The Business Opportunity
The shift to digital has always been a hard ask for the grocery industry.
However, due to the pandemic, the habits of consumers are looking to change drastically.
Experts say that will likely remain at a higher level (even after the pandemic) because many customers have tried new services and identified their “new found convenience”
Due to the pandemic, people all around the world are avoiding the grocery store as much as humanly possible.
Customers are squeamish about germs, which is predicted to linger, even after the pandemic.
The demand for online grocery services has skyrocketed, leaving existent services with big challenges to fulfil orders.
An e-commerce platform that delivered groceries to your doorstep.
But there’s one more key piece.
The groceries are delivered in a reusable and sustainable way , vs the typical companies that use paper or plastic bags (more on why this is critical in the market opportunities below).
Keep in mind, the opportunity here is a localized, smaller grocery delivery service. Although we offer up some examples of the big players, the focus is on more of a local solution vs. something massive like Instacart.
- AmazonFresh (serves 19 metro markets)
- Fresh Direct ($2.63B/year in annual revenue)
- Instacart ($2B in revenue)
- Blue Apron(market cap of $648 million)
- Walmart (captured 58% of all online grocery orders)
- Shipt ($446.9M per year)
- Peapod ($97 million per year)
- The Wally Shop
- Mountains of Groceries
- Tim’s Swiftycart Grocery Delivery
- Max Delivery NYC
- Yummy.com neighborhood grocery delivery (Los Angeles)
How It Works
- The customer orders products online with the option of their store choice
- Products are delivered (in a timely manner) in reusable containers and bags
- Driver picks up reusable bags when the customer is done
- Bags are sanitized and cleaned for reuse
Customers get to experience the convenience of getting their groceries delivered without the guilt of acquiring plastic and paper bags.
One time delivery fee of $7-$10 (plus tip for the shopper)
Yearly subscription fee of $99-$200 (plus tip for the shopper)
Before the COVID-19 pandemic, Instacart, the biggest independent grocery delivery service, projected that 20% of US households would shop for groceries online in the next five years.
Over the past couple of years, the online grocery shopping rate has more than doubled.
In a survey conducted in 2020, people that have bought online groceries in the past were asked if they will continue to do so in the next 12 months.
Steve Begley, a McKinsey partner in retail and grocery explains the reason this trend won’t fade out:
Customers will continue to do more grocery shopping online, since they’ve gotten more experience using the services and may still want to avoid heavily-trafficked places.
He also identifies the benefit this could bring to the U.S:
Strong demand has inspired U.S. grocers to rethink their e-commerce approach and “will force a wave of disruption through the channel that could help improve the economics over time,”
So where does the sustainability factor play in?
States all over the world have banned the use of reusable bags in grocery stores.
This was put in place due to the active spread of COVID-19.
However, soon enough, the ban will be lifted and the impact this had on the environment will likely become a major talking point, making the use of reusable bags and containers in grocery stores more common and advocated for than ever.
“I think this ban is the appropriate thing to do, but we’re also really worried about whether this pushes us back 10 years in terms of the real progress that has been made to reduce plastic consumption and use, particularly in grocery stores.”
By identifying these trends, it’s evident that there is an opportunity for sustainable grocery delivery services in 2020 AND beyond.
Let’s dive into how you can actually build this.
How Others Are Building It
One business that’s doing particularly well during the pandemic is Loop Grocery Delivery.
CEO Tom Szaky said that March was the best performing month they’ve ever had, and he provides a little advice as to why the product has been profitable and successful:
Convenience is critical
Plain and simple. In order for a service like this to work, the customer experience has to be easy.
For example, Loop handles all of the cleaning of the reusable totes. They even come to pick them up after the customer is done with them.
Identify your target customer
There are other big players in the grocery delivery service, so it’s important that you target a specific niche and your ideal target customer.
For example, Tom Szaky, CEO of Loop stated their goal consumer:
"My goal consumer is someone in the middle of America who may still even not be convinced about climate change, because if I can get him to participate, then we can really change the world," he said. "This is why we're working with the largest manufacturers, the largest retailers. Because that is what America likes today."
Friendly customer service
Oftentimes, the item requested is either out of stock or you forget an item on your list. It’s important that the customer is able to communicate with the shopper in real-time.
For example, Shipt guarantees that if their shopper is still in the aisles, you can still get something delivered even if it’s not on the list.
How Others Are Marketing It
Instagram and facebook are one of the most effective platforms to get exposure for your grocery delivery service.
During the height of the pandemic, loop posted a heart-felt message and video on their instagram which received a sweeping 4,000 likes (compared to their usual 700 likes).
Here are some examples of ads that Instacart is putting out right now on Facebook:
As you can see, they’re running multiple ads at once. Most likely targeting different types of customers that they have collected preferences and data on.
Most grocery delivery stores offer at least a 14-day trial period to try out the service.
Oftentimes, customers try out the service and love it, or sometimes even forget to cancel and automatically get billed. Either way, it’s a great way to get exposure and have new customers try your product.
For example, instacart offers a free 14 day trial:
Costs and Revenue Numbers
As a small business just getting off the ground, the opportunity here is not in running a full-scale nationwide operation, but figuring out how to build a service that caters to a specific niche (elderly, rural town, vegan-friendly, etc)
Typically, creating a business based on a specific niche (like the ones we mentioned above) is the best opportunity because you are able to fill a gap or solve a problem in that market, vs trying to compete with companies such as Instacart and Amazon.
Average Startup Cost
The startup cost all depends on the goal and objective of your organization. If you’re looking to start as a personal shopper for a local community with no app development, the cost will be relatively low (around $1,500).
If you’re looking to build out an app and service several different cities with multiple employees, the cost will be closer to $7,000 to start.
Full Cost Breakdown
Here are the essentials to getting your grocery delivery service up and running:
- Website/Email/Domain = $200-$300 (not including outsourced website design)
- Business & legal formation = $500-$700
- App Development (optional, depending on your service) = $2,000-$4,000
- Reusable bags and sustainable measures: $700-$2,000
- Labor costs: If you decide to hire shoppers, the average per hour cost would be $12-$15 per hour.
Fortunately, there is not much overhead with a grocery delivery service as you are essentially shopping in stores that already have the products for the customer!
How much you should expect to make
Average subscription = $99-$200 per person, per year.
Here’s how some of the big players are doing:
Instacart has seen $2 billion in revenue and valuation of $4.2 billion. Blue Apron has a market cap of $648 million and Fresh Direct at $2.63 billion.
The revenue potential of the grocery delivery industry can be quickly scaled. Once expanded into more cities, revenue growth is easily accelerated.
Here are resources to help you build your grocery delivery service, step by step: