DARK STORE VALUATION

Saturday Brainstorming Thought (292) 13/09/2025

BY:- Er. Avinash Kulkarni, 9822011051

Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer

Dark Store Valuation depends on whether it refers to real estate property valuation, as in the Dark Store Theory for property tax, or the operational valuation of a quick-commerce business, like Blinkit or Zapto

Where valuation is tied to factors such as growth in order volume, average order value, operational efficiency, market share and future potential for high-margin services

Key metrics for operational dark store businesses include profitability, unit economics, inventory management and market penetration

Dark Store Theory (Property Valuation)

1) Context

This theory applies to real estate, particularly to assessing the property tax of large retail spaces that have been converted into dark stores

2) Method

It argues that these operational stores should be valued as if they were empty, based on characteristics of vacant and obsolete properties

3) Challanges

This approach can lead to lower tax assessments and is often based on the sales comparison approach of vacant properties, which may not accurately reflect the value of fully occupied and operational stores

Dark Store Valuation (Business/Company Valuation)

Context

This refers to valuing a company that operates dark stores, typically in the quick commerce or fast-delivery sector

Key factors of Dark Store Valuation

1) Revenue Streams

Revenue comes from warehousing fees, advertising and customer delivery charges

2) Operational Efficiency

Crucial for profitability and speed of delivery

3) Market Penetration

The extent of market reach, particularly in urban areas and by focusing on growing demand for convenience and quick delivery

4) Growth Metrics

This includes the overall market size, projected growth rates for quick commerce and the ability to expand dark store networks

5) Profitability and Unit Economics

The ability to achieve a positive adjusted EBITDA margin (eg 4-5%) indicates strong unit economics and potential for profitability

6) Customer Retention

The ability to retain customers through subscription models and loyalty programs

7) Investment and Funding

Recent large funding rounds for companies like Zepto single strong investor confidence and contribute to a higher valuation

Dark Store Valuation methods

The valuation of dark stores, particularly in the context of quick commerce involves analyzing factors beyond traditional retail valuation methods

Key Approaches for Dark Store Valuation

1) Discount Cash Flow (DCF)

This method estimates value based on projected future free cash flows, discounted to their present value

2) Sales Comparison Approach

This method compares the dark store to similar properties that have recently sold

3) Income Approach

This approach determines present market value by converting anticipated future income into a present value

4) Cost Approach

This method calculates value by estimating the replacement cost of the property and subtracting depreciation

Factors influencing Dark Store Valuation

1) Delivery Volume and Density

Profitability is linked to order volume in a specific area with approximately 1400 orders per day within a 2 kM radius being a target of profitability

2) Cost of Operations

Both fixed costs (eg salaries and rent) and variable costs (eg delivery, labour, fuel) are significant considerations

3) Delivery Radius

A smaller radius helps reduce last-mile delivery costs, a major variable expense

4) Proximity to Customers

Locations in densely populated areas facilitate rapid delivery

5) SKU Inventory and Management

Dark stores typically focus on a limited inventory of fast-moving items and efficient inventory practices are important

6) Technology and Automation

The use of technologies like AI, machine learning and robotics improves efficiency in order processing and inventory

7) Revenue Streams

Income sources include commissions, warehousing fees, advertising and customer fees

8) Efficiency and Order Fulfilment

Factors like layout and picking speed impact delivery time

Key Insights of the Dark Store

1) The dark store market is expected to grow significantly due to e-commerce and demand for fast delivery

2) Grocery and food products are the largest categories in the dark store market

3) North America leads the market share with Asis-Pacific anticipated to be the fastest growing region

4) Regulatory compliance is a challenge as the market expands rapidly

5) Blinkit, acquired by Zomato in 2022, holds a significant share in the Indian quick commerce market

6) Companies like Zepto are actively expanding their dark store networks

7) Operating a dark store involves considerable initial costs for infrastructure and technology

Dark Store

1) Dark Store refers to a store that is utilized to fulfill urgent online requirements

2) Dark Store has all of the shelves and racks like a typical store world

3) In the Dark Store no customers are inside

4) Only delivery personnel or other staff members can access Dark Store

5) To collect the ordered items and complete the right delivery

Usability of the Dark Store

1) Online purchasing is feasible through these platforms

2) The products are sent directly to the desired location

3) To the shop floor, orders are electronically transmitted

4) Frequently, multiple orders can be picked up concurrently

Industries feasible for Dark Store

1) Grocery

Dark Store has developed as an additional advantage for grocery retail store

2) Fashion

It aids in giving consumers more options to choose from

3) E-commerce

E-commerce sales are expected to reach greater height to Dark Store models

Dark Store Set up

1) It is primarily planned to be situated close to an area with higher demand

2) It is possible for rental parts to be located in both urban and rural areas

3) The sites are chosen based on the goods and services

Advantages of the Dark Store

1) Aids in quick and hassle-free purchasing

2) Distribution and delivery systems operate without difficulty

3) Can cater to more products and more customers

4) Improves inventory management

5) Decrease operating expenses

Disadvantages of the Dark Store

1) Costs associated with transportation are much greater

2) The Dark Store generates new, recruting overhead as well as operating costs

3) Brand loyalty charges when there are more options available

4) Productivity fluctuates

5) There is a constant demand for faster deliveries

Dark Store Order Fulfilment

1) Order receiving

2) Order Picking

3) Order Packing

4) Delivery or pickup

Store to Door delivery is the most common method customer prefers as it is fast, convenient and contactless

Best Alternatives for Dark Store

1) Micro Fulfillment centers

2) Third Party logistics providers

3) Store to door delivery

Future of the Dark Store

1) The Dark Store model is expected to continue scaling and evolving to meet customers demand

2) The global market size is forecasted to grow by 38% from 2023, to 2033

3) Delivery solutions will be more eco-friendly, such as using bikes and electrical vehicles for delivery

4) Automation,robotics and AI-powered chatbots may be used

5) Technological advancements deployed in inventory management, order tracking, shipping and other stages of retail fulfillment

COMPILED BY:-

Er. Avinash Kulkarni
9822011051

Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer