Online Grocery Business Models

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Aniket Deolikar
Consultant, India

Online Grocery Business Models

🔥NEW Online grocery shopping (~online supermarkets) is one of the fastest-growing businesses in recent years. Of course this has been catapulted by the Covid-19 crisis. A Nielson study states that by 2024 70% of the consumers will buy groceries online. Companies are using various models to conduct their online grocery business. Below the business models that companies are using in today's online supermarkets:
  • The Inventory Based Online Grocery Business Model: Here the inventory is purchased and stored in warehouses owned and managed by the grocer. The delivery of the product is handled by the company itself. They have an in-house supply chain in place.
    • PROs: The advantages of this model are that it enables fast delivery as a single player is involved and there is good control over the quality as there is an in-house supply chain. This model is typically beneficial in the long run for a company and is the typical model chosen by both traditional large supermarkets and by entrepreneurial online delivery groceries.
    • CONs: One of the major disadvantages is that it can be expensive for small and medium players, since considerable warehousing and distribution costs are involved.
  • The Hyper-Local Online Grocery Business Model: In this hyper-local approach no inventory is held by the online player. Instead, offline stores in the area do the work. As the name suggests this model is very useful in small geographies. It involves existing offline stores from where the delivery partner picks up the product and delivers it to the customer.
    • PROs: The delivery speed is a USP of this model. Besides the very fast delivery service, very low capital investments are requried as no inventory or warehouse are needed.
    • CONs: The disadvantages of this model are lower margins, limited product variety, and potential quality issues. Also, there is a lack of real-time inventory as the online players is tied up with mutiple offline stores
  • The Multi-Vendor Marketplace Business Model: This includes multisided platforms that connect the customer with various vendors using a single app or website. The customers have to place the order on the website or the app and the website connects them with the respective grocery stores. Here the delivery is managed in-house where the delivery executive picks up the order from the subscribed vendor and then delivers it to the customer. Amazon is using this model in various geographies.
    • PROs: The advantages of this model are that it can capture a large market and also inventory cost is minimal.
    • CONs: The disadvantages are that the shipping costs are borne by the company and also there can be issues in maintaining quality control. These companies lack specialist know-how in ordering, storing and distributing groceries.

Some Examples of online grocery players

Big Basket, Flipkart, Grofers India
Amazon Pantry, Amazon Fresh Multi-National
Alibaba Group China
Tesco UK

"Business Model of Online Grocery Business: How It Can Make Money", February 18th 2020, hackernoon
Saket Tripathi, "What is a Hyperlocal Delivery Model and How does it Work?", April 2020, cedcommerce


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