You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your grocery delivery business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a grocery delivery business?
Costs involved may not be very much to start because you’ll mainly buy what’s already been ordered and you don’t necessarily need a formal space to conduct business. However, you’ll likely want to invest heavily in technology so your customers have an easy way of ordering. You’ll also need to insure your drivers with commercial auto insurance and workers’ compensation, and budget for marketing as well.
What are the ongoing expenses for a grocery delivery business?
Grocery delivery businesses have to account for the cost of salaries, gas, insurance, and equipment maintenance. They'll also need to budget to keep their automation as relevant and reliable as possible.
Who is the target market?
The target market is anyone who can afford luxury, time-saving services or for those who may be unable to drive to the store or shop on their own.
How does a grocery delivery business make money?
Grocery delivery businesses charge people a membership fee for their services and a markup on the cost of food. They may also charge additional fees based on quantity of food ordered and location of the home.
How much can you charge customers?
Most delivery services make people sign up for a membership first, charging around $100 for the year. They also may charge a delivery fee or about $10 or so for smaller orders. For larger orders (e.g., over $50), they may waive the delivery fees in lieu of the profits they’re making off their personal wholesale markup. Check out your local competition before setting your terms.
How much profit can a grocery delivery business make?
Profits for grocery delivery services can be considerable in the right neighborhoods. Let’s say you charge a 10% markup for the food you sell, and sell $100,000 worth of food every two months. This leaves you with a profit of $10,000 plus delivery fee charges and membership charges (if applicable.)
How can you make your business more profitable?
You can make your business more profitable by expanding your services with additional perks. For example, delivering people their Starbucks in the morning the moment they step out the door, or offering an express option for small items where people can pay a modest premium to indulge their cravings.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your grocery delivery business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
In most states, it is necessary to obtain a delivery license. Certain state permits and licenses may be needed to operate a Grocery Delivery business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
When selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Tips for faring well on a health inspections
There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business
Businesses are required to register vehicles which will travel across state lines for commercial purposes. Check here for a list of state requirements.
Class B Driver Licensing Requirements
In most states, licences are issued by classes, operating according to the weight of the vehicle being driven. Drivers of standard cars and trucks require a class A commercial driver’s license (CDL), while operators of heavier vehicles, including most tow trucks, require a Class B CDL to operate. More information can be found here.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a grocery delivery business
Look for angles that your competition (or near competition) isn’t serving in the area. For example, are people simply too busy to shop, are they inefficient when they're at the grocery store, or are they finding it difficult to pick meals every week? This will help you decide how to appeal to different types of customers. You can certainly advertise your services online, but you should also consider advertising locally. After all, this is a local service, and passing out flyers on the street can help you engage so and better understand what people are looking for.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Owners have to consistently deliver groceries on time, every time. They should have contingencies and communication plans in place in case there’s a hiccup and clear contracts with customers that explain the terms. These types of services are unfortunately easy to dismiss for many people if they're not perfect, and it really only takes one bad experience for a person to be turned off to the service entirely.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Grocery Delivery Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
People who are organized, creative and familiar with technology. Grocery delivery involves a lot of details to get right so it helps to start with a strong foundation and a focus on accuracy and value.
What happens during a typical day at a grocery delivery business?
The name of the game is flexibility when it comes to grocery delivery businesses. Owners may find themselves doing everything from maintaining relationships with wholesalers to completing the actual deliveries. In addition, owners also need to coordinate pick-up times with staff, keep up with invoicing, and figure out ways to market their services to a greater audience. But the biggest thing an owner may need to do is work with their automated features. Most delivery businesses find they need constant fine-tuning to ensure the customer experience goes well.
What are some skills and experiences that will help you build a successful grocery delivery business?
Owners should definitely have some type of experience working in the delivery industry. There’s a lot to keep track of when it comes to perishable food, especially considering that schedules can be difficult to coordinate with customers. From spoiled onions to box theft, there are a million ways for the order to go wrong. That’s why it helps to understand the logistics of ordering and delivering. It can’t prevent every mishap, but it can go a long way to ironing out the kinks before they actually occur.
What is the growth potential for a grocery delivery business?
People are starting to shift a significant portion of their income into services and they’re willing to pay a premium for convenience. As cities like NYC and LA continue to become more condensed, grocery delivery can look more and more appealing to a young professional who probably doesn’t want to navigate traffic or spend time perusing 30 different supermarket aisles.
TRUiC's YouTube Channel
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a grocery delivery business?
Grocery delivery services are somewhat new, meaning owners are still in uncharted territory. It’s very exciting for an entrepreneur who wants to make an impression on their customers, and there are a variety of ways to do it. For example, popular meal delivery services such as Blue Apron may look more appealing to busy professionals without a lot of time to plan their meals, so grocery delivery services may want to try offering a simplified version of this service as just one component of their businesses.
You can also offer a variety of options to your customers based on their previous orders. You can suggest meals or products to them to make their shopping experience easier. Or you can set up customers with a standard shipment and invoice every week so they don’t even have to think about it. Make sure you identify your target market before moving forward. A 30-year-old single professional will need a different message than a 55-year-old ordering your services for their ailing parents.
Owners also need to devote time to talking to wholesalers. While it’s possible to contract through grocery stores, it makes more financial sense to go through a wholesaler because their markup is far less drastic. However, this step will require establishing a good reputation for yourself among the people in the business, which will take both time and effort.
How and when to build a team
If you’re just getting started, it may be better to go it alone at the beginning. Once you start exceeding your monthly goals, consider hiring additional drivers or an administrative person to coordinate contracts, billing, and scheduling.