Cart to Cash: Starting a Grocery Delivery Business

Pay attention to these important factors as you establish your grocery delivery business:

1. Choose a business model — Decide on the range of services you will offer, such as same-day delivery, subscription services, specialty groceries (organic, vegan, gluten-free), and add-on services like meal kits.
2. Licenses and permits — You will need different licenses and permits to handle food and delivery. 
3. Delivery fleet — Decide whether to use your own fleet of vehicles or partner with third-party delivery services. Ensure vehicles are equipped for grocery delivery, including refrigeration for perishables.
4. Suppliers — Establish relationships with local grocery stores, wholesalers, and specialty suppliers to ensure a steady supply of high-quality products.
5. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
6. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
7. Online platform — Develop a user-friendly website and/or mobile app where customers can place orders, track deliveries, and make payments. Ensure the platform is secure and easy to navigate.

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.

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a grocery delivery business has pros and cons to consider before deciding if it’s right for you.

Grocery delivery industry trends

Industry size and growth

The grocery delivery market is directly related to the online grocery industry

• Industry size and past growth – The US online grocery industry is worth $39.2 billion in 2022 after expanding more than seven-fold in the last decade.((https://www.ibisworld.com/industry-statistics/market-size/online-grocery-sales-united-states/))
• Growth forecast – The US online grocery industry is projected to grow nearly 7% in 2022. 

Trends and challenges

Trends in the grocery delivery industry include:

• 60% of US consumers are now buying their groceries online and most get them delivered. This is a huge market, offering opportunity for even small businesses.
• Same-day grocery delivery is growing in demand, and many grocery delivery services can’t keep up, providing even more opportunities for startups.

Challenges in the grocery delivery industry include:

• Grocery delivery logistics must be seamless, as customers can easily switch services if a problem occurs with their delivery.
• Grocery stores and wholesalers tend to choose large grocery delivery services as partners, perceiving that they will be more reliable. 

How much does it cost to start a grocery delivery business?

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

How much can you earn from a grocery delivery business?

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.

What barriers to entry are there?

There are a few barriers to entry for a grocery delivery business. Your biggest challenges will be:

• The costs of grocery delivery app development
• Competing with established firms like Instacart and Amazon Fresh

Step 2: Hone Your Idea

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.

Why? Identify an opportunity

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. 

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your services

Your services may include grocery shopping as well as delivery. Your app could also offer features such as meal planning. 

How much should you charge for grocery delivery?

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.

Who? Identify your target 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. 

Where? Choose your business premises

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:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Business Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “grocery delivery” or “online groceries”, boosts SEO
• Name should allow for expansion, for ex: “FreshDrop” over “Gluten-Free Express”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

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.

Step 4: Create a Business Plan

Here are the key components of a business plan:

• Executive Summary: A concise overview of the grocery delivery business plan, highlighting its key elements and objectives.
• Business Overview: Describes the nature of the grocery delivery business, its mission, vision, and overall purpose.
• Product and Services: Outlines the range of grocery delivery services offered, emphasizing convenience, variety, and quality.
• Market Analysis: Examines the target market for the grocery delivery service, including demographics, trends, and potential demand.
• Competitive Analysis: Evaluates existing and potential competitors in the grocery delivery market, highlighting strengths and differentiators.
• Sales and Marketing: Details the strategies to promote and sell the grocery delivery service, encompassing advertising, promotions, and customer acquisition.
• Management Team: Introduces the key individuals responsible for leading and managing the grocery delivery business, emphasizing their relevant skills and experience.
• Operations Plan: Outlines the day-to-day processes and logistics involved in running the grocery delivery service, ensuring efficiency and customer satisfaction.
• Financial Plan: Presents a comprehensive financial overview, including startup costs, revenue projections, and break-even analysis for the grocery delivery business.
• Appendix: Provides additional supporting documents and information, such as market research data, legal documents, and any other relevant details.

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.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

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. 

Choose your business structure

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:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

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.

Step 6: Register for Taxes

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.

It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Venture capital: Venture capital investors take an ownership stake in exchange for funds, so keep in mind that you’d be sacrificing some control over your business. This is generally only available for businesses with high growth potential.
• Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities. 
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

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.

Step 8: Apply for Licenses/Permits

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.

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.

Step 9: Open a Business Bank Account

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. 

Step 10: Get Business Insurance

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:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

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.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

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. 

Marketing

Here are some powerful marketing strategies for your future business:

• Professional Branding — Ensure your branding reflects convenience, freshness, and trustworthiness through your logo, the branding of your delivery vehicles, and the design of your website and app.
• Website/App Optimization — Develop a user-friendly website and mobile app that allow easy browsing and ordering of products.
• Local SEO — Optimize for local SEO to appear in searches related to grocery delivery services. Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
• Social Media Engagement — Use platforms like Facebook and Instagram to promote services, share customer testimonials, and announce special deals or new products.
• Content Marketing — Run a food and nutrition blog with posts on meal planning, healthy eating, and recipes, positioning your brand as a valuable resource. Create engaging video content that showcases the convenience and benefits of your service.
• Direct Outreach and Community Involvement — Engage local communities through flyers, events, and partnerships with community organizations. Sponsor local initiatives to increase brand visibility and trust.
• Email Marketing — Send regular newsletters to inform customers about new products, special promotions, and seasonal offerings.
• Experiential Marketing — Host pop-up events in community centers or markets to demonstrate the quality and efficiency of your service.
• Collaborations and Partnerships — Collaborate with local farms and food producers to offer fresh, local products. Partner with local businesses for mutual promotions, such as shared customer discounts.
• Customer Loyalty Program — Implement a loyalty program that rewards repeat customers with discounts or points towards future purchases.
• Referral Program — Encourage existing customers to refer new ones by offering discounts or rewards for every referral that results in a new customer.
• Targeted Online Advertising — Utilize digital advertising platforms like Google Ads and Facebook Ads to target local audiences, focusing on the convenience and benefits of using your service.
• Community-focused Campaigns — Develop marketing campaigns that resonate with local values and issues, enhancing your connection with the community and emphasizing your local support and involvement.

Focus on USPs

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: 

• Groceries at your door in 90 minutes or less! 
• Same-day delivery of local gourmet foods 
• The freshest groceries delivered fast 

Networking

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. 

Step 12: Build Your Team

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:

• Delivery Drivers – deliver grocery orders
• Customer Service Reps – take customer calls, resolve issues
• General Manager – scheduling, accounting
• Marketing Lead – SEO strategies, social media

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. 

Step 13: Run a Grocery Delivery Business – Start Making Money!

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!