 2015 with mostly overlooked large well-established public and private players, and there have been even M&A in this sector.

Chart 1: the largest dark store operators by number of stores

Getir

Getir — the pioneer of the dark store model — launched in Turkey in 2015 and recently expanded to other markets (starting with the UK). Though the company is private and metrics are not publicly disclosed, media reports that it has revenue of at least $800M and a $7.5B valuation, making it one of the most mature players in the space.

Revenue: ~$800M annualized as of May 2021

Number of stores: 500 in 30 Turkish cities as of June 2021 and at least 100 stores planned in the UK by end of 2021. The most recent data says Getir has launched 28 stores in the UK year to date

Number of orders: 9M monthly as of May 2021

Revenue per store per year: ca. $1.5M

SKU’s: 1.5k

Source: public sources

There are no available numbers on Getir’s profitability in Turkey, but, based on conversations with investors and the fact that Getir did not raise much before 2021, we would assume that the economics work pretty well in its home market.

What is most remarkable when thinking of the profitability of the business model at scale, is that the Turkish market is more competitive than it is perceived — Dmart has something around 30–40% of a market share, competing directly with Getir. This means that the economics could work even if there is more than one player in the market — the same is seen in Russia (see below).

Dmart

Dmart, a lesser-known dark store chain in the VC community was launched in 2019 by Delivery Hero (Frankfurt:DHER, $39B market cap) and has more than 687 dark stores as of 2Q 2021 (from 491 in Q4 2020).

Focused on “less busy and more unit-economics friendly markets” (according to the company itself), the Dmart empire started in Turkey and managed to go from 0% to 40% market share in a matter of 1.5 years!

Revenue: ~ $1.2B annualized as of Q2 2021 vs. ~$190M year to date

Number of stores: 687 as of June 2021 vs. 491 as of December 2020

Number of orders: ~6M monthly as of Q2 2021

AOV: ~ $10–13

Revenue per store per year: ca. $1.7M

SKU’s: from 2.5k — 3k up to 10k depending on the geo (Korean Dmarts have ~10k)

CAPEX: €100–150k per store

Source: DeliveryHero, Jefferies Equity Research

It would appear that Delivery Hero has figured out the potential of the business model by beating forecasted store openings (the initial target of 400 stores by the end of 2020 turned into 490) and, according to our analysis, expanding into 38 countries overall, including several European countries, which were not so attractive for Dmart from a unit economics standpoint at the beginning of their journey.

DeliveryHero provides the best insight into the economics of the model: as per company data, from the first half of 2020 to the first half of 2021 Dmarts demonstrated improvement in EBITDA margins (from -42% in 1H2020 to -28% in 1H2021) while growing revenue sevenfold from $63M to ~$450M. We think that besides the losses being relatively modest in the context of hyper-growth, the fact that margins are improving despite this acceleration is a rare and indicative sign that at scale, this should be a really profitable business.

Chart 2. Dmart gross revenue and EBITDA margin

• Korea’s Bmarts (ex-Woowa, acquired by DeliveryHero) demonstrated robust GMV growth over the course of 2019 (from ~$0M to $107M).
• According to our calculations, in order to get to a $1.2B revenue run-rate (Dmarts and Bmarts), DeliveryHero burned roughly $440M on a pro-forma basis (combining accumulated EBITDA losses and ~$150k CAPEX per store).
• DeliveryHero’s Management also says that to achieve profitability, an average Dmart should process more than 400 orders per day.

Samokat

Samokat, launched in 2018, operates only in Russia and is part of Mail.ru Group as of today, one of the two largest internet companies in Russia. Mail.ru Group is traded on LSE which allows us to take a look at the numbers.

Samokat disclosed 699 dark stores as of the end of June 2021, which made it the largest dark store among US and European players by this metric.

Revenue: $432M annualized based on Q2 2021 numbers — compared to
~ $108M year to date

Number of stores: 699 as of June 2021, compared to 400 in December 2020. According to the recent data, Samokat has 722 stores as of August 2021

Number of orders: ~5.2M monthly based on Q2 2021 numbers — compared to ~1.2M monthly orders year to date

AOV: $7

SKU’s: 2k — 2.5k

Private label sales as % of GMV: 16%+ of revenue in Q2 2021 (vs. 11% in 2020)

Source: corp.mail.ru

Samokat has never publicly disclosed profitability data. However, in interviews, the founders have stated that the company could quickly achieve breakeven if it tempers growth. We see an array of evidence supporting this statement: anecdotal checks show the couriers are almost always carrying multiple orders at once (stacking), mature stores are achieving ca. 30% penetration of grocery expenditure for the households within their reach, and the frequency of orders is insane at an average of 8 orders per month.

Samokat’s founders have recently launched a new company, Buyk, and CM Ventures co-led their $46M seed round. The company ‘soft-launched’ in New York on the 27th of August 2021 with a free 15-min delivery service.

Yandex.Lavka

Yandex.Lavka, the grocery arm of Russian internet behemoth Yandex (NASDAQ:YNDX, $28B market cap), launched in May 2019. Interestingly, Arkady Volozh, the founder of Yandex, is an early investor in Getir, and is even mentioned as a co-founder.

Revenue: ~$297M annualized as of the end of Q2 2021 — compared to ~$124M year to date

Number of stores: 362 by June 2021 — compared to 270 in December 2020

AOV: $9

SKUs: 2k

Frequency: 20% of users order more than 8 times per month, generating 50% of total revenue

Source: Yandex, public sources

Yandex.Lavka is the second-largest dark store operator in its home market of Russia, behind Samokat. Overall, the successful co-existence and growth of two dark stores in the same market prove that this business model is not a ‘winner takes all’ situation (drawing similarities to the Turkish market).

Yandex.Lavka also has expanded its operations to Kazakhstan, Israel (Tel Aviv), recently launched in Paris, and announced an upcoming launch in London (with the new brand Yango Deli), even though the competition in these cities is pretty strong.

Chart 3. The ‘Big Four’ — established dark store operators

Other:

GoPuff, which already has roughly 400 dark stores with 2.5–3k SKUs, via the acquisition of Fancy and Dija, has raised billions in investment. It is operating in the US and expanding to Europe with 30-min delivery, employing a slightly different business model, and thus not included in our ‘Big Four’ list.

2. Three groups of new players in the dark store space

🔍Group 1: Food delivery companies are increasingly venturing into the dark store model

Apart from the aforementioned companies who are moving towards a pure dark store model, there are mature players also entering the market with a distributed dark store model. Although, the companies’ deliveries could either be non-instant (i.e., 30–60 minutes delivery) or a hybrid of prepared food delivery and grocery delivery. The most prominent are:

• DoorDash, the largest US food delivery operator with ca. 45% market share, launched a dark store chain called DashMart in April 2020, with the aim to expand across the entire US. The exact count of dark stores is unknown, but they launched with 8 US cities in August 2020 with the aim to launch many more cities further.
• Latin America’s Rappi, a consumer tech giant who raised more than $2B to date and operates the largest online delivery business in the region, launched 26 dark stores in Latam as of April 2021, aiming to reach 100 by the end of 2021, with ~1.5k SKUs and 10-minute delivery.
• Bolt, a global ride-hailing and micro-mobility company out of Estonia, is entering the dark store space with 15-min grocery delivery in 10 European countries, starting with Estonia.
• Glovo, a Spanish food delivery platform which started experimenting with dark stores in Madrid in 2018, currently operates 25 stores with the aim to open 199 by the end of 2021.
• Wolt, a European unicorn with a presence in Israel and Japan, ventured into dark stores as well although there is no direct number on how many dark stores the company is managing but it is less than Glovo. As founders highlight, Wolt is more focused on delivering straight from convenience and grocery stores, preferring to work directly with partners.
• Mexico’s Justo, an online delivery-only supermarket chain which has raised $92M to date, operates a same-day grocery delivery model but with some reliance on dark stores.
• India’s Grofers, an online grocery delivery unicorn, is leveraging its grocery delivery with hyper-local dark stores, allowing the company to accelerate the delivery time to 15 minutes.
• Another Indian player, Dunzo, which raised over $100M, and is delivering goods from local stores, has recently announced plans to open 250 dark stores (dubbed as Dunzo Daily).

⭐ Group 2: The ‘Rising Stars’

The ‘Rising Stars’ are dark store companies which have raised more than $100M to date. These players are the most renowned in the startup and investor community due to incredibly high growth and large fundraises. Among them are Gorillas, Flink, Jokr, and Zapp.

💡 See the full table here

Table 1. The ‘Rising Stars’

🐣 Group 3: The ‘Newcomers’

The 44 companies we presented below are mostly operating under the growth funds’ radar. Some of them are still in the pre-launch phase or even in stealth mode while the others are already fundraising.

Please note that we have not included companies that have already been acquired by bigger players in this list. Also, if the company has a zero in the ‘Total raised’ column, this means that there is no publicly available data on any funding relevant to the companies’ dark store business.

These companies are growing, and new dark store operators are popping up almost in every geography. Thus, we look forward to seeing more $100M+ funded players soon!

💡 See the full table here

Table 2. The ‘Newcomers’ (excluding acquisitions)

👀 The bottom line

We hope that this article has provided a persuasive argument that the dark store trend will continue for a long time to come. We will see new players emerge, exciting M&A, and of course the inevitable shutting down of the least successful companies.

If you are a founder, investor, or follower of the space and have enjoyed this article, we would love to hear from you. Please get in touch with Victoria via LinkedIn or Twitter.

Are you curious about CM Ventures? Check our portfolio and investment focus, and feel free to get in touch and visit our LinkedIn page.