What about the price aspect of using grocery delivery service like Instacart? InstaCart charges a 23% markup on grocery bills which is a significant amount for average households. During the pandemic it is more of an “essential service” but when things are back to normal it is more of a “luxury service”. The other difference between grocery delivery and other types of e-commerce purchase is that you can typically find price matching items (if not cheaper) when purchasing online even when factoring in the shipping cost (thanks to Amazon). Grocery is a different story due to the low margin so online grocery shopping is more expensive than offline by a significant amount.
Genie, this is a great point. You're right that most online grocery services are more expensive for consumers. There are a few models like Imperfect that are at cost parity with traditional grocery, because of the focus in their case on misshapen produce and short-coded items. But Instacart is certainly more expensive, and that limits its addressable market in normal times. With their subscription service, Instacart Express, they make it more cost effective for high frequency customers, and my bet is they will try to get to cost parity over time (and get closer) due to scale and more capital.
Very helpful article! To support online grocery app development demands I would also like to share, 6% of all consumers, say they have been placing online grocery orders more than once a month. Constantly, Online grocery delivery app development companies are growing rapidly with the increasing demands of android & iOS mobile app development to provide grocery delivery app solutions.
Another aspect of grocery delivery retention is encoded in its customer model -- Walmart+, Instacart, Shipt make the most sense for consumer when they are bought on a 12-month subscription. This means that even if there is a vaxx tomorrow, you have a huge number of people who have already crossed the 28-day habit threshold and have paid for another 6 months of service. They'll likely keep using it through that period, which we believe will ultimately mean good retention for these services.
Reilly, this is a fantastic point, and one that I wish I had thought of while writing this post! You're right that the annual memberships help foster habits, and increase the likelihood that customers don't go back to their prior grocery store behavior.
Found this by searching "grocery delivery" on Twitter. Love when I come across great reads on grocery. We are getting ready to launch a delivery concept that is cost-effective, sustainable, and more convenient that the current options. Happy to get your thoughts if you wanna see the deck.
Our family is a big fan of https://anycart.com/ - we've cooked different pasta, Thai, salad, and chicken wing meals (and used it to order a la carte from nearby grocers Whole Foods and Safeway). It's sort of fun to search by meals.
With higher ticket size and associated delivery costs online grocery could be profitable in the US, but in countries like India where the products sold are low margin with small ticket size & almost negligible delivery fee, startups like Bigbasket are burning through cash even when they have introduced grocery items from their own brand& offered yearly subscriptions for as low as $3. Do you think there can be a way to profitability for these startups?
thanks for the feedback, VG. given lower labor costs in India, and therefore lower costs of fulfillment and delivery, it could be possible to make the economics work. but, you're right that grocery is a low margin business, and most online grocery players burn significant capital to get to scale, as well as charge premiums to customers to make the math work. storeless grocery delivery is another way to get to profitability, because the fixed costs are lower than with the traditional model. in summary, i do think there are ways to profitability, but it will take high quality execution to get there.
Perhaps the biggest challenge in a country like India is supply side aggregation where 97% of the supply is still unorganised. And to convert and convince small storefronts to operate as warehouses is a logistic nightmare (though a bit less in metros) that eventually drives up the costs. Secondly, given majority of the customers are still stringed to one of the local kiranas or moving carts, the need to shift to online stays confined to the affluent or in metros. And till the point growth is a challenge, profitability scenes would be bleak.
What about the price aspect of using grocery delivery service like Instacart? InstaCart charges a 23% markup on grocery bills which is a significant amount for average households. During the pandemic it is more of an “essential service” but when things are back to normal it is more of a “luxury service”. The other difference between grocery delivery and other types of e-commerce purchase is that you can typically find price matching items (if not cheaper) when purchasing online even when factoring in the shipping cost (thanks to Amazon). Grocery is a different story due to the low margin so online grocery shopping is more expensive than offline by a significant amount.
Genie, this is a great point. You're right that most online grocery services are more expensive for consumers. There are a few models like Imperfect that are at cost parity with traditional grocery, because of the focus in their case on misshapen produce and short-coded items. But Instacart is certainly more expensive, and that limits its addressable market in normal times. With their subscription service, Instacart Express, they make it more cost effective for high frequency customers, and my bet is they will try to get to cost parity over time (and get closer) due to scale and more capital.
Very helpful article! To support online grocery app development demands I would also like to share, 6% of all consumers, say they have been placing online grocery orders more than once a month. Constantly, Online grocery delivery app development companies are growing rapidly with the increasing demands of android & iOS mobile app development to provide grocery delivery app solutions.
https://www.moontechnolabs.com/grocery-delivery-app-development-company
Another aspect of grocery delivery retention is encoded in its customer model -- Walmart+, Instacart, Shipt make the most sense for consumer when they are bought on a 12-month subscription. This means that even if there is a vaxx tomorrow, you have a huge number of people who have already crossed the 28-day habit threshold and have paid for another 6 months of service. They'll likely keep using it through that period, which we believe will ultimately mean good retention for these services.
Reilly
Reilly, this is a fantastic point, and one that I wish I had thought of while writing this post! You're right that the annual memberships help foster habits, and increase the likelihood that customers don't go back to their prior grocery store behavior.
Subscriptions are the financial upside of habits, but in some cases (ie 12 month cycle) they can also reinforce those habits. Your mileage may vary.
Found this by searching "grocery delivery" on Twitter. Love when I come across great reads on grocery. We are getting ready to launch a delivery concept that is cost-effective, sustainable, and more convenient that the current options. Happy to get your thoughts if you wanna see the deck.
great to hear, Josh! happy to learn more.
DMd
Our family is a big fan of https://anycart.com/ - we've cooked different pasta, Thai, salad, and chicken wing meals (and used it to order a la carte from nearby grocers Whole Foods and Safeway). It's sort of fun to search by meals.
thanks Jason! have heard great things about Anycart but haven't tried it myself yet
With higher ticket size and associated delivery costs online grocery could be profitable in the US, but in countries like India where the products sold are low margin with small ticket size & almost negligible delivery fee, startups like Bigbasket are burning through cash even when they have introduced grocery items from their own brand& offered yearly subscriptions for as low as $3. Do you think there can be a way to profitability for these startups?
thanks for the feedback, VG. given lower labor costs in India, and therefore lower costs of fulfillment and delivery, it could be possible to make the economics work. but, you're right that grocery is a low margin business, and most online grocery players burn significant capital to get to scale, as well as charge premiums to customers to make the math work. storeless grocery delivery is another way to get to profitability, because the fixed costs are lower than with the traditional model. in summary, i do think there are ways to profitability, but it will take high quality execution to get there.
Perhaps the biggest challenge in a country like India is supply side aggregation where 97% of the supply is still unorganised. And to convert and convince small storefronts to operate as warehouses is a logistic nightmare (though a bit less in metros) that eventually drives up the costs. Secondly, given majority of the customers are still stringed to one of the local kiranas or moving carts, the need to shift to online stays confined to the affluent or in metros. And till the point growth is a challenge, profitability scenes would be bleak.
feels like an interesting model on the surface!