How Profitable Is Owning And Operating A Grocery Store?

You've always wondered how grocery stores profit. After all, research tells you they often make low margins. Maybe you've heard a grocery store owner quote 2 or 3 percent profit margins, making you wonder why they continue to invest time and resources into the grocery store when better options exist. Well, you are not wrong. Grocery stores tend to make profit margins between 1 and 5 percent
. But it depends on several factors, one of the most prominent being making up the profits in volume. So, when it concerns making a profit for your grocery store, this is what you should know.


The Type Of Grocery Store Affects Profits

Picture this scenario: McDonald's is known for selling affordable burgers in each of its global stores. On the other hand, most French restaurants are known for their expensive and sophisticated cuisine. So, how do the profit margins on both compare?

At face value, McDonald's makes minimal profit margins on each burger. But every minute, McDonald's sells 4,500 burgers on average
, meaning they sell about 6.48 million daily. Now, suppose McDonald's makes $0.08 profits on one burger
.

This makes $518,400 profits every day on average. Fun fact: this is not the primary source of earnings for McDonald's. Most of their money comes from franchise equity and real estate asset value.

In contrast, the best restaurants make between $2 million and $4 million in profit annually because of high costs. Also, food does not move as fast in a restaurant as at McDonald’s. These two restaurants significantly differ in the volume of products they sell and the amount of costs they incur.

In a similar fashion, the type of grocery store and the volume of products sold affect the amount of profit made. For example, larger grocery chains can source large volumes of products at lower prices, which means they set up lower product prices.

This creates competition for smaller grocery stores since they have minimal access to discounted prices. Notwithstanding, large stores, despite their low selling prices, have a massive reach that makes huge profit margins from high sales volumes.

On the other hand, smaller groceries competing with these prices make very minimal profit margins. As a result, they adopt to the store within a store trend
 by becoming members of buying cooperatives since it secures their customers in a competitive market.

It also allows them to tap into the advantages of larger grocery chains, getting the products at lower prices and marketing costs by association. Typical independent grocery stores continue to make lower profit margins.

They might have low costs since they require fewer employees and maintenance fees, but because they must compete, their prices must remain low.


The Department/ Products You Sell Affect Profits

One strategy grocery stores use to entice the customer to purchase
 is have various products. What you might not realize is that grocery stores use this difference to balance the profit margins in the store by using different profit markups.

This is also why most products are arranged in a grocery store by category or type. For example, organic and natural foods are priced high because of increasing demand, but each individual organic produce carries a different markup. Non-perishables like toiletries have a higher markup and a consistent pricing.

Also, consider a grocery store with a full-service food operation section. Typically, the section has food stands, samples, and designated employees, meaning the cost of running and maintaining this section is high. Additionally, shrink is higher here because most grocery stores throw away food at closing.

In turn, the prices in this section have a higher markup to cater to the additional labor costs and shrink. Another excellent example is the increasing popularity of selling private labeled goods. Grocery stores choose this option because it removes the cost of the middleman – having to source products from another vendor.

This allows them to make higher profit margins on specific products. So, in a word, the choice of products that you sell, how you position them in your grocery store, and the different strategies you use to create your markups will affect your bottom line.


Grocery Store Strategies

You need the right balance in pricing and strategy to ensure products sell. This is why time and again, investors come up with modem ways of improving the retail experience for customers in a bid to increase sales and profit.

An excellent example is the adaptation of omnichannel retailing,
 which is now becoming a modern survivors choice for many retailers, including grocery storer owners. For example, online grocery channels are increasing revenue for most grocery stores.

In response, grocery stores are developing strategies to encourage online shopping among their shoppers. Marketing strategies like Costco's focus on using influencers on TikTok and Instagram to advertise deals that increase sales and revenue.

A typical grocery store without the money to invest in influencers might opt for an in-store reward system where shoppers get reward points or discounts if they download and use the grocery store's shopping app.

And if a store offers online shopping, it must also provide door-to-door delivery options. This might include curbside pickup or climate-controlled delivery options. However, keep in mind that the delivery and shipping costs impact your bottom line.

The delicate balance in pricing is crucial because increasing product prices will force your shoppers to opt for cheaper competitors. On the other hand, high delivery costs affect your profit margins.

Therefore, find a balance, like leaving the delivery option to the customer's convenience, but at an added cost based on location, product size, and type - that is, perishable goods should have faster shipping options than non-perishables.

Employee morale, grocery store location, and business branding are additional factors that affect your bottom line. A good location makes your grocery store more visible and easier to pop into, happy customers serve your customers better, and your branding influences customers' perception of your grocery store and its products.


Overall

A grocery store will profit from three avenues: a return on sales, equity, and assets. Additionally, the number of products you sell inside your grocery store affects the amount of profit you make.

You already have the advantage of selling products that are necessary for consumers. Therefore, the key to making profits is to tap into modern trends, marketing strategies, and technology options that reduce cost and increase your margins in the long run.

For example, a POS system can become more than a checkout system for your grocery store. It can also be the gateway to offering your customers a simplified and pleasurable experience that keeps them returning.


Take Erply's POS, For Example

It has a promotions engine that helps any grocery store develop the perfect deals to get perishable goods off the shelves and make customers happy. Erply lets you customize these deals according to your target market, region, or store.

Also, Erply has a reward-based system that keeps your customers returning to your grocery store. For every purchase, a customer gets a reward point they can use to get discounts for future purchases. Don't forget about the ease of use of the Erply checkout system, which reduces the waiting queues in your grocery store and keeps your customers happy. You can try the 60-day free trial
 and see how Erply serves you the best for your grocery store.