I don't have a big issue with grotto's like you, I agree that most are bad due to lack of size and foliage along with often just being fake rock, but the actual grotto design isn't the problem imo. As we can see here, if done properly, it's not much different than those dry moat exhibits that you praise.
I totally agree. Many grottoes are transformed into really nice exhibits that work perfectly well for the captive animals. My major beef is the hundreds of grottoes (usually for bears) that are too small and 99% concrete, with next to no natural substrate. As I've already pointed out, the spectacled bear exhibit at the National Zoo is much better than most.
