Dark Grocery Expands, May Stick After COVID

Dark kitchens and virtual restaurants continue to expand across the country, but as the pendulum of food spending swings back toward grocery, a similar model is expanding rapidly there as well. While a dark grocery store sounds like nightmare fuel out of a zombie movie or something, these new “microfulfillment” centers, as described in a recent Pitchbook report examining digital grocery operations, are expanding rapidly and attracting millions in investment.

The key driver has been—as are most trends in 2020—the consumer behavior shift during the COVID-19 pandemic. According to the USDA, food-at-home consumption increased 6.5% year-over-year in February and was 18.8% higher in March, year-over-year. That’s a quick reversal just a few years after the grocery category lost majority share of spending to food-away-from-home (the USDA term that encompasses all non-home and restaurant dining).

And as the Pitchbook report titled “Delivery Technologies Are Reshaping the Grocery Industry,” stated the share of digital grocery orders has shot up at a fairly dramatic pace. As we explored last week, online grocery and pickup sales have hit historic highs, reaching 73.5 million orders and $6.6 billion in sales.

That dramatically changes the outlook for the digital grocery world.

That puts 2025 estimates for online grocery sales at $86.4 billion or 11.6% of the overall grocery market. That’s a higher percentage of overall sales going digital than the prepared food delivery space if estimates hold true.

Hence, a rapid deployment of dark grocery stores or microfulfillment centers with, who else, Amazon leading the way. The delivery juggernaut has had two AmazonFresh pickup locations in Seattle for years, but COVID-19 brought a quick acceleration in development, according to Pitchbook researchers Alex Frederick and Asad Hussain.