What’s triggering the steep rise in demand for in-city warehousing?

As e-commerce strengthened its hold on the global market during and after the pandemic, quick commerce’s rise to fame was inevitable. The way people shopped changed and so did their expectations around the delivery of their product(s) – be it a television or daily grocery items. In response to these changes, the logistics industry started to mend its operating model by developing in-city warehousing and quick commerce solutions, which have revolutionized the way goods are stored, picked, packed, and delivered in Tier-1, Tier-2 cities, and urban villages.

Simply speaking, in-city warehousing uses small-scale warehouses located within cities, rather than large distribution centers situated on the outskirts. These warehouses are strategically placed in areas that are easily accessible to both customers and delivery drivers, creating an intricate network of order processing centers. These in-city warehouses are usually referred to as ‘dark stores’. It is notable that the number of dark stores globally, is expected to reach 45,000-50,000 by 2030, with majority of them expected to open in Europe and the United States.

In-city warehouses are typically designed to hold smaller volumes of goods and are often used as hubs for last-mile delivery. This, to quite an extent, reduces delivery times and offers faster, more efficient service. Ultimately, it has enabled e-commerce (and quick commerce) companies to create markets that penetrate deeper into consumer bases. 

We can also see a large number of micro fulfillment centers (MFCs) that primarily cater to FMCG companies such as ITC, HUL and others. These centers are responsible for receipt and consolidation of consignments and distributing them to local mom-and-pop stores in addition to large grocery chains. They are also increasingly being used by D2C brands to provide same-day delivery services to retail customers. Fulfilling orders within a two-to-six-hour period allows the brands to tap into consumers’ impulsive nature of purchase and ensure high conversion of orders.

Another type of quick commerce logistics solutions is ‘ghost kitchens’, which are online-only food delivery stores that partner with third-party aggregators (like Zomato and Swiggy) to deliver food in an average TAT of 20-40 minutes.

According to a recent study on In-City Warehousing by Alvarez and Marsal, depending on their format, in-city warehouses cover a delivery radius ranging from 1-3 kms for dark stores and up to 20-40 kms for micro fulfillment centers and/or mini warehouses. Market size of in-city warehousing (in terms of total space) is expected to be approximately 8 Mn sqft in FY’22 and is estimated to increase to approximately 17 Mn sqft by FY’26.

One of the primary advantages of in-city warehousing and quick commerce is that it allows businesses to meet the growing demand for faster and more convenient delivery options. With more people shopping online, there is a greater need for fast and reliable delivery services that can keep pace with customer expectations. By offering in-city warehousing and quick commerce solutions, businesses can differentiate themselves from their competitors and provide a higher level of service that can help build customer loyalty.

The proponents of in-city warehousing claim that it works towards sustainable delivery operations by reducing the distance that a vehicle travels to deliver the product from seller to the end user. Additionally, with the increasing use of zero-emission vehicles, autonomous vehicles and drones the seller is able to reduce the carbon footprint of their delivery services.

But is everything just roses in a garden? 

Not exactly. Among the various challenges that the concept battles, one is that of cost. For instance, the cost of establishing and maintaining warehouses in urban areas can be significantly higher than in suburban or rural areas, due to higher real estate costs and regulatory policies that need to be complied with. There are also several strict zoning and environmental regulations that need to be followed. Additionally, the use of advanced technologies can be expensive to implement for some sellers, and may require significant investment in research and development.

In conclusion, in-city warehousing and quick commerce represent a major shift in the logistics industry, as businesses adapt to the growing demand for faster and more convenient delivery services. While there are certainly challenges associated with these solutions, the benefits they offer in terms of speed, convenience, and sustainability make them an attractive option for companies looking to stay competitive in an increasingly digital world.

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