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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on April 22, 2022
Investment range
71,550 - $144,100
Revenue potential
$109,500 - $1,095,000 p.a.
Time to build
3-6 months
Profit potential
$43,800 - $219,000 p.a.
Industry trend
Growing
Commitment
Flexible
Pay attention to these important factors as you establish your grocery delivery business:
You May Also Wonder:
How profitable is a grocery delivery business?
Grocery delivery businesses can be very profitable. The key is to develop an easy-to-use app and partner with grocery stores or wholesalers to pick up and deliver their goods.
How do I differentiate my grocery delivery business from competitors?
To differentiate your grocery delivery business from competitors, you could focus on providing exceptional customer service, offering a wider selection of grocery items or specialized products, using eco-friendly and sustainable packaging, or partnering with local farmers or suppliers to offer fresh and locally-sourced produce.
How do I expand my grocery delivery business to other markets or distribution channels?
To expand your grocery delivery business to other markets or distribution channels, you could conduct market research to identify potential target markets and customer preferences, develop a strategic plan for expansion, and invest in marketing and advertising campaigns to promote your services.
How do I ensure the quality and freshness of my grocery products during delivery?
To ensure the quality and freshness of your grocery products during delivery, you could invest in refrigerated delivery vehicles or insulated containers, use appropriate packaging materials to prevent damage or spoilage, and implement strict inventory and quality control measures.
Can I start a grocery delivery business on the side?
Yes, you can start a grocery delivery business on the side as long as you comply with any legal and regulatory requirements in your area. You may need to invest in supplies and equipment such as a vehicle, cooler bags, and storage containers, and ensure that you have a reliable and efficient delivery process. You could also consider starting small and gradually expanding your business as demand grows.
Starting a grocery delivery business has pros and cons to consider before deciding if it’s right for you.
The grocery delivery market is directly related to the online grocery industry
Trends in the grocery delivery industry include:
Challenges in the grocery delivery industry include:
Startup costs for a grocery delivery business range from $70,000 to $140,000. The largest cost is for the development of an app.
Alternatively, you could just have a website and market yourself as a local errand service that will do grocery shopping and grocery delivery, but the revenue potential is much lower. Your startup costs with this model would be only a few thousand dollars.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| App development | $50,000 - $100,000 | $75,000 |
| Operating budget | $10,000 - $20,000 | $15,000 |
| Marketing budget | $10,000 - $20,000 | $15,000 |
| Total | $71,550 - $144,100 | $107,825 |
As with Amazon Prime, grocery delivery businesses often charge a subscription fee of around $10 per month for unlimited free deliveries and mark up the cost of the goods by about 10%. Alternatively, you could just charge an added fee of $10 per delivery. These calculations will assume that you will choose the latter, and that your profit margin after the costs of drivers and overhead will be 40%.
In your first year or two, you could do 30 deliveries a day, bringing in $109,500 in annual revenue. This would mean $43,800 in profit, assuming that 40% margin. As your brand gains recognition and you get repeat customers, sales could climb to 300 deliveries a day. At this stage, you’d rent a commercial space, hire more staff, and expand your locations, reducing your profit margin to around 20%. With annual revenue of $1,095,000, you’d make a fantastic profit of $219,000.
There are a few barriers to entry for a grocery delivery business. Your biggest challenges will be:
Now that you know what’s involved in starting a grocery delivery business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research grocery delivery businesses in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a grocery delivery app that offers meal planning or a personalized grocery shopping and delivery service, meaning that you review the list with customers and stay in touch with them while you’re shopping to offer suggestions.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as wholesale food delivery or small local market delivery.
This could jumpstart your word-of-mouth marketing and attract clients right away.
Your services may include grocery shopping as well as delivery. Your app could also offer features such as meal planning.
A grocery delivery business can charge a subscription fee, usually about $10 per month, and add an extra 10% to the cost of the goods. Alternatively, you could just charge a per delivery fee of about $10. When you’re first starting out, after the costs of drivers and overhead, you should aim for a profit margin of about 40%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
With so many people ordering groceries online, your target market will be broad. You should spread out your marketing to include sites like TikTok, Instagram, and Facebook. You’ll also need to contact grocery stores or wholesalers to contract with them. You can connect with them on LinkedIn or find them on Google or Yelp and contact them directly.
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office or distribution center. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to grocery delivery businesses.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your grocery delivery business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best option, other than friends and family, for funding a grocery delivery business. You might also try crowdfunding if you have an innovative concept. If your business does well and you’re poised for high growth, you may be able to attract angel investors or venture capital.
Starting a grocery delivery business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your grocery delivery business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as Grobino, appscrip, or PURBIS, to manage your orders, deliveries, and payments.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your grocery delivery business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your grocery delivery business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a grocery delivery business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in grocery delivery for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in grocery delivery. You’ll probably generate new customers or find companies with which you could establish a partnership.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a grocery delivery business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
People can do almost anything online now, and have anything they want delivered to their door. Online grocery shopping and grocery delivery are booming, so now is the perfect time to get in on the action. Developing an app takes a significant investment, but you can get a phenomenal return and eventually grow your business into a major player.
You came to the right place to learn about starting a business, now it’s time to forge ahead and get your successful grocery delivery business up and running!
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