How to Start an Online Grocery Store & Factors to Consider

How to Start an Online Grocery Store & Factors to Consider

If you are the owner of a brick-and-mortar grocery store or are thinking about launching an e-commerce business, learning how to start an online grocery store is a great way to build a healthy revenue. An online grocery business can sell anything from everyday items to more specialised or gourmet products and can be as small as a room in your home or as large as a chain of warehouses and fulfilment centres.

Online grocery stores tap into the growing online shopping trend and are convenient for customers who can’t get to a physical shop—the elderly and busy professionals, for example. Online grocery shopping blossomed during the pandemic and is expected to keep rising in popularity, so starting up an online grocery marketplace or store is a savvy business move.

How to Start an Online Grocery Store Step-by-Step

You may have already decided to set up an online grocery business, or perhaps are still considering your possibilities. The following steps can help you establish an online grocery store:

1. Identify Your Target Audience

The first step is to identify your target market. Do you envision a local grocery store serving people in your area, something statewide or even a new nationwide company? By identifying your target market, where they live and their preferences, you can start to make other decisions that will affect the nature of your business.

Your chosen customer base will help you identify a niche and the products that are most likely to appeal to them. Factors such as income and social class have a lot to bear on the kind of products that will be successful, so learn about the demographics of your target area before you begin.

2. Decide Which Product Categories to Sell

Deciding what to sell and what to leave out is a crucial decision for online grocery businesses. An online store that sells perishable items must consider cold storage and speedy delivery as two of the most important factors in its business plan.

Consider the following when deciding which product categories to sell:

  • Which pain point could your business solve? Your online grocery delivery business will do best if it fills a current gap in the market. Does your area have large expat communities that miss products from home? Is there a lack of ethnic products for people to use in cooking? Research what your customers want to help you identify a niche.
  • Will you focus on long-life or perishable products? Businesses that sell perishable products like fruit, vegetables, meat, eggs and dairy are generally subject to more stringent regulations. You must also be able to guarantee food safety during the storage and delivery process.
  • How fast will you be able to deliver customers’ orders? Online grocery delivery businesses must coordinate ordering and delivery very carefully, taking into account storage and delivery windows for perishable items. Inventory management software is essential for keeping track of expiry dates.
  • How much storage space do you have? Do you have the space and equipment to store perishable or frozen items? If not, long-life items such as canned goods and dry foodstuffs may be a more practical choice.

3. Choose a Business Model

An online grocery business model can take many forms depending on what you want to offer and what would work best in your target market.

Multi-Vendor Marketplace With Micro-Fulfilment Centres

This business model involves creating an online marketplace for multiple vendors. In this model, your business acts as an intermediary between the vendors and the customers. Marketplaces are a great solution for small stores to reach a wider audience as the multi-vendor business stores the products, processes payments and helps the vendors with packaging and delivery.

With a multi-vendor model, products can be stored in micro-fulfilment centres, which are small, highly automated centres that are typically located in urban areas. Micro-fulfilment centres facilitate easier order packing, restocking and faster delivery times than larger, more remote fulfilment centres.

Hyperlocal Model

A hyperlocal grocery business model meets people’s needs almost instantly as orders are fulfilled through local partners via an online platform. This model ensures same-day delivery and often delivery within hours or even minutes of an order being placed.

A hyperlocal model answers the demand for instant service and a rise in tech-savvy consumers. It provides quick service at a click and is easy to scale. A payment gateway makes it easy to process payments from customers in hyperlocal markets using their preferred online payment methods.

Inventory-Based Model

This model involves creating an e-commerce marketplace for which you store physical inventory from suppliers and sell these products directly to consumers. Customers can receive their orders via delivery, curbside pickup or buy online pick up in-store (BOPIS). The inventory model requires you to manage stock levels to ensure you have the items your customers will order in stock.

The advantages of this model include fast delivery times, easier quality control and inventory management as well as being able to fulfil customers’ orders consistently. The most famous example of this model is Amazon, which sources inventory, stores it and dispatches it when a customer places an order.

Omnichannel Model

Omnichannel commerce is an innovative approach for grocery delivery service providers who wish to offer customers the fastest delivery times possible. An omnichannel model integrates a store’s existing structure with distribution centres and local stores to be able to offer same-day or even same-hour delivery. Essentially, all facilities act as a depot and the company assigns orders based on location, transportation costs, delivery capacity and stock levels.

This approach has been reported to potentially reduce costs by an average of 7.4% compared to order fulfilment from distribution centres because deliveries from stores have a shorter lead time and travel distance than out-of-city warehouses.

It’s important to keep in mind that an omnichannel model requires a high level of logistical coordination and organisation of customer data. Appropriate software and a merchant services account would be required to keep track of billing and customer data.

4. Identify Additional Revenue Streams

Your online grocery business can earn revenue from several different sources. This fact should be exploited to the best of your capabilities as a business. Different ways of bringing in more revenue include:

Advertising Revenue

If you develop an online platform, you can display ads from vendors or related businesses for a fee.

Subscription Revenue

This can be a lucrative way to bring in a reliable source of income. Your business can offer subscriptions to customers who buy the same products regularly or offer weekly or monthly boxes with a selection of products for customers to try. Businesses will need to look for a payment processor that provides recurring billing to implement either of these services.

Other Potential Revenue Streams

  • Offering customers memberships in exchange for discounted prices
  • Charging vendors a monthly fee to use your platform
  • Charging vendors a commission on each transaction
  • Charging higher delivery fees for customers outside your service area
  • Starting a blog and accepting sponsored posts from related businesses

5. Choose a Payment Processing Solution

Tech-savvy consumers demand different payment options when paying for products or signing up for subscriptions. An online business should therefore be prepared to offer consumers different payment options including:

  • Digital wallets
  • Credit or debit cards
  • Bank transfer
  • Direct debit

When you offer subscription boxes, memberships or automatic reorders, you will also need a way to store customer data securely and facilitate recurring payments. A PCI-compliant, cloud-based payment processor can help you keep on top of billing cycles and provide a secure payment solution both for your customers and your business.

6. Choose a Delivery Solution

The delivery options that you offer will depend on the business model you choose. Options for delivery include:

  • Same-day delivery. Hyperlocal businesses generally offer same-day grocery delivery services and will sometimes deliver within hours or minutes of receiving an order.
  • 2-day delivery. This is the most standard delivery model which guarantees delivery within two days of placing an order.
  • Overnight delivery. Offering overnight or next-business-day delivery can make you more competitive than businesses that offer two-day delivery. Businesses often charge an additional fee for this service.
  • Eco-friendly delivery. Biodegradable packaging materials and sustainable shipping methods could provide a unique selling point for your business.

Other delivery solutions also exist. Click-and-collect or BOPIS (buy online pick up in-store) provides a great solution for customers who want to have their order ready when they arrive. From a business point of view, this is also very appealing as it involves less logistical coordination than home delivery and eliminates transportation costs.

7. Choose Software Solutions

Your business will need software to handle all aspects of the process including ordering, inventory, payment processing and customer service. These software programs can usually be integrated with your payment gateway.

Because your small business will need to manage many different operations, having access to all your data in one place is important for streamlining operations. Centralised, cloud-based software programs update your data in real time and offer the advantage of being accessible from any internet-connected device.

8. Set Up and Launch your E-Commerce Store

When you have everything your business needs, set up your e-commerce store on a hosted platform like Shopify with plugins or hire a web developer to build a non-hosted website with all the software and features you need (including a secure payment gateway). To celebrate the launch of your online grocery store, consider holding a livestream event on social media or reach out to the local press for a chance to be featured in the news.

9. Market Your Business

Investing in a strong marketing campaign that embraces modern and traditional marketing strategies is essential for the success of your online business. Because your e-commerce business is seeking to attract internet users, a strategy that focuses on digital marketing could be particularly useful.

Your marketing strategy will also be shaped by the business model you choose. Hyperlocal or omnichannel models should heavily target local consumers. Social media platforms, for example, often allow you to display your ads to people who live in a certain geographical area.

Additional Factors to Consider

Take these additional factors into account before launching your online grocery business:

Focus on Quality over Quantity

Many businesses succeed when selling niche items. These are often high-quality, hard-to-find products, or items from a specific place. Your store can choose one of these niches and focus on delivering the highest quality options available. Each product page should include detailed descriptions of the product, information about the manufacturing process and the place where the product was made.

Focus on Local Vendors and Customers

Partnering with local vendors who offer organic or locally sourced products is a potential value proposition that is appealing to many customers. Consumers often identify with local products. Moreover, sourcing products locally could make shipping and inventory management much easier for your business.

Ensure Food Safety and Follow the Applicable Regulations

Health and food safety must be a top priority for online grocery stores. Ensure correct storage, safe delivery practices and compliance with all relevant regulations, including food business licences.

Create a Loyalty Program

A loyalty program is a great way to reward repeat purchases from loyal customers. If you’re interested in creating a loyalty program, make sure you use software that can integrate point accrual with your payment gateway.

An Online Grocery Business Has Great Potential

With the demand for online services continuing to increase, businesses looking to open an online grocery store can become part of this growing trend. Because so many different business models exist, businesses and entrepreneurs can adopt the model that suits them and will help them achieve their goals.

All online businesses require secure payment processing, and that’s where a merchant account comes in. Partnering with the right merchant account provider will allow you to accept different payment methods and keep customers’ card details on file for an efficient and seamless checkout process.