Are Online Grocery Businesses Doomed?

Grocery is a pretty awful business, in general. Whole Foods, which is one of the best-of-breed, operates with about a 33% gross profit margin and about a 3-4% net profit margin. Publix operates about a 6.3% net profit, and Kroeger and Fresh Market are around 2% each (data courtesy of The Modern Financial Data). Those are tough numbers.

It’s also one of those weird businesses where scale isn’t necessarily great. A lot of us are used to the software business, where, essentially, you build something and then you profit from it for a long period of time. In grocery, though, expansion means more infrastructure. A lot more infrastructure. Yuval Ariav gets this completely right.

The infrastructure problem isn’t what you might normally think of, though. It’s not warehouses with freezers and refrigeration. While that can be expensive, it’s not that hard to find an empty warehouse in most cities in the world that you can put this into, and that’s not really a re-curring expense. And all grocery chains – whether they’re online or brick-and-mortar – need distribution hubs.

To read the rest of the story, please go to: Forbes