How to Start Online Grocery Business?

by Your RetailCoach YourRetailCoach

Gone are the days when going out to buy groceries was the one of an importing outing a working-class family used to have. With the evolution of technology and its use in almost every single aspect of life, we are able to avoid long queues, save a lot of time and effort even while buying our daily groceries. Thanks to the online grocery stores for making our weekends a lot more enjoyable by saving us the time spent in physical stores. Online grocery stores are one of the fastest-growing businesses throughout the globe. The main reason behind this is the increasing preference for online purchases by the customers.

According to a study by Nielson, about 70% of the customers will be buying groceries online by the year 2024.

Covid-19 crisis has also accelerated the industry as most of the physical stores were closed due to lockdown and the demand for online groceries has seen a spike.

Praxis Global Alliance, a global consulting firm in their study reported that the industry will be growing at a rate of 70% CAGR to reach $7.5bn by the year 2022 in India.

The growing online grocery business in India is a testament to the growing number of players in the industry. Although the online grocery business has been mainly driven by bigger players like Amazon, BigBasket, and Grofers, we have seen a lot of smaller local players entering this market during the lockdown period. These stores use their local customer base and provide an experience very similar to the bigger players.

After discussing the opportunities available and the sector growth, let us now discuss how to start a grocery business online:

1. Market Research and Business Model Development

While there are a lot of players available in the market, you have to come up with something which others are not offering. For that, detailed market research to understand the problems faced by customers is necessary. Also, deciding on a specific target region is important. You must understand the target audience first before selecting a region. You cannot sell groceries online in the region where people do not have internet access or a rural area where people still do not buy groceries online. The following questions could be useful:

  • What demographical factors define my target audience?
  • What problems do they face while buying groceries online?
  • What extra features our business can provide them?
  • How can we differentiate from other players in the market?
  • Is your target audience comfortable using websites, apps? 

These are some of the questions which will make you understand your customers better and offer them something which will fill the existing gap.

Now when you are sure about all the above aspects, you will have to choose an online grocery business model (or online supermarket business model, as the case may be) which will be beneficial for both, your customers as well as you. Before that, we must first understand what are the different business models used by some of the players in the market.

Inventory model (Selling)

In the inventory model, the inventory is maintained by a business enterprise who then sells directly to its customers. There can be multiple suppliers but the selling, distribution, and delivery are undertaken by the business entity i.e. seller is only one. A conventional grocery store is a typical example of the inventory model in action. An online grocery store can replicate the same way of operating.

Marketplace model (Facilitating)

In this model, a business enterprise only acts as a connecting host between buyers and sellers wherein the host provides an IT platform to facilitate buying and selling. Companies like Amazon, Wal-Mart Flipkart, etc. come under the purview of the marketplace model. But here also the inventory, distribution, and delivery network are managed by the host business entity.

Brick and mortar grocery stores intending to go omnichannel can join a marketplace platform and start selling digitally.

Before investing in the business of online grocery, you must also choose a revenue model. This makes sure you break even your investment faster and become more profitable. Below are some of the revenue models used by global players.

Commission-based revenue model

In this model, as a marketplace service provider, you can charge a commission from the stores and the suppliers from the sales they are making on your platform.

Membership-based revenue model

Offering customers privileged features like free delivery, discounts, and priority delivery by charging them a subscription fee can not only generate revenue but also builds a loyal customer base for your online grocery business. These subscriptions can also be offered to the stores and delivery partners that can give them added incentives.


Whenever we open an eCommerce website, we see a list of suggested products from different brands on the home page and the search results. Similar promotion or advertising can also take place via other digital marketing routes. Offering better visibility could be made a part of premium services which is often highly valued by retailers.

Private-labelled items

Once you have good brand goodwill, you can promote the business of small manufacturers/traders by labelling their products under your brand name resulting in a win-win situation. You can also help them earn better margins.

According to Nielsen, private label store brands are growing three times faster than the big national brands. Using your brand name to sell private labels and high margin products will help you not only increase the popularity of your brand, but also your sales and profits.

The business model and the revenue model is a long-term commitment and all future decisions will be based on this.

2. Development of Website / Choosing a platform

There are two options available with us for setting up a website or applications.

  • The in-house development from scratch

In this method, you develop your own website and application. This method is very time consuming and costly but if you are confident about your business plan and want to offer customers a different kind of experience; you can proceed with this method. It will require a team of in-house developers or could be outsourced. In either case, the costs and efforts involved could be significant. This is like building a house from the foundation. But it also offers a high degree of customization. 

  • Off-the-shelf available scripts / ready-made platforms

Purchasing a turnkey solution is always a better choice if you do not want to invest a lot into developing a website and application from scratch. This method is faster and cost-effective. It’s like an architect giving you a blueprint and all the materials required to build a house. There are many ready-made platform solutions available in the market and most of them are open source as well. These readymade scripts also offer you customization features according to your business needs. These scripts have in-build codes for all the systems like order management, tracking of the order, inventory management, etc. You can fine-tune the systems like the order management system according to your business offerings as well. This also takes less time as the codes are already available and you do not have to get into the coding stuff which is not even your core business and may divert your entrepreneurial focus.

Both in-house web/app development and off-the-shelf solutions have their own pros and cons but you will have to choose the one which best fulfils your business needs and aligns better with your offerings. For businesses, who want to speed up the process with minimum effort, a readymade solution would be a better choice.

3. Development of SOPs / Process Manuals and Management Systems

After choosing the business and revenue model, and the platform, the next step is to develop a business plan and the business processes and operations. There are different departments and processes which have to work simultaneously and in sync to make the entire enterprise run smoothly on the intended lines.

It is only when the duties and responsibilities are crystal clear to all of your employees in all the departments will they be able to carry out what they are needed to do. Now, how to achieve such clarity for all? The answer is SOPs. SOP is an operational roadmap for each operation or activity. SOP defines the step-by-step approach to carry out a particular task or operation. SOPs need to be planned and documented. It removes subjectivity and doubt. It also makes supervision, monitoring and improvisations easier. There should be SOPs for every department like finance, HR, store operations, merchandising, purchase, inventory, etc.

A platform will offer you pre-defined processes for all the management systems along with standardized process manuals. You will have to fine-tune the management systems according to your own business offerings. Development of order management systems, delivery network systems, inventory management systems, and integrating them with the platform and fine-tuning the code and scripts according to the business offerings can ensure that your operating systems are in tune with your business goals and strategies.

4. Develop a strong IT infrastructure

Running an online grocery business involves multiple business processes and operations that need to run in a synchronized manner moving the wheels of the entire business. A strong IT infrastructure to support all the departments and the business processes becomes necessary.

The leverage provided by business software applications can significantly trim operational costs, especially in the long-run. A suitable business software application, customized to suit specific business strategies and the resultant operational requirements, can simplify complex business operations to a matter of few clicks and a few inputs. Such software applications collect the data fed into the system by different users across the enterprise, store such data centrally, and make it possible for other process owners to access the relevant data for further decision-making in their respective departments. This results in automation, more accuracy of the information, and speedy decision-making.

For a simple example, the waiting time for customers at the billing counter gets reduced as the billing software could generate the bills in a matter of seconds once the data is fed. Another example would be the auto-replenishment system (ARS) which automatically places the order for products that hit the reorder levels.

5. Procurement

With hundreds and thousands of products and brands, procurement is a tricky process for grocery businesses irrespective of the channel. The big question shortened would be - what products to keep of which brands and in what quantities? This will depend on two big factors - demand and supply. It is advisable to offer products and product brands which are always on demand. Supply is usually not a constraint for such products but the margins offered by the manufacturers and distributors could be lower for the popular brands.

Another concern area is the perishable category of products. The application of the concept of just-in-time becomes critical for perishable products. With a limited time-span, their storage also becomes a liability. Thus, the procurement process needs to specifically address this particular category. Reliable demand forecasting and precise procurement become a necessity. For example, bakery products like bread are highly perishable and overstocking must be avoided.

There are various analytical and BI (business intelligence) tools for more reliable, data-driven decision-making in inventory management (including procurement).  Auto-replenishment systems could be a game-changer.

6. Marketing Planning

Marketing begins with the idea of business itself. But here we intend to cover marketing in action.

For an online grocery business, marketing, in the sense of brand and product promotion and advertising, can be done in two ways:

  • Digital marketing
  • Conventional marketing

Under online digital marketing, there are two important fields – search engines and social media.

You can use SEO and SEM techniques to increase your brand visibility (website/app/listing) on the search engine result pages. You can also leverage the power of social media to reach out to a wider audience, engage with your customers, or even sell products.

Conventional techniques can be more effective for local audiences. Some of the popular old school advertising mediums are:

  • Advertising in the local newspapers
  • Pamphlets and flyers
  • Hoardings, electronic billboards

Customers around the world are increasingly flowing towards online grocery shopping. The business holds a lot of promise but there are contemporary challenges and will always be. In addition to the points covered in this post, you need to explore, discover and rediscover facets which could further strengthen your business plan. And most importantly, you have to start.

As we see, the future of brick and mortar retail grocery business is omnichannel. Whether in-house or with the help of retail grocery consultants having omnichannel expertise or retail eCommerce consultants, retail and online grocery business will share a common future.

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About Your RetailCoach Innovator   YourRetailCoach

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Joined APSense since, May 12th, 2017, From Pune, India.

Created on Jul 18th 2020 04:00. Viewed 161 times.


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