Life is getting busier with the passage of each day. Individuals are striving hard to earn more for their families and businesses. The fast paced life has reduced the time for shopping especially for grocery. Groceries are the need of every home. Grocery shopping has become more of a hassle which no one likes to take. The IBEX team has found a business opportunity in selling the grocery items at your door step. This service can be used for the non-perishable goods like soaps, shampoos, detergents, biscuits, tissues and so on.
Starting the Business of Home Delivery
There are two options for the home delivery business. Firstly, one could setup a grocery store and start selling the items and deliver them to the customer’s house also. The alternative way is not to open a grocery store, hire a small team of delivery boys and start receiving orders through phone. To purchase groceries, you should have contacts with 2 or 3 wholesalers in the market from where you can purchase on minimum possible discounted prices.
If you don’t want to setup a whole grocery store; and want to buy the grocery from the wholesalers directly; then to start the business, first select the areas where you want to have your distribution and then establish your office somewhere near the wholesalers of the groceries. This business opportunity is for urban cities particularly in posh areas. In the initial phase, the investor can hire 3 employees. One person can take orders through phone and the other 2 persons for delivering the groceries. Delivery boys also need bikes for deliveries which the investor can provide. The person sitting in the office to receive orders should have a complete list of items preferably on the computer with the prices and sizes of the products and also a list of substitutes available if one product is out of stock.
Another important factor is that the proprietor should maintain a strong business relationship with at least 3 wholesalers so that if a product is not available at one place, it can be bought elsewhere. There should be a minimum limit of purchasing on which the home delivery service can be offered. The service should not be for one or two items. New products entering into the market can also be taken along to show the customers.
Initial Investment – Profits in Home Delivery Service
The initial investment to start this business is not very much. If the monthly pay of each employee is Rs. 10,000, 6 months salaries of all the 3 employees will add up to Rs. 180,000, which means that the initial investment could be only Rs. 3 lac in cluding al the major expenses. Moreover, if the investor also wants to provide the motorbikes to the delivery boys, the investment could reach Rs. 5 lac. It is recommended not to have a proper office setup during the start.
There could be 2 ways of profit in this business. One from the customer and one from the wholesaler, for example, if a shampoo has a market price of Rs. 100, and you are purchasing it from the wholesaler at Rs. 97 and then delivering the shampoo to the customers at Rs. 100 or Rs. 105, which includes the delivery and your service charges. After calculating the average fuel expense of one delivery, employees pay and all other expenses, you can charge a specific fixed amount for the home delivery service in addition to the grocery bill. Let’s take an example.
Total grocery bill: Rs. 1365
Delivery charges of grocery: Rs. 100
Total Price for Customer: Rs. 1465
You are purchasing the grocery at: Rs. 1300
Profit: Rs. 65 + the delivery amount (after deducting the fuel and other expenses)
In this way the investor can design a mechanism to generate profits. There should be friendly return policies on purchases.
Problems in the Home Delivery Service
Consumers are not used to this type of grocery shopping which could pose a problem for the investor. It could take some time to create awareness in the market by promoting your business. Another frequent problem faced is the return of grocery items frequently reducing the profit margins of the investor. As this practice of home delivery of grocery is not common in cities ofPakistan, the problems can be analyzed once the investor starts this business.
Starting a Grocery Store
To reduce the risk of this home delivery business, the investor can start his own grocery store and then start the home delivery services. The first step in starting a grocery store is to find the best possible location for the store. Main markets have more rents and good wills. Posh areas of the cities have well reputed shops. The owners of plazas usually demand good will and advance rent for at least a year or minimum 6 months. Once you have found a location, you will have to renovate the shop according to the store requirements. After renovation you have to start purchasing whole sale goods from distributors. Running a shop also requires one or two workers. Number of workers depends on the extent of the business. Purchasing goods is not a difficult task these days, especially in big cities. There is a strong network of distributors in the market who provide shopkeepers different products every day from the factories or the main suppliers.
Expenses in Establishing a Grocery Store
The initial investment required to setup a small scale grocery store is around Rs. 0.5 million for only the supplies inside the shop. The rent of the shop is not included in this amount as shop rents vary from location to location. It could range from Rs. 1 million to Rs. 10 million. Once you have purchased all the supplies for the shop, then you have to market your store. Building relationships with the customers by giving discounts and having unique products not available anywhere else is a good way to increase the business.
One can save the expense of having a billboard of the shop by getting it sponsored from a renowned brand like Zong, Pepsi, Coca Cola, nestle etc or it will cost you the tax on that bill board.
Grocery stores also need freezers to stock beverages and ice creams. These days all you need is the space for the freezers, the rest is the company’s responsibility.
Companies like Pepsi and Coca cola provide free freezers to stores for marketing their brand. However, a continuous supply of electricity is also required to keep the freezers running. For that you should also have a generator to combat the load shedding.
We can differentiate a small level grocery store with a medium size grocery store in terms of investment. A small grocery store can be started by having supplies worth of Rs. 0.5 million and a medium size grocery store can be started by having the supplies of Rs. 1.5 million.
Workings of a Grocery Store
The day to day selling gives you profit on every single product. The best thing for a grocery store is that the products/goods you keep in the store are not perishable products.
In extreme cases, you can keep products usually for about 6 months without selling.
If you have a store in a good location, your products will be bought on daily or weekly basis. The multinational companies do not give supply to shopkeepers on credit, you have to pay cash first to buy stock but the local products can be bought on credit. The credit time and the amount of credit depend on the relationship with the distributor. This also varies from distributor to distributor.
Profits of a Grocery Store
Profit depends totally on the store’s location and the number of customers you are dealing every day. Some say that with an investment of Rs. 1.5 million on a medium size store, Rs. 20 thousand to Rs. 30 thousand monthly profits can be earned, while others say that Rs. 50 thousand monthly profits can also be earned from the same investment. It all depends on your way of selling, having a good relationship with your customers and most importantly having a good relationship with distributors. One can increase the profit margins also by getting discounts from distributors through bargaining. From the above estimate, one can calculate the profit margins from small grocery shops and big grocery stores.
Please note that these profit margins are excluded from the home delivery of grocery. These are just for a normal grocery sale at the shop which could be further increased by the home delivery service.
