In recent years, online grocery delivery has become a fast-growing sector of ecommerce. It took pandemic-era lockdowns for digital grocery shopping to really take off, and it’s been on the rise ever since. In the next two years, grocery ecommerce is expected to account for 26% of all ecommerce sales, making it the largest ecommerce category by 2026.
The demand for convenient and accessible digital grocery delivery services is very high, but this doesn’t mean every grocery ecommerce business will be profitable. Let’s look at the various factors and conditions that influence digital grocery retail and try to find an answer to the question, “Is grocery ecommerce profitable?”
Understanding the grocery ecommerce landscape
For consumers, online grocery shopping is a massive boon. They no longer have to commute to a store, spend energy searching for products up and down dozens of aisles, and waste time in a checkout line. Instead, they can source all their required household products from a convenient grocery Ecommerce platform.
This level of convenience has led to the rapid growth of grocery ecommerce . There were around 547 million global users of online grocery services in 2018, which has more than doubled to 1.4 billion by 2023.
But did all these new customers bring in double the profits with them?
The total revenue from digital grocery sales has also been increasing. By the end of 2024, it is expected to draw $257 billion in revenue from US sales alone. Major retailers like Walmart and Kroger have entered the grocery ecommerce arena, too.
Unfortunately, making your grocery ecommerce business profitable requires more than just healthy consumer demand. According to FMI, The Food Industry Association’s 2023 report, less than half (45%) of all online grocery businesses are profitable.
In the coming years, more and more consumers will prefer online transactions over physical shopping for groceries. If you want to ensure your grocery ecommerce store captures these shoppers and turns a healthy profit, you must prepare a careful strategy.
Challenges in grocery ecommerce profitability
While online grocery is a promising ecommerce category with significant scope for growth, business owners must be prepared to face several challenges.
Some of the biggest hurdles for online grocery stores to achieve profitability are outlined below.
Operational costs
Online grocery business owners have to bear high operational costs related to processes like unit handling, delivery logistics, and technological infrastructure. Finding a way to absorb those costs without levying extra charges that drive away customers is a major challenge for grocery ecommerce businesses.
Thin profit margins
You might be able to cover your online grocery store’s operational costs by charging customers a convenience fee, but what if your competition waives theirs? You will, then, start losing customers to your competitors.
This intense competition, coupled with the minuscule profit margins on most grocery products and high overhead costs of inventory management, makes it difficult to set up a profitable grocery ecommerce model.
Customer acquisition and retention
All digital grocery stores need regular customers to be profitable, and building a vast consumer base comes at a price. Customer acquisition involves marketing costs, SEO building, and pay-per-click (PPC) campaigns. You will also need to spend money to keep your existing customers happy by investing in your fulfillment and distribution operations and improving the overall customer experience.
Factors influencing grocery ecommerce profitability
To maintain a successful grocery ecommerce business, you should understand the factors influencing your store’s profitability. This section examines the most impactful factors on an online grocery store’s profits.
Scale and volume
More customers, larger delivery areas, and high-value orders are essential for grocery ecommerce businesses to achieve a profit. Scaling up operations without incurring additional costs ensures your store attracts more customers, sells more products, and generates more revenue.
Logistics and fulfilment
Arranging labor, fuel, and resources for deliveries and returns is one of the most cost-intensive aspects of running an online grocery store. Finding ways to streamline these logistics, such as partnering with third-party providers, can help reduce operational costs.
Here are specific logistics strategies that can help:
- Fulfillment technology
- Adoption of micro-fulfillment centers
- Optimizing timeslots and pairing them with delivery fleet management
- Driver apps for delivery assignments and routing
Restocking capabilities via AI projections/insights are critical points to invest in, as inventory management incurs the largest expenses.
Technology adoption
“You have to spend money to make money.” It’s an old saying, but it will likely always be true. Incorporating cutting-edge technology that improves customer experience, such as machine learning to provide relevant product recommendations, will help increase sales and profits.
Strategies for enhancing grocery ecommerce profitability
Embracing ecommerce platforms is the future of grocery retail. Whether your brick-and-mortar store is launching an ecommerce site or you already operate online, these strategies will set you up for long-term success:
Diversification of revenue streams
Don’t focus solely on selling grocery products to your customers. There are many other ways your online grocery store can make money.
For example, selling ads, partnering with brands for paid promotions, and data monetization are ways to increase your revenue streams while retaining a focus on your core value proposition of convenient online grocery retail.
Focus on high-margin products
Take a close look at your inventory. To turn maximum profits from your grocery sales, consider stocking more high-margin products. These are good that yield a higher profit margin when sold, such as frozen foods, coffee, or cereal.
Personalization and customer experience
If your customers enjoy shopping from your online store, they will happily return for repeat business. Some ways you can ensure customers keep coming back is by maintaining a user-friendly shopping and purchasing interface, offering relevant and personalized recommendations, and delivering high-quality customer service for any issues they face.
Prepare to profit from grocery ecommerce
Despite the many challenges faced by business owners, like high overheads, thin margins, and fickle customers, online grocery is still a very lucrative field in ecommerce. As long as you have an efficient logistics model and can sustain operations at scale, you can build a winning strategy for your ecommerce grocery store.
Use the strategies covered in this article, like revenue stream diversification, selling high-margin products, and creating an unmissable customer experience to maximize profits from your online grocery store.
For ecommerce grocery business owners, Wave Grocery provides a comprehensive grocery ecommerce platform where you can control each critical element of your store. With an unprecedented level of control over the finer details, you will be able to watch your profits climb.
