“Dark stores” arrive on the urban landscape

The brick and mortar retail establishment has a new member popping up across communities: “dark stores.”

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These ghost storefronts—often called “dark stores”—are warehouses in all but name, yet they look markedly different from the gargantuan spaces where older online grocery companies like FreshDirect store their goods. Traditional warehouses are zoned to regions outside of commercial districts, meaning they will be set apart from areas with lots of walking traffic. Dark stores are located in retail storefronts on main streets, near the heart of busy neighborhoods, but they serve only ecommerce customers. And they’ve gone from a niche phenomenon discussed largely in retail industry circles to a feature of major American cities.

The rise of dark stores directly parallels the acceleration of ecommerce as a whole, especially in the grocery industry. Online sales represented 13 percent of all grocery spending in 2021, a new high, and dark stores are designed to make the delivery process smoother…

Dark stores—sprouting up in former butcher shops, convenience stores, gyms, and mattress retailers—are taking up spaces once designed to be open to the public. That shift from far-flung warehouses to accessible retail storefronts has city planners on edge. Because dark stores sit at the confusing intersection of being technically occupied, but functionally empty, they risk entrenching the worst impacts that vacant real estate can have on a community.

The fear is that dark stores, like vacant storefronts, could puncture a hole in the social landscape of a neighborhood. Vacant storefronts are bad for cities. When there are a lot of them in a tight vicinity, they mean that fewer people will walk down the street, and fewer connections between neighbors will happen. “Having people out on the street increases public safety, because more people see things that are happening,” said Noel Hidalgo, executive director of BetaNYC. “That level of social engagement makes cities safer and makes places safer.” Accordingly, neighborhoods with high numbers of vacant storefronts see increased crime rates, fire risks, and rodent activity.

I wonder how municipalities will respond to this because of the revenues such dark stores might generate. It is one thing if other retailers or businesses want to use these spaces. But, if dark stores are occupying commercial space and generating money through paying property taxes and sales taxes plus adding jobs, will they be as concerned about the social fabric? It can be difficult to fill vacant commercial properties, particularly spaces like grocery stores.

So out of the concerns expressed above, I could imagine cities limiting the number or density of dark stores within different kinds of zoning. Or, what if there was a whole block of dark stores and then none for a decent distance from there? If e-commerce is here to stay and needs to be close to those who order, perhaps warehouse districts need to be spread throughout communities at regular intervals or near transportation hubs.

Driverless trucks, dark stores, and getting groceries

How Americans get their groceries might be on the edge of a big change with the introduction of autonomous vehicles and dark stores into the mix:

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Walmart and Silicon Valley start-up Gatik said that, since August, they’ve operated two autonomous box trucks — without a safety driver — on a 7-mile loop daily for 12 hours. The Gatik trucks are loaded with online grocery orders from a Walmart fulfillment center called a “dark store.” The orders are then taken to a nearby Walmart Neighborhood Market grocery store in Bentonville, Arkansas, where Walmart is headquartered…

Walmart, the nation’s biggest seller of grocery items, is testing the Gatik autonomous vehicles as part of its transition to a “hub and spoke” model for grocery delivery where dark stores are closer to the consumer and used to serve several retail stores. Walmart said the use of automated vehicles will also allow store associates more freedom to perform “higher level” tasks, including picking and packing online orders and customer assistance.

“The old architecture of delivery where you have a giant distribution center four or five hours away from the end consumer does not work anymore. Grocers are forced to set up these fulfilment centers close to the customer, and once you get close to the customer you have to shrink the size of your warehouse,” Narang said. “As the size shrinks there is a growing need for doing repeated trips from the fulfillment centers to the pickup points. That’s where we come in.”

The Kroger supermarket chain has tested autonomous delivery with start-up Nuro since 2018 and said it’s now completed thousands of “last mile” deliveries in the Houston, Texas area. Kroger is also using automated warehouses to launch online grocery delivery in Florida and other states where it does not have brick and mortar locations.

The driverless trucks are interesting in their own right. The United States needs a lot of trucks to move goods all over the place. They are a familiar sight on both local roads and highways. Would it matter much to the typical driver if the semi next to them had no driver?

Additionally, it would be worth hearing more about fulfillment centers/”dark stores.” Where are they located? How do they operate? How many of them are needed in a sizable metropolitan region to fulfill orders? Depending on some of these answers, this could change where warehouses are located (can they be as concentrated, such as in Will County?) How much more efficient is this system compared to now? Somewhere, a particular community could figure out how to maximize dark stores and reap the benefits.

Even in a country of sprawl and limited public life, there are plenty of places where people come in contact with many others

Watching reactions to the coronavirus in recent weeks presents a paradox connected to American social life and addressing contagious diseases: the country has pushed sprawl and private homes for decades and public life and community life is said to be in decline; yet, there are numerous spaces, public and private, where Americans regularly come together. And under the threat of disease, shutting down locations and/or quarantining large numbers of people would change social life dramatically even in an individualized, spread out society.

A few examples illustrate this well. One essential private space is the grocery store. Even in the age of the Internet deliveries and eating out, many Americans need to acquire food and other supplies for daily life. The experience of going to Walmart or another grocery chain is not necessarily a public experience – direct interaction with people there is likely limited – but the number of people who can cycle through a major store on a daily basis is high. Another semi-private space is churches. By choice, Americans attend religious services at a higher rate than most industrialized countries. Once there is a congregation of one hundred people or more, this brings together people who participate in a wide range of activities and go to a wide number of places.

An example of public spaces that would change dramatically are mass transit lines and transportation hubs. In a country where relatively few people take mass transit on a daily basis, there are a good number of Americans dependent on buses, trains, and subways and people who use multiple forms on a regular basis. Plus, the United States has relatively busy airports. A second example involves schools. Americans tend to think education is the secret to success and getting ahead and students from preschool to post-graduate settings gather in buildings to attend class and do related activities. For these students, school is about learning and social life, classrooms and lunchrooms, eating areas, and play or recreation areas. Schools and colleges can draw people from a broad set of backgrounds and locations.

Our public life may not be at the same level as it is in Italy; instead of sidewalk cafes, Americans can go through the drive-through of Starbucks. Perhaps this means it will be relatively easy for some Americans to quarantine or keep their social distance: many live in their private homes and have limited social interactions anyhow. At the same time, significant public health measures would change social life in ways that are noticeable and that some might miss. Indeed, could a national reminder of the social ties Americans do have lead to a revival in social interactions in times of more stability?

Bringing grocery stores to rural areas and considering free markets

Declining populations in some rural areas means it is more difficult to sustain grocery stores:

Some states are trying to tackle their rural grocery gaps. Supporters of such efforts point to tax incentives and subsidies at various levels of government that have enabled superstores to service larger areas and squeeze out local independent grocers. Now, dollar stores are opening in rural regions and offering items at lower prices, posing direct competition to local groceries.

Critics see that development as a threat to public health, since dollar stores typically lack quality meat and fresh produce.

But every town and every store is different, making statewide solutions elusive. Some legislators say they are reluctant to intervene too heavily because the market should close the gaps…

In rural areas, the poor tend to live farther from supermarkets than residents with more resources. The median distance to the nearest food store for rural populations in 2015 was 3.11 miles, and a shade farther for rural households enrolled in the Supplemental Nutrition Assistance Program (SNAP), better known as food stamps, according to a May 2019 report by the U.S. Department of Agriculture, which oversees the program.

Providing a range of social services and cultural services is an increasing issue, ranging from medical care to religious congregations to food.

While there are logistical issues in how to run, supply, and sustain organizations across such broad distances with limited participants, the political approach cited in this article is interesting. Should more conservative states provide government assistance for grocery stores? The article suggests there is some reluctance for state governments to step in. But, this might be exactly a good case where free markets simply cannot work well: there are not enough people in certain areas to generate profits or efficiencies. Plus, the federal government over the decades has helped rural areas, such as through rural electrification projects. Will state lawmakers refuse help just because of commitment to certain ideologies?

This situation also suggests Americans could think more about providing services in ways that do not have to generate profits. Instead, the services exist to serve the community. Think cooperatives. Think community-based organizations meant to help sustain each other rather than make a profit.

Suburbs ask grocery chain to fill vacant stores rather than leaving them empty

The leaders of eleven suburbs held a press conference yesterday intended to prompt Albertsons to allow former Dominick’s sites to be used:

The damaging effects of keeping these spaces vacant is very difficult for a lot of these communities,” Naperville Mayor Steve Chirico said. “We need to do a better job working together and putting the community first, and right now the communities are not being put first. We’re asking for their help. We need to see some participation.”…

However, leases on 15 vacant Dominick’s continue to be paid for by Albertsons. On Thursday, municipal officials said they want the practice of extending those leases to cease.

“When you’re leasing a space that doesn’t have a tenant and you’re renewing that lease for five years purposely so you can control whatever goes in there, that’s where we’re having an issue,” Bartlett Village President Kevin Wallace said.

Romeoville Mayor John Noak said there is interest in the vacant spaces and willingness from suburban leaders to work with Albertsons to get them filled, but the company is not cooperating.

Two quick thoughts:

  1. It is interesting to see under what circumstances suburban leaders are willing to cooperate. Common economic matters could be at the top of this list.
  2. The worst outcome for many suburbs would be that the abandoned properties are not maintained and whoever owns it is doing nothing or the bare minimum. Such buildings are not just empty; they are an eyesore and many suburbanites would say it reflects poorly on their community. This isn’t exactly the case here: Albertson’s has the leases, is paying for the property, and the sites themselves aren’t in terrible shape – they are just empty. But, large grocery stores often occupy prime retail space at busy intersections and it makes sense that communities would eventually want to see the space put back into the retail market both for appearances and sales tax dollars.

See earlier posts on this subject here and here.

Trying to convert large empty grocery stores to better uses

The end of a company can have rippling effects: a number of Chicago area communities have been working for years to fill empty Dominick’s stores.

When Dominick’s went out of business in December 2013, it added 72 empty stores to the Chicago area’s retail landscape. The most desirable ones were snatched up by chains like Jewel-Osco, Mariano’s and Whole Foods Market. Last year, Albertsons acquired Safeway, Dominick’s parent company, giving it control of most remaining Dominick’s leases and property in the area.

At least 18 suburbs are still trying to turn the lights back on in the darkened stores. As time drags on, the prolonged vacancies create pockets of blight in once-thriving retail areas, hurting town coffers, hindering other businesses and inconveniencing residents. Some officials blame Albertsons, saying the company is paying rent on dark buildings to block out Jewel-Osco competitors…

Albertsons has been “extending dark store leases” to keep out competition, a tactic that’s “objectionable, but not unusual” in the Chicago area’s extremely competitive grocery industry, said Andrew Witherell, a commercial real estate broker who consulted with Mariano’s on its expansion into 11 former Dominick’s stores…

Other towns have banded together to attract retailers. Last year, nine western suburbs launched a joint effort, “One Call/10 Stores,” to try to fill some 700,000 square feet of former Dominick’s space. Most of those stores, however, remain empty.

In other words, there is little incentive for Albertsons to sell the properties. I would also guess that a number of suburbs have struggled to find tenants who could use all of the building space and possibly be there for a long time. In many places, is there really a need for another grocery store given all the options (and with Walmart operating as the biggest grocery chain in America)?

Perhaps some of these communities need to head in different directions. Break the large store into smaller pieces. Think about retrofitting the whole structure to include a mix of uses and alter the big store and large parking lot dynamic. Maybe demolishing the structure could provide a fresh start and entice someone who doesn’t want to be saddled with an aging large structure. It will be interesting to see how long communities will go before trying something more drastic.

When a neighborhood doesn’t want a budget version of Whole Foods

Whole Foods has selected a LA neighborhood for its first Whole Foods 365 and residents are not happy:

Let’s take a quick trip to Los Angeles’ bourgeois-hip Silver Lake neighborhood, where more than a few residents are up in arms over Whole Foods’ recent decision to not go through with a planned full-service Whole Foods but rather to build the first store in the chain’s new line of budget outlets aimed at millennials, 365 by Whole Foods Market. “Whole Foods! We want the REAL thing,” reads a Care2 petition recently posted by neighborhood resident and music executive Dawn White. “People in this neighborhood are desperate for a local high end market with the best quality foods, which are often not the 365 brand,” White wrote. Online, commenters began to call the proposed store “Half Foods.”

What is behind this reaction?

Silver Lake is not the first nor likely the last enclave where residents are literally begging for a Whole Foods. Online petitions asking for stores frequently read like crosses between market research reports, sales pitches, and letters from spurned would-be lovers. “Between the families, the young professionals, long-time residents and university students in the neighborhood, we have more than enough demand to satisfy Whole Foods,” went one 2013 plea out of Washington, D.C. As for White, her missive told the organic superstore that it was “wholly wrong” about who lived in the neighborhood. “Residents of this neighborhood can afford this,” she added.

In a world where all too many people define themselves by what they can afford to purchase and do actually buy, Whole Foods gives the sort of person David Brooks so memorably labeled bobos, short for bourgeois bohemians, validation, not to mention a bit of convenience in a busy life. It endorses that decision to drop more than $800,000 on a tiny two-bedroom Spanish or craftsman bungalow with a Viking stove or a Brooklyn brownstone that’s located near a Superfund site. A local Whole Foods is a stamp of approval from the United States’ greater corporate culture, but one that at the same time allows the people who crave it to still believe they remain just a bit outside the mainstream.

Up and coming or hip or gentrifying neighborhoods are interesting places. On one hand, they want to live on the edge with lots of cultural opportunities and relatively cheap housing. They don’t want to be conventional, typically associated with higher incomes and less nightlife. They want to be authentic, gritty, and real. On the other hand, they often want to have some markers of their success as well as amenities. This could come in the form of Starbucks, rising housing values, or even grocery stores. The presence of these upscale places or items hints at the wealth in the neighborhood and suggests it is a place worth investing in.

But, these two competing forces are difficult to reconcile. Is having a Whole Foods hip? What kind of people shop there as opposed to those who shop at budget grocery stores? Do national retail chains hint at rising land values, eventually putting pressure on lower-income residents to move? There are likely more neighborhood discussions to come as residents try to exert their influence in the direction they would like their community to go.

Suburbs join together to find takers for vacant Dominick’s stores

Filling a big retail space can be difficult once the original tenant leaves so six DuPage County suburbs are working together to fill spaces left behind by Dominick’s:

Bartlett, Bensenville, Glen Ellyn, Naperville, Wheaton and Woodridge are combining forces to recruit potential new grocers or other large retailers that don’t already have a presence in the suburbs. The thinking behind the marketing coalition, which formed in December, is that centralizing information about several vacant Dominick’s stores could help a new business make the decision to open here.

“Since communities have different regulations and processes for business openings, that can be a deterrent to a new retailer looking to enter the market,” said Jason Zawila, a planner who coordinates economic development efforts for the village of Woodridge. “By combining our resources, we can conveniently offer the information needed for their market assessment.”

Nine of the 31 former Dominick’s that are still vacant in Chicago or the suburbs are within DuPage County. Seven are within the communities that are working together to market the sites, while the remaining two in DuPage are in Carol Stream and Glendale Heights. The stores are large — between 61,000 square feet and 77,000 square feet. And they often anchor strip malls such as Baker Hill in Glen Ellyn, Riverbrook Center and Wheatland Marketplace in Naperville or Danada Square in Wheaton.

“The concentration of remaining stores in the DuPage County area presents a unique opportunity for a new grocer to enter the Chicago market,” Zawila said.

An interesting strategy as communities can spend years trying to fill such spots (see the recent case of the empty Dominick’s at the northeast corner of North Avenue and Route 59 in West Chicago). Do the suburbs offer similar enough demographics to make the same pitch to one company? Think of the possible comparisons between, say, Bensenville and Naperville. Also, are there enough firms, particularly grocers, to take on six or more new stores at once in the Chicago region?

What happens to this coalition if a firm wants four of the six locations? I assume those four communities would accept but it could lead to some interesting relationships between suburbs.

Supermarket chains suffering in wealthy countries

Supermarkets in numerous wealthy countries are having a hard time competing with the wide range of choices offered to consumers:

As they scramble to maintain market share, the big four British grocers can take comfort from the fact that at least they are not alone. The global supermarket industry has its share of epic competitive scraps, too. In Europe alone, the discounters that have wrought havoc for Tesco, Morrisons, Asda and Sainsbury’s have an even more powerful grip on the industry. While Aldi and Lidl control around 8% of the UK market, according to figures from market research group Kantar the share controlled by discounters in France is 10% and in Germany – home of Aldi and Lidl – it is 37%. In the UK, two-thirds of the market is controlled by four players; this is the same as in Germany, while in France 56% of the market is controlled by the top four and in Spain just under 50%. A look at these markets, plus some of the biggest outside Europe, shows that every territory poses challenges for big grocers…

As in the UK, discounters and supermarkets in Germany are faced with shoppers who are less and less willing to drive out of town for their weekly shop, and more likely to do small, frequent trips in urban areas. In recent years, the trend has led to a revival in big cities like Hamburg and Berlin of the traditional Tante Emma Läden or corner shops, which have been able to be much more flexible in reacting to trends or food scandals than their bigger rivals…

Between the discount stores, supermarkets and hypermarkets there is a constant battle going on to woo the increasingly cash-strapped consumer. “Supermarkets are really the only sector [in Italy] where competition has worked out,” said Liliana Cantone of Italian consumer association Altroconsumo. “The players are doing their best to offer lower prices, and consumers can really benefit from this.”…

The market is far from impenetrable, however. Walmart, the only “everyday low pricing” operator in Japan, has forced domestic rivals to keep their prices low where it operates stores. Costco, with 20 stores nationwide, has proved a success, offering prices comparable to those found in the US. Tesco’s foray into Japan was frustrated, in part, by consumer idiosyncrasies.

Sounds like some contradictory forces at work. On one hand, increased globalization means food can travel all over the world. It might seem that such a global market would be controlled by some major players in the grocery industry who could use their size to their advantage. Yet, that same globalization allows other players to get into the game and gives consumers more low-priced options, usually something seen as a good in free-market economies. Throw in debates about subsidizing food production, getting healthy food to places that need it, and genetically modified food and you have a retail sector that is experiencing a lot of flux.

Just one quick thought: I’ve been in supermarkets in England, France, and Japan and they all seem more similar to each other than to the American version. Even not looking at Walmart or other big box stores with groceries, the American supermarket is an amazing size with tremendous variety. In contrast, stores in the other countries are smaller, something that may be cultural as well as economic due to higher rent and land prices.

When Dominick’s stores close, suburbs lose tax dollars, gathering places

Amidst the news stories detailing the closing of Dominick’s stores in the Chicago area, one article highlights its effects on suburban communities:

Bruce Evensen, a DePaul University journalism professor, compared the news with the closing of Marshall Field’s in 2006. He said he has been a longtime Dominick’s shopper after living in the Arlington Heights and Mount Prospect area for the past 20 years.

“It’s a sad day,” said Evensen, 62. “To see it close is not just the closing of a store but the closing of an experience. After years of checking out, you get to know the staff, their families and their dreams. It’s the ending of that part of their lives.”…

Naperville City Manager Doug Krieger called the stores significant sales tax contributors, and expressed hope that new tenants would fill the locations.

Michael Cassa, president of the Downers Grove Economic Development Corp., said that it’s too early to know the potential effect, but the village’s only Dominick’s sits in a busy commercial complex along the main business corridor.

There are two arguments as to how closed stores will affect suburbs:

1. They will lose out on tax dollars. Grocery stores are the sort of businesses that have regular consumers – we all have to eat. Additionally, it can be hard to refill big box stores that close down. New businesses might want to construct new buildings and it would be hard for a single large company to take over all of the closed stores. That means individual suburbs will have to try to attract new businesses into large buildings.

2. In suburbs which are marked by fragmentation and more home-centered social life, persistent social institutions are limited. Local schools and religious congregations help fill that void but grocery stores could also play that role. Again, since people have to eat, customers are likely to be in and out regularly. They may even be there enough to know a lot of the details about the store as well as get to know employees and fellow customers. Interestingly, the same claims are rarely made about Walmarts or Targets – but perhaps similar arguments will be made in the future once these stores have been in communities for decades.

It is interesting to watch the sadness over Dominick’s closing. There are certainly lots of workers affected and it is unclear where they will all end up. However, this cycle of corporate merging and sell-offs seems fairly normal to me. Perhaps that is because I grew up in the Chicago area going to other grocery stores. Or perhaps it is because I’m used to our times where companies are viewed less as community institutions and more of places providing services that could be here one year and not the next.