Before starting any business, it is important to do proper research on the outcomes that your business can be assumed to provide, regarding revenue and other factors. Just like that, before opening a grocery store it is essential to do research as well. The first question that pops into our mind before opening a grocery store is how much does a grocery store owner make?
It is not quite possible to state exactly how much a grocery owner makes as the amount depends upon various factors like the location of the store or the size of it. But after doing thorough research, a range has been decided on and it is now said that 60,000 dollars to 300,000 dollars or more in a year is the suspected income of a grocery owner.
In this article, I am going to talk more vividly about the income that grocery owners make and also about the factors that cause differences in the incomes of different types of grocery store owners. So, to know more, I recommend you go through this entire article as I assure you it will help you gain more knowledge on this particular topic.
How Much Do Grocery Owners Make?
Grocery store owners make somewhere between sixty thousand dollars to three hundred thousand dollars or more depending on the location, size, and other several factors. Even though grocery stores are very profitable and grocery store owners make a lot, it is not always the case due to being affected by a variety of reasons.
It is not possible to state the exact income of a grocery store owner because it depends upon the profit margin of the store. Not only that, but it also depends upon the mark up of different departments, the support system of the grocery store, the availability of the product, the market cost, location of the store, the customer base of the store, etc.
So, to know how much a store owner makes, it is important to know about the above-mentioned things as without having a proper grip on those factors, one cannot get a clear view on the income of a grocery store owner as the total income varies significantly with those factors and outcomes.
Do Grocery Stores Make Good Money?
Grocery stores are greatly profitable. But it is important to keep in mind that there’s a lot of competition there and the margins are quite low. So, independent grocery owner’s pay changes more than corporate lackeys. It is believed that conventional grocery stores make a lot of money because of having long chains, but in reality, they are only profitable in gross dollars but not in profit margins.
These grocery chains can only make up to one percent to two percent bottom-line profit whereas other specialty stores can make up to five to twelve percent net profit. So, compared to other businesses the net profit of conventional grocery stores is significantly low. And of course, that is the case because there aren't many stores baking it up with their profit.
Again, if the grocery store is small and independent, it may reach up to one percent to four percent net profit. But this is not a fixed determination as there are several factors that may affect this percentage. Factors like- store location, store size, marketing cost, shrink, etc. I am going to talk about these factors later in this article.
Profit Margin of a Grocery Store
Typical grocery stores usually run-on lower profit margins as they aim to get more items sold at a cheaper price. These kinds of stores don’t have many employees working for them or any in-house butcher as well. Therefore, with the lesser employee and a low-profit margin, these stores can make up to one percent to four percent profit margins.
These stores are mainly smaller and their operating system is pretty straightforward, resulting in a 10 percent to 12 percent bottom-line profit margin.
The profit margin of a conventional grocery store is up to 2.2 percent meaning grocery stores make 2.2 cents for each dollar sold. This is why conventional grocery stores are considered to be one of the unprofitable industries. But they aim to sell in great volumes with little profit and in multiple locations. So, even though their profit margin is low, their gross profit is pretty high in comparison.
Now, in the case of chain grocery stores, the profit margin is a bit higher. Because these stores get support from other stores and thereby can overcome losses like shrink costs. Also, these stores are connected to different manufacturers and they get discounts on different products as well. So, their buying costs of those products are lower and as a result their profit margin increases.
Markup of a Grocery Store
Different departments are said to markup differently because of the three main factors that affect this markup. The factors are- competitive on price, labor cost, shrink. Different departments require different levels of operation because not all departments require a great number of people, or not all departments have the same casualty costs.
First, let’s talk about the department of merchandise. This department consists of pet food, toilet paper, charcoal, etc. The markup of this department is relatively lower than any other department because of several reasons. Firstly, this department doesn’t require any employees as people don’t often need help buying these products. So, the labor cost is pretty low for this department.
Secondly, there’s no chance of the products of this department getting damaged. They also don’t expire as easily so if you look at the shrinking cost, that is also low. Therefore, the mark up for this department can be ten percent to twenty percent. This is significantly lower than in other departments.
Now, I'll give an example of another department to help you with the markup comparison. Let's talk about the department of food operations consisting of hot & cold bars, pizza oven, sandwich station, etc. This department requires a lot of employees in order to serve the customers, making it clear that the labor cost of this department is pretty high.
Again, this department also gets rid of a huge amount of untouched food every day. So, the shrinking cost is also pretty high compared to other departments, making the markup of this department significantly higher. The mark up of this department can reach up to a hundred percent in order to cover up the costs.
So, the markup of a grocery store depends upon different departments and also on how the store is managed and maintained. And this affects the total profit margin of the grocery store and thereby ultimately affects the income of the grocery store’s owner.
Factors Affecting Total Income
Even though an owner of a grocery store is expected to have a yearly income of a minimum of 60 thousand dollars, due to making 1-2% bottom-line profit or 1-4% profit if the grocery store is independent, but as mentioned earlier, there are a lot of factors that affect the yearly income of a grocery store owner like- the location or the store or size, or if it is a franchise, etc.
Location of The Store
How does the location of a grocery store affect the total yearly income of the owner you ask? Well, suppose a neighborhood is greatly dependent on food stamps, if you build a grocery store in that neighborhood you probably will only earn 60 thousand dollars per year which is the minimum expected range.
Whereas if you start a grocery store in the streets of NYC for example, you can easily profit a great deal from it even up to six figures. So, location matters a lot when it comes to the yearly profit of a grocery store. Also, if you locate your store in a competitive neighborhood the effect on the total profit will be significant.
Size of The Store
The size of your grocery store also matters when it comes to the total income of a grocery store owner. Most people go to the grocery store once or twice a month to get their daily necessities. But when they go, they go to buy every little thing they’ll need for the next couple of weeks. This is why it is very important to meet all the requirements of your customers.
Now, if you have a very small grocery store, it is obvious that you won’t be able to give them everything they need and you’ll have to narrow down your items as well, this will clearly affect your store’s profit as people will consider other bigger grocery stores who can provide all their necessities that yours as people prefer to take only one trip to grocery stores.
Though this varies depending on the location of your store as if you are the only close store in a neighborhood, people will have no other choice than to come down to your store to get their requirements.
If you start a small, independent grocery store you won’t be provided with any corporate support which will make your running a grocery store more difficult and will decrease your yearly income. If you have a large chain, there will be several companies to give you support and discounts on bulk purchases that small grocery store owners don’t get.
This also affects the marketing cost as larger stores hence can afford to give their customers products at a lower cost as their buying cost is lesser. Whereas smaller stores due to not getting any support have to have increased marketing costs which also drives customers away. This makes smaller stores less profitable in comparison.
Another factor that affects the total income is shrink. When dealing with a variety of products there’s a huge chance of some of the products being damaged. If these products are damaged severely then they cannot be sold to customers. Therefore, it will result in loss.
And even if the products aren’t that severely damaged but are dented or marked, still they can’t be sold at full price, they’ll have to be sold at a discount price, which is still a loss for the grocery store.
Therefore, if you are planning on building a grocery store, before deciding on the specific details of a grocery store it is important to do proper research on every aspect in order to make sure maximum profit. Because these factors can shift the profit level significantly as mentioned before.
In this article, I have tried to provide you with enough information on how much a grocery store owner makes and also tried to help you understand the profit margin the grocery stores and how different factors play roles in it. I hope this article was able to answer all your queries and wish you the best of luck in your upcoming projects.