Easy Steps to Start an Online Grocery Delivery Business

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Easy Steps to Start An Online Grocery Delivery Business

How to Start an Online Grocery Delivery Business
On-Demand Delivery / Startup Guide

Easy Steps to Start An Online Grocery Delivery Business

Introduction

Going out to local stores everyday to buy groceries can be challenging. People are caught up in their busy schedules and rarely find time to visit stores and buy food. Given the fact that everybody has mobile phones with them all the time, the emergence of online grocery ordering and delivery businesses was obvious.

Online delivery businesses are thriving across the globe. Be it grocery on-demand, food on-demand or other services, the on-demand economy is just booming.

Here are some stats

  • In 2018, online Grocery sales in the US was $23.9bn
  • In 2019, online grocery sales grew by 22% in the US.
  • As of 2019, 52% of the grocery stores in the US were offering store pick-up or home delivery options.
  • As compared to 2019, 25% more grocery stores were planning to integrate online grocery services in their offerings by 2020.
latest online grocery delivery market forecast

Is starting an online grocery delivery business a good idea?

Yes, the stats mentioned above clearly shows the trend that more and more businesses are willing to come online. The year 2020 has also been significant. Due to obvious reasons and safety concerns, more customers than ever are ordering groceries online.

So, if you are thinking of providing online grocery delivery solutions, I would say it’s a win-win startup idea. Here’s why –

For customers – A grocery delivery service will do people’s grocery shopping for them. Customers can order from the comfort of their home and receive their order within just a few hours.

For sellers – Perishable items, edible items and similar grocery related products need to be delivered within 24 hours.  An online grocery delivery business will help local shops sell groceries online and deliver the ordered items to users on the same day.

Online grocery delivery services and verticals

Services

  • Home delivery
  • Pickup from local store
  • Hire personal shopper

You can provide same day delivery services as users want quick deliveries. With Instacart Express, Instacart is providing home deliveries as quickly as within 1 hour to stay ahead of the competition.

Verticals

Daily Grocery – Right now is the perfect time to invest in a business that deals with the everyday grocery items supply. Be it a single-vendor grocery delivery business or a multi-vendor grocery delivery business, you have the choice to select any online delivery business model you are fine with.

Fresh Meat supplies – On-demand for fresh meat delivery services requests has also surged recently. TenderCuts, Licious, ZappFresh are some of the startups doing well in these categories.

Pet Supplies – If you are looking for a unique business idea, pet food on demand could be one of the great options. Given that there are only a few online platforms available that supply pet food items, you can leave a mark.

Existing Market Players in Grocery Delivery Business

Here are some examples of businesses, with some important data related to these brands, that are offering online grocery delivery services

Top Market PlayersFoundedFundingsInvestors
Fresh Direct2002$280 MJP Morgan Asset Management, AIG investments
Farmigo2009$26 MFormation 8, Benchmark
Peapod1989$73 MAhold
Instacart2012$274.8 MWhole Foods Market, Kleiner Perkins, Caufield & Byers
Good Eggs2011$46.5 MIndex Ventures, Sequoia Capital
Thrive2013$159 MInvus, Greycroft Partners
Steps to start grocery delivery business

Steps to start an online grocery delivery business

Step 1 – Finalize Your Business model

The business model is as simple as picking up the ordered items from the vendor and delivering it to the customer.

Grocery delivery service providers generally tie up with multiple grocery wholesalers. This way, they get a wide selection of products. The online grocery delivery business works on the core model of fast, usually same-day, delivery of grocery as per customer’s convenience. It also makes sense as most of these items that users order under the umbrella of grocery products have short shelf life. Moreover, customers prefer getting fresh items as far as food shopping is concerned. Let see how it works –

For individuals and small businesses

Consider the following options to set up your grocery delivery business and test the market

  • Make a deal with a local store to deliver orders to customers. For every order placed, you will get a fee. In this option, the stores will handle the bills, market services and you do the delivery work.
  • Create an account with a wholesaler. Customer orders are placed through you and you get to make the profit. In this case, customers give you their shopping list, and you do the shopping for them.
  • Sign up with established companies such as Instacart or WeGoShop. Do meal kit deliveries for eateries that don’t want or have their own delivery staff.

These options are fine if you want to start this business at individual level. You can book a decent profit on the deliveries you make. To turn it into a big business where you have your own grocery app and a team to handle different tasks, please keep reading.

For startups

How on-demand grocery delivery model works

  • Let’s say you are an online grocery delivery service provider. You tie-up with local/offline grocery vendors who do not offer home delivery service to customers. You create a grocery multi-vendor marketplace where you have listed all grocery vendors in the locality. The customer selects the local vendor and orders grocery from your platform (app or website), and you then deliver the ordered items to their home.
  • The second way is that you can simply put up the item list on your app, without mentioning the local vendors. Now a customer can order needed items directly from your app. You buy the ordered items from the local grocery store and deliver them to the customer at their doorstep. In this model, the customer won’t know which grocery store you buy the items from. But that shouldn’t be of any concern as long as they are getting their order on preferred time.
  • Suppose you are an offline grocery vendor and decide to start an online grocery delivery business. As you own a store, you include an ordering option in your app. This model is generally known as a single vendor online grocery business model. In this, from warehousing to logistics to delivery, you handle all these aspects. 

Related resource: 5 different grocery delivery business models

Step 2 – Choose Your Grocery Delivery Solution

There are 3 major app solutions you can choose from

1. Custom App Solution

With a custom-build mobile app, you have complete control over the design and user experience. You can ask the developer to create a fully customized app as per your needs and features requirements. A custom-build app will enable you to stand out from your competitors.             

Pros

  • More control
  • Better UI and UX
  • You can get as many features and functionalities as you want
  • The app is compatible with existing enterprise solutions
  • No recurring costs such as subscription fee and more
  • Dedicated technical support is available

Cons

  • It is relatively more expensive than a readymade app
  • It will take more time to create such an app. Usually takes 3-4 months to be delivered.

When to choose a custom app-

If you want to focus on desired quality and not worry about the budget. And if you want to pay only once, and then take the complete ownership of the app after it is completed, this is the solution you should go for. 

Budget requirement: $25,000-$40,000

2. Readymade App Solution

As the name suggests, a readymade app is already built and you can directly buy it, as it is or with some minor modifications, from its developer or the development company. All you need to do here is choose the product you think has all of your required features included in it and get it. The developer of the app will modify the app as per your branding needs, such as the app logo, app name, theme and deliver it to you. 

Pros

  • It is relatively cheaper than custom app
  • You can immediately use your product in the market after the purchase
  • Delivery time is less, usually takes 2-4 weeks
  • No monthly subscription fee

Cons

  • You might have to compromise on UI/UX uniqueness
  • Functionalities are fixed
  • Adding new features, compatible with existing one, might be a challenging task

When to choose a readymade grocery app-

If you want to launch your app quickly in the market and get the app at an affordable price, you can go with a readymade app. If additional features are needed, you can alway get them added later by paying some development fee to a developer.

Budget requirement: Around $10,000 

3. SaaS Based Solution

Using a SaaS based grocery app, you can manage your grocery delivery business with a monthly subscription model. These apps are already designed and are ready to use. Once you subscribe, the app is prepared for your business with the required customization. You can then connect your grocery outlet to the app in no time.

Pros

  • Ready to use, so no development time
  • No huge investments needed

Cons

  • There’s monthly subscription fee so you do not own it
  • Less control over the functionalities

When to choose a SaaS based solution-

If you do not want to wait until the application is developed, you can choose this solution. This way, you can start delivering groceries ASAP.

Budget requirement: $150/mo and one-time setup fee of $2,000.

Related resource: My Trolley

Which one you should choose?

It depends on your business needs and preferences. To make a decision, you can take into your account the pros and cons we have discussed above and finalize which one will be more beneficial to you.

Ready-Made AppsCustom-Build App
UIStandardizedTightly Customizable 
FunctionalitiesFixedAs per requirements
Backend integrationLimitedTightly integrated
PerformanceGoodOptimized as per requirements
ScalabilityNormalHigh
Development timeLeast timeMore time
Deployment timeLeast timeMore time
UpgradesAs per vendor’s planAs per requirements
SupportLimitedSLA
SecurityNormalHighly secured

Having said that, 

For common business processes and solutions, we will recommend you to use a readymade solution that is available on the market as it will already have most of the features you will need. 

For unique business processes and strategic mobile apps, as the required features will be unique, you can go for a custom-tailored app.

Related Resource: Grocery Delivery App Development

Step 3 – Finalize Your Monetization Strategies

There are several revenue models you can go with to make your business profitable for vendors and yourself. You can choose any of the following revenue models as per you needs

So, here’s how you can earn money

1. Commission based model

Be it online or offline, it is one of the oldest and most prefered ways to generate revenue in the marketplace for all entities such as vendors, business owners.

2. Subscription Model

Some vendors do not want to share commissions. In such cases, they can be onboard by paying a fixed membership fee. The subscription period can vary from monthly to quarterly to yearly subscriptions. This way, vendors do not have to share commissions and the renue is generated via membership fees.

3. Advertisements

You can get paid for vendor promotion on your app. The advertising methods include banner ads, sponsored listing and more.

Step 4 – Build Your Brand (+ Legal Aspects)

Choose a name that is brandable. How? Think about the other players, their names and how they have named their businesses. Go with something that will click to your audience and target market. Just thinking about it won’t be sufficient. You need to do the research. See if the name is not already taken by someone else. Check if the domain name is available. Register it with a domain registrar as soon as you finalize it.

Tip: It’s time to form a legal entity. Register your company as a legal entity such as an LLC or corporation. It will safeguard you from being held personally liable in case your business is sued. Get legal advice to register for taxes and open a business bank account. Finally, you need to obtain necessary permits and licenses.

Challenges you might face and how you can overcome them

Highly Competitive Market

This market has become highly competitive. You are just starting to acquire users and vendors on your platform. Imagine you have to compete with established names such as instacart, Walmart, Fresh Direct and more.

Solution: Before launching your grocery delivery services, do a thorough market researchand check if there are any existing service providers in your target areas. Let’s say there is, you need to figure out how you can establish your own market niche. For example, if your competitors deal in grocery foods, you can target the farm-to-table grocery market on weekends. It will provide your business a chance to stand out.

Delivery Challenge

With regular online stores, delayed deliveries, delivering wrong items by mistake, returns tackling these issues on daily basis is affordable. But for your business, these delays and poor customer service may prove detrimental. One more unsatisfied customers and you are out of business. 

Solution: Sign up with reliable delivery service providers that can meet your customers’ demand. Optimize your delivery network for fast deliveries by carefully dividing it into hyper-local networks.

Storage Infrastructure and Quality Assurance

Grocery items are perishable and need to be stored (and delivered) in refrigerated chambers. Setting up a storage infrastructure can significantly increase the cost of operations. Apart from this, some customers do not want to buy groceries online because of quality concerns.

Solution: Integrate a robust, inventory management system API such as JIT (or Just-in-time) with your online store. It would help you automate things better and to reduce storage cost. Other than this, more packaged foods and non perishable items can be listed on your app and there would be comparatively less wastage of products.

Low-Profit Margins

Let’s face it. Customers today have more choices than ever before. They are going to compare different stores, marketplaces before placing their orders. Moreover, well-established companies are already offering competitive pricing. This leaves you with minimal scope to increase your profit margins. 

Solution: You can offer more competitive pricing than your rivals. But operating like this, sustaining your business might be a challenge. Try to find out and list locally produced items that are not offered by others. This way you won’t have to compete. Also, make sure you provide the best customer service out there. It will help you increase your customer base and in turn, less profit but from a deep customer base would become profitable.

FAQs

How much does it cost to start an online grocery delivery business?

It depends on your needs. Building a custom app with all the features you have in mind can cost anywhere from $20k to $40k. A ready made app with built-in features and functionalities can cost around $10k. On the other hand, With GoodGroceries, a SaaS based grocery delivery solution by Oyelabs, there will be a subscription fee of $149/mo and a one time setup fee.

Is Online grocery delivery business profitable?

A grocery delivery business is profitable. As more people are ordering groceries online, you can expect it to remain profitable for the years to come. Moreover, you can choose to do this business business as it can be based on a less ownership model. So, the risk involved is less.

How much can my business earn per grocery order placed?

Most businesses charge a fee based on the total order size – It is typically 10% to 15%. So for a grocery order of $150, it can be roughly $15-$20. If you are getting 100 orders a day, we can make $1500 to $2000 per day in revenue. More the customers you have, the more your profit will be.

How do I acquire new customers?

In this fast paced life, a lot of people do not want to spend time going to a grocery store and do the shopping on their own. Your on-demand grocery delivery business can solve this problem for them. In that context, target customers should be those who are looking for on-demand delivery services.  For example, you can target students not living with parents, family where the couple is working, people with jobs and hectic schedules.

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