Business Model of Online Grocery Business: How It Can Make Money

Online grocery shopping is one of the fastest-growing niches of eCommerce in 2020. According to a study by Nielsen, 70% of the consumers will shop groceries online by 2024. Subsequently, consumers in the US alone will be spending $100 billion annually on online food and beverages, which is equal to every household spending about $850 annually.

Businesses are aware of these stats, and to cater to the increasing demands, they too are growing by three-folds every year. Interestingly, the overall online grocery market is experiencing a CAGR of 13%, which is much more than ever-booming online travel market that currently has a CAGR of 9.5%.

Who are the top players in the market in 2020?

• Instacart –USA
• Amazon Pantry and Amazon Fresh –Multi-national
• Big Basket, Flipkart, Amazon, and Groffer- India
• Tesco and Sainsbury’s –the UK
• Alibaba Group –China

If you notice the market share in the global scenario, the biggest players in every market are the existing eCommerce giants. No doubt, they are the ones who know the market well and have the biggest brand names to capitalize on yet another niche. Nevertheless, the signs are clear; online grocery shopping and delivery is a globally trending business idea. If you are planning to start an eCommerce business in 2020, you should sell groceries online.

How to start an online grocery store?

Just 5–6 years ago, the answer to this question would have had a very different and expensive answer. However, today, as it’s one of the biggest trending business ideas, you don’t have to worry much about the hassles and costs to start selling groceries online. You get access to a ready-made B2B scenario and acquire everything you need without worrying much. The biggest requirement for this business idea is to understand the fundamental model and customizing it to fit your local market.

Sell Grocery Online- The Business Model

Most of the businesses are following one of or a hybrid of the following business models to sell grocery online in 2020:

Inventory model:

The platform itself stocks up the items or sources it directly from different suppliers. They receive the orders form the customers and deliver the same using an in-house or outsourced delivery network. Irrespective of the suppliers, the orders are sent to the customers with the platform’s branding.

Mostly, niched and single product stores follow this model for simplicity. For example, daily-milk delivery, vegetable delivery, etc.

Multi-vendor marketplace model:

The platform does not manage the stocks. Rather it connects the customers with local grocery stores. The customers place the order on the website, and the website transfers them to the respective grocery stores. They manage the shipping through an in-house delivery network, where delivery personal collects the shipments from the respective store and delivers it to the customer. The platform sends the orders to the customers with the respective store’s branding. Amazon follows this model in many of the regions of its operation.

Shopping model:

The Shopping Model is the most prominent choice when it comes to the global market. Almost every giant follows this model in one or a hybrid form. It works more like the multi-vendor marketplace model, except the customers don’t choose the store they want to buy the product while ordering. The platform manages its in-house delivery network. Upon receiving an order, the platform transfers the details directly to its delivery personals whose job is to shop for the items and deliver them to the customers.

Instacart follows this model. It even calls its delivery personals as ‘Shoppers’ who shop from stores on customers’ behalf. In fact, many existing online food delivery businesses have also extended in this model. It’s actually a great expansion, as you only need a robust delivery network and store tie-ups, which they readily have in their existing model for food delivery.

Besides, the platforms can use the existing infrastructure and the business model to deliver couriers, gifts, and other items as well. Just like Swiggy in India, as shown in the above image.

Selling Grocery Online- The Revenue Model

Depending on your chosen business model, the niche provides several channels to make money. In fact, it has derived most of its revenue channels from the existing food delivery and multi-vendor eCommerce models. You can adopt a combination of the following channels to maximize your revenue:

1. Commission:

Charge commissions from the sellers/store on every sale they get from your platform. Depending on the demand and supply chain, you can also charge different commission rates on different products and in different regions.

2. Membership:

Offer a membership subscription to the customers with added benefits, such as surge-charges, priority delivery, delivery schedules, and no delivery charges. You can offer a similar membership plan to the store/partners as well to allow them to sell on your platform or get added benefits.

3. Subscription:

Allow customers to subscribe to certain products for regular delivery without placing an order for them each time. Products that the customers use regularly can fit right into the model. For example, daily milk supply, weekly vegetable supply, monthly shaving supply, etc.

4. Service charges:

You can ask stores/partners who haven’t subscribed to your membership to pay an additional service charge on each sale they make. This will encourage them to purchase the store membership plan to avoid the service charge.

5. Promotions:

Allow stores to pay an additional fee and get boosted visibility on the home page or relevant searches. Displaying Ad banners for sellers can also fit right into this stream. You can also club these services to your store-membership plans to encourage subscriptions.

6. Merchandises:

You can sell your branded merchandise and relevant products such as reusable shopping bags, Jars, bottles, small kitchen tools, etc.

Tips to set up an online grocery store

Irrespective of the business models and revenue streams, you need to set up your business plan to meet two vital components to run any kind of grocery shopping business:

• Product Sourcing: Stock-up the inventory or tie-up with local shops or bring-in big suppliers.
• Product Delivery: Maintain an in-house network or outsource it or let stores manage deliveries

Be advised that the profit margin and opportunities to include certain revenue models depend strictly on how you manage the above-two components.

So choose wisely. As per how to start an online grocery store is concerned, you have two major alternatives to build your platform.

You can go for:

• Development from scratch by outsourcing your project, or
• Use a ready-made grocery delivery script and customize it

You can choose from several readymade scripts. However, if I were you, I would first decide my business model and then look for a script that is closest to my preferred business model. For example, if I choose the Shopping Model, I would go for an Instacart clone script. As Instacart follows the Shopping Model, it would be economical and easier to customize an Instacart script as per my needs.

Further, I would also consider the architecture of the platform and the number of solutions in the script. For running an Instacart-like grocery delivery business, I would need a responsive website, separate mobile iOS and Android apps for delivery personnel and customers, and a powerful back-end panel. Besides, I would also want the script to offer open-source code access so that I can customize the features and look in the way I want to fit my brand identity.

I didn’t recommend scratch development as the business model of this niche is already popular, and there are ready-made solutions available for it. I am getting a well-to-do online grocery delivery platform as a clone script for as low as $800-$5000, why would I want to spend over $100,000, developing the same thing from scratch. Unless I have some new business model that no one in the market follows yet and I can’t even customize a script to include it, I would find a ready-made script not only economical for my project but also much quicker to start selling grocery online.

Cheers!