Challenges Faced by Online Grocery Businesses & Their Solutions

Last Updated: August 10, 2020

We have covered the following challenges faced by grocery retailers with their solutions in this post:

• Storage and Delivery Cost
• Low-Profit Margins
• Inefficient Delivery
  – Direct Delivery
  – Click and Pickup
  – Partnered Delivery
  – Micro Fulfillment Centres
• Consumer Habit

Grocery shopping is a routine task; it is generated from need, and not desire, or luxury for that matter. We are not talking about planning a vacation or dining in a fancy, posh restaurant; we are talking about something that needs to be done on a routine basis. And yet, online penetration of grocery shopping lags far behind other sectors.

That definitely makes one wonder, when the majority of other eCommerce sectors are doing great, what’s the reason behind eGrocery segment not booming enough?

It is due to the following challenges, which also represent the growth opportunities in the sector:

Challenge 1: Storage & Delivery Cost

Many prospects ask us the following question: What are some of the challenges while storing and delivering perishable goods to customers?

Perishable items require more investments on storage & delivery infrastructure (refrigeration). Special warehouses, delivery containers and specialized delivery vans must be there to ensure perishables are delivered fresh. All this requires a lot of capital.

Solution: Just-in-time supply system integrated with state-of-the-art grocery inventory management API can minimize inventory costs. Apart from that, teaming up with an efficient delivery service provider that has the right vehicles to ensure customer satisfaction is a good idea from economic and operational perspectives.

Challenge 2: Low Profit Margins

Customers are reluctant to pay for convenience charges and want to get faster delivery along with quality assurance. Catering to this particular need can actually turn out as a financial nightmare for eGrocery retailers.

Solution: Implement an asset-light business model. Instead of acquiring your own fleet of vehicles and staff to carry out the deliveries for you, hire an e-grocery logistics company. That will cost you less than the cost of vehicles and salaries combined. While signing the contract agreement with the delivery service provider, make sure you mention that between your office gate and customer’s doorstep, the goods to be delivered are the service provider’s responsibility.

Challenge 3: Inefficient Delivery

It’s hard to break the threshold called hyper-local segments with one delivery system, especially when the customers expect same-hour delivery. Product quality, time, and delivery cost – all these critical factors impose a huge challenge for an efficient delivery system.

Solution: As the use of online marketplaces for groceries is gaining momentum, it is indeed a challenge for traditional grocery vendors to identify prevalent opportunities in grocery eCommerce and make the most of it. A plethora of approaches is being devised and implemented by the admin of the grocery eCommerce platform to accelerate the rate of successful online grocery deliveries. 

Below mentioned are some common e-grocery delivery challenges that online grocery marketplaces come across and their respective solutions:

Direct Delivery: In this grocery delivery logistic model, potential consumers place orders for grocery delivery through the grocery marketplace. The order details are received by the fulfillment center where the pick-up, packaging, and shipping functions are performed. Next, the orders are delivered using the services of the delivery partners. 

• Challenge: The challenge here is to intuitively manage the functioning of the grocery eCommerce marketplace. The Marketplace owner will have to incur extra expenses for making arrangements for warehouses and storage spaces. Facility centers are mostly located on the outskirts which might hamper effective same-day deliveries. Also, the management of delivery routes for on-time deliveries may come up as a hurdle.
• Solution: For bulk orders with a proposed minimum order value, the admin of the marketplace can introduce the option of free deliveries. Also, the option of completing deliveries the same day irrespective of the time at which the order was placed can be beneficial. 

Click-and-Pickup: Using the click-and-pickup method, customers can place orders for groceries via an online grocery marketplace and schedule self-pickup. The customer can choose a specific date and time for self-pickup meanwhile, the store executive can prepare the order and notify the consumers through the marketplace whenever the order is ready. 

• Challenge: Here the challenge is that the traditional grocery store must actively manage the grocery eCommerce platform. Second, prior labor should be appointed to initiate proper packaging, staging, and delivery of groceries to the customer. Infrastructural arrangements to unload orders should also be made.
• Solution: The advantage of this approach is that extra delivery costs can be avoided as the customers will make arrangements for self-pickups and bear the extra costs on their own. The vendors will not have to worry about making arrangements or associating with a delivery partner for same-day deliveries. 

Partnered Delivery: This model is a combination of both, the self-pickup delivery model and the direct delivery model. After placing an order for groceries, the customer will select a time and date slot for getting the order delivered. Customers can select a particular store for this purpose. The owner of the grocery eCommerce website will arrange for a delivery partner who will be responsible for fulfilling the delivery. 

• Challenge: The problem here, that online grocery store owner faces is to ascertain whether the associated stores have ample stocks. Since customers can select a particular store, the service provider will have to partner with multiple stores for better sales. Additional delivery costs might be incurred.
• Solution: Traditional stores will get a platform and experience better sales and profitability. The stores do not need to invest in the construction of any infrastructure to fulfill orders. Since employees can make deliveries, additional workers do not have to be employed.  

Micro Fulfillment Centres: Customers will place an order on the grocery eCommerce website and select a date for getting the order delivered. The website owner can partner with Micro Fulfillment Centres instead of making self-pickups to complete deliveries. When the order is placed by the customers, the MFCs will also be notified as per the customer’s postal code. The MFC will be responsible for getting the order processed and picked.

• Challenge: 24 hours inventory availability is a challenge as MFCs are designed specifically to fulfill online sales for groceries. Also, the admin of the marketplace must maintain personal inventories to minimize the possibility of missed leads and failed order fulfillment.
• Solution: Partnering with MFCs can be advantageous for the grocery eCommerce marketplace as additional labor does not have to be employed.  On associating with MFCs, effective inventory management can be practiced with the help of reporting and analytics stats.

Challenge 4: Consumer Habit

Regardless of the number of online grocery businesses opening up, and the convenience provided by online shopping, people still prefer buying grocery items from a physical store. The graph below clearly reflects that consumer behavior.

The stats are from the US, but just one glance at it and you will realize this preference of picking their own food is more common than anything else in the world. And that’s because of the human nature; we just want to take a whiff of that melon; we want to hold a potato in our hand before being sure of outing it in the basket.

Solutions: Merging the online & offline grocery shopping experience is a good idea in this regard. Here are some ways to improve customer experience while keeping your expenses low:

• Customer gets to verify items’ availability online & then visits the store, confirms the quality and buys those items.
• Customer places an order through an online portal & picks up the order at the physical store.

The above two models save the delivery cost. Now, let’s talk about two alternates that reduce the operational cost while improving customer experience:

• Customer visits offline store, orders the desired items online (through in-store setup) and the goods are delivered to their home. 
• Self-checkout at stores through technologies like iBeacon to let customers avoid the long cash-counter queues. For instance, check out what Amazon Go is doing. Your customers will definitely love this type of shopping.

Pre-orders & curb-side pickups are among other interesting techniques to enhance customer experience. In fact, they are already a hit among customers in many parts of the world. To implement, simply offer a feature to pre-order groceries and schedule a delivery time or select a pre-decided pick-up spot. It saves customer’s time and saves you last-mile delivery expenses.

Conclusion

The online grocery industry is still in its nascent stage and has just started to pick up some pace. It is certain that the sector will become more efficient & profitable with time as new technological advancements will come along.

No doubt the market will remain challenging for the current generation of online grocery retailers. But grocery businesses that will stick to adding more value, will also garner the advantage of being the early bird, since they already have captured the market while it continues to become mainstream with new technology (solutions for grocery retailing).