How to Start a Grocery Delivery Business: Revenue Model & Key Features

 

 

Delivery business for groceries is one of the fastest-growing niches of ecommerce. The grocery delivery business has grown up significantly. 

We have also received many questions related to grocery delivery business models, such as how to make a successful grocery delivery business plan and what factors will play a key role to make a successful start?

Given the facts and stats on online grocery shopping services, the market is expected to grow by three-folds every year, and any investment whether it be launching a grocery store or starting a grocery delivery service; will have a positive outcome.

So, if you are exploring how to start a grocery delivery business, then this article is good to read for you. You will get a comprehensive guide, tips, and suggestions here.

Steps To Start An Online Grocery Delivery Business

 

Step 1 – Finalize Your Business model

 

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 groceries as per customer’s convenience. 

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

It also makes sense as most of these items that users order under the umbrella of grocery products has a short shelf life. Moreover, customers prefer getting fresh items as far as food shopping is concerned. Let see how it works –

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 services 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 groceries 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 at the 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. 

For individuals and small businesses

 

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

• Create an account with a wholesaler. Customer orders are placed through you and you get to make a profit. In this case, customers give you their shopping list, and you do the shopping for them.

• 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.

• 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 the 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.

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

2. Readymade App Solution

 

As the name suggests, a ready-made 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 a 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 ones, 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 ready-made app. If additional features are needed, you can always get them added later by paying some development fee to a developer.

 

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 a monthly subscription fee so you do not own it

• Less control over the functionalities

 

Step 3 – Finalize Your Monetization Strategies

 

There are various 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 your 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 preferred 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 on board 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 revenue 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.

Key Features for Online Grocery Marketplace

Key Seller Features in Grocery Marketplace:

 

• Separate Vendor Dashboard

• Order Cancellation

• Order Refund Requests Management

• Shop Management

• Sales Report & Other Statistics

• Wallet Management

• Bulk Imports/ Exports

• Delivery Slots Management

• Pin Shop on the Map

Key Buyer Features in Grocery Marketplace:

 

• Cart

• Return Order 

• Auto-Detect Location

• Schedule Delivery slots

• Cancel Order

• Tracking Order 

• Click and Collect

Online Grocery Website Key Features :

 

• Attractive Page Banner

• Call to actions

• Match SEO standards

• Mobile Friendly

• Discount Coupon

• Multi-Store

• Cart and Checkout

• Easy Navigation

• Multiple Payment Options

• Order Tracking

Key Admin Features in Grocery Marketplace:

 

• Tax & Currency Management

• Administrative access at multiple levels.

• Vendor Approval & Management

• Inventory Approval System

• Advanced level Reports & Statistics

• Subscription Packages Management

• Tax & Currency Management

• Progressive Web Apps (PWA)

• Operational Staff Management

Key Delivery Staff Features in Grocery Marketplace:

 

• My Profile Management

• Delivery order management

• Order Cancellation

• Define Delivery Radius

• Accept or Reject Order

• Route Navigation

• Push Notification

How to generate Revenue for Online Grocery Business?

Commission on Each Transaction:  

 

• Whether you work online or offline, taking Commission on every transaction is the traditional and most preferable revenue model for the grocery marketplace.

 

Subscription Fees:

 

• A merchant has to pay a fixed amount of money to the admin in order to access website services and sell their own products on the website. The vendor can choose subscription plans according to and also upgrade or downgrade the plan according to requirements.

 

Commission on Delivery: 

 

• On every transaction, the admin can charge a fixed delivery charge from the buyer.

 

Use Digital Streams:

 

• Promote Sponsored Advertisements for Vendors and Paid Display Ads.

 

Challenges Associated with Online Grocery Business
 

Customer Loyalty:

 

• It is really hard to earn customers' loyalty because loyalty cannot buy. For that, you have to update your store according to updated products and discounts, and beneficial deals. In addition, loyalty programs can also assist you to maintain the most loyal customers.

 

Warehouse Infrastructure and Delivery cost:

 

• Managing the whole supply chain, Warehouse to deliver products at the doorstep is the crucial aspect. Therefore, Many Investors use an aggregator business model in order to save initial capital investments.

 

Price Fluctuations:

 

• Online grocers face the same challenge of offering competitive pricing. The fluctuating price of grocery items can affect the profit from a significant margin of your online grocery. Proper and sustainable management is required to face this challenge as well.

 

Products Quality Assurance:

 

• Probably vegetables & fruits, most of the customers prefer to buy if their freshness & quality remains good after delivery. For this, you can use the buy click and collect grocery business model where users can place an order online and collect from the store after checking the quality of products. Either sell packaged foods, personal care & beauty products, household items, etc. as their storage & delivery cost less.

 

Higher operational cost and Low margins:

 

• Operating losses take the largest toll on the revenue of an online grocery. Online delivery can not afford delays in delivery, wrong item delivery, returns, etc. because sometimes products profit margins less than operational cost. 

• To overcome this issue certain steps need to be taken. You have to partner with a trustable delivery services provider who can meet your customer expectations. Moreover, integrate inventory management systems in order to automatically update inventory in the panel.

Prominent Names in Grocery Delivery Service Business

 

 

Since we understand what this specific business model looks like, and how it affects the business, it’s an ideal opportunity to investigate the real players in the market. 

 

UberRUSH: 

 

At present, they mainly focus their services in the New York City Area (Manhattan, Brooklyn, and Queens), San Francisco, and Chicago. UberRUSH is an on-demand delivery service initiated by Uber, a brand that doesn’t need any introduction. 

While Postmates and Instacart mainly focus on the B2C sector, UberRUSH takes a shot at a B2B model. In addition, UberRUSH does not offer delivery services for restaurants since they have UberEATS for this reason. 

 

Postmates: 

 

Postmates is inarguably the most noticeable player in this industry. With their services spanned over 15 states in the USA, Postmates enjoys a massive presence and serves a high number of customers.

Since its inception in 2011, they have conveyed more than 1 billion products and created an income surpassing 250 million dollars. Now that is a number! 

 

Instacart: 

 

Instacart is another major online merchandise service provider with a global reach. 
As of March 2017, Instacart delivered daily items to more than 1200 cities in about 25 states of the USA. With groceries delivered approximately to a worth of about $3.4 Billion. 

 

Conclusion

Grocery consumption is a necessary human need. Today, people are drastically dependent on online shopping. So, the online grocery delivery business idea fits perfectly in the current dynamics, despite the above-mentioned challenges.

The important thing for grocery business owners who plan to enter this online sector is to be aware of these challenges. Furthermore, they should know how to go about them by leveraging the right technology, trends & tactics.

And that’s where this post serves as a valuable resource.