Launching a grocery store may seem pretty complicated. And to some extent it kind of is. There is more to opening a grocery store than just stocking up on items and renting or buying a place to set your store. It takes a lot of preplanning and knowledge to start a grocery store. And that is exactly what I will be explaining here is this article.
To start a grocery store, you will need to make a business plan, get your business registered, choose the location, and create a network of suppliers. Moreover, you will have to take the necessary steps to protect your personal assets, such as purchasing the right business insurance.
There is so much more to starting a grocery store than the brief answer I have provided above. So, please read on to find out everything there is to know on how to start a grocery store.
10 Steps to Start a Grocery Store
There is so much to think about before starting a grocery store. But here I’ll be discussing the 10 most important steps that you need to take to start one. These will at least help you to get started.
1. Do Your Market Research
When starting a grocery store business, you need to know your competition. Because the food-retail industry is highly competitive. You need to first conduct extensive research on the food retail industry to figure out your business plan and determine your target market.
Although grocery stores account for 90% of the country’s beverages and food, superstores are dominating the food-retail industry. An example of a superstore dominating the food retail industry is Walmart Inc. The company made a whopping 288 billion dollars in 2019 by selling groceries.
Besides big box stores like Kroger, there are departmental stores, supermarkets, and convenience stores that are saturating the food-retail industry. Hence, the competition there is intense.
But cut-throat competition should not discourage you from starting your grocery store. Competition is a part of life, and some of it will benefit you.
Study your competition and figure out what you can do differently to stand out. Your market research will help you choose your target market, niche, and develop a business plan.
2. Figure Out Your Business Plan
A clear vision is crucial for an entrepreneur starting a new business. A solid business plan will ensure your success and prepare you for any future challenges you may face.
To create a business plan, you need to consider your target market, possible profits, expenses of opening and running a grocery store. Moreover, you will need to choose a unique name and brand for your grocery store.
If you are starting a small grocery store, you need to focus on a niche. Most people prefer to go to the supermarket because they can get many things under one roof there. But if your store has rare items that the supermarket lacks, you will not run a loss. Some niches you can consider are ethnic, vegan, organic, gluten-free, or frozen food items.
The niche you choose will reflect your target market. For example, if you sell Indian food products, your customers will mostly be South Asian. Again, a small grocery store just starting out thrives in the local community. So your target market should be locals and small communities.
Now, starting a grocery store will cost you over $500,000. On equipment alone, you will need to spend $ 70,000 to $100,000. Other expenses cover a point-of-purchase system, security deposits, insurance, initial inventory, rent, and opening advertisements.
To figure out the expenses you will make while running a grocery store, you need to take into account the number of people you hire, their salaries, inventory and the cost of utilities, etc. On utilities alone, you will have to pay around $5000.
How much you charge customers depends on various factors, and the price of items vary a lot in a grocery store. But as an up and coming grocery store owner, you should try to low value offers to win local customers.
The profit margin of grocery stores is thin, but that differs from location to location. The annual profit of an independent grocery store can be over $300,000.
Choosing the right grocery store name is crucial. It not only has to capture the customer’s attention but also has to be unique. If you plan to take your business online, you will need a unique store name as a domain. So, check web domain availability, your state’s business records, state and federal trademark records before choosing a name.
3. Choose Your Legal Entity
A legal business entity will ensure the safety of your business in the long run. It is also a determinant of how big your retail food business will grow. It is crucial to choose the right legal entity if you want your business to expand.
Before starting your grocery store, you should consult an attorney about different types of legal entities, their benefits, and which one is best for you. For example, store owners who form an LLC (Limited Liability Company) receive various legal and tax protections.
There are various types of legal entities or business ownerships you can consider. Here are some of them,
You have sole proprietorship of your business when you alone own and operate it. The benefit of this type of structure is that you will have relative freedom and ease to form and control your business.
The disadvantage is that your business and personal assets will be unprotected. This type of business structure does not offer additional financial resources or protection of personal assets in case of lawsuits.
If you open a grocery store with one or two other individuals as co-owners of the company for maximum profit, then you have formed a general partnership.
While this type of legal entity offers more financial resources, the owners are exposed to personal liability. If the business fails and dues remain unpaid, the partners will have to pay from their own pocket.
You can form a limited partnership company with a general partner who will manage a project and many limited partners who will invest in your business for limited liability.
The limited partners do not participate in the daily activities of the business. They will only receive tax benefits, capital, and income. The general partners only get a percentage of the income and capital.
You can consider a limited partnership business structure while opening your grocery store. It will give your business credibility, increased tax options, and personal asset protection against potential business risks.
4. Complete All Legal Requirements
To register your business, you need to contact your local department of commerce and licensing. Collect all the required forms for establishing a grocery store business.
Laws for opening a grocery store vary from place to place. But here are the general certificates and licenses you need to get to start a grocery store business in the USA,
- Certificate of Incorporation
- Business License
- Nondisclosure Agreement
- Memorandum of Understanding
- Employment Agreement
- Federal Employment Identification Number (EIN)
- Operating Agreement for legal entities such as LLC
- Insurance Policy
If you fail to register your business, you will have to pay hefty fines or have your business closed down.
5. Create a Separate Bank Account for Business
To separate your business assets from your personal assets, you need to open a business bank account before starting a grocery store. That way, you can protect your personal assets in case of lawsuits.
When your personal and business assets are mixed, there is a risk of losing everything in case your business is getting sued. But separate accounts will keep your personal assets safe from lawsuit settlements or business debt fulfilment. Plus, having a business account makes tax filing and accounting easier.
You should also build business credits to get credit cards in your store’s name. That way, all your business expenses will be put in one place and will be separated from your personal expenses. Moreover, a business card can help you raise money by recording your store’s credit history.
6. Get the Best Insurance Policy
You need to purchase an insurance policy to protect the financial well-being of your store. The insurance will also ensure that you operate lawfully and safely. While getting business insurance, you need to understand what type will work the best for your grocery store.
For example, in case of lawsuits or settlements, you will need home-based or product insurance to safeguard your business assets. While compensating for employee injuries or accidents, you will need a general liability or worker’s compensation insurance.
Again, in case of a lawsuit issued by customers, you should have a surety bond. The surety bond will cover the legal expenses.
Here are a few general business insurances you can consider getting for your grocery store,
- Fire and General Property Insurance
- Life Insurance for your and other employees
- Fraud Insurance
- Burglary Insurance
- Fidelity Bonding
- Business Interruption Insurance
- Public and Product Liability Insurance
- Malpractice Insurance
- Plate and Glass insurance
Getting insurance will not eliminate risks but will manage them. So, before starting a grocery store, you need to calculate the probability and cost of losses and purchase insurance accordingly.
7. Choose the Location of Your Grocery Store
To stand out, you need to choose the location of your grocery store wisely. The locality, traffic, rent, its proximity to offices, other institutions, and businesses are factors you should consider before choosing the site of your grocery store.
Your grocery store has to be accessible to your target market with proper parking space. For example, if your grocery store is near a university, most of your customers will be students and other university staff. Moreover, an unpleasant history attached to the site of your store can deter customers from visiting.
While choosing the location of your grocery store, you have to consider the locality. If you sell Indian food products in your grocery store, you would want to open it in an Indian majority neighbourhood. In that locality, you should choose a site near schools, other businesses, or parks.
You need to consider the costs surrounding the location of your grocery store. You need to know the rent and terms of the lease of the site. You also need to weigh in the location costs and its potential for profit.
For example, a grocery store near a big business may do well at first. But what happens if that establishment changes locations? So, the profit of your store should not depend on revenue from other businesses and traffic alone. You need to choose the location keeping the future in mind.
8. Figure Out Marketing Strategies
If you want your customers to keep coming back and make your business more profitable, you need iron-clad marketing strategies. Some strategies are effective advertisements, logical product placement, organized and attractive aisles.
Advertisements let your customer base know about your products, services, and new launches. You will know your advertisements were effective when,
- Customers will be convinced that the products and selections at your store are the best
- New customers will be drawn into the grocery store
- The desirability and demand for the store’s products will increase
- There will be a positive image of your grocery store
- Announcements of new services and products will reach potential customers
You can use magazines, newspapers, TV, or direct mail for putting out advertisements. But in today’s world, social media marketing would be the most effective advertisement. You should create a page on social media and share photos or videos to promote your grocery store.
If you have a target market and your grocery store sells niche products, you can opt for speciality advertising. For example, offer free samples, brochures, calendars, magnets, and stationery to your customers.
Attractive and organized aisles will not only draw in customers but also help them locate product sections easily. But more than attractive aisles, logical product placement can increase profit margins.
For example, fast movers should be placed at the bottom of the shelf, that way the customer will have to bend and look at other products before picking up their desired item. You should never place light bulbs in the deli section, or else the frozen food items might get damaged due to heat.
An example of the logical placement of products in a store can be seen in Costco. They place their best deal products deep inside the store. Because then customers while walking around the store might get interested to purchase other products also.
9. Create a Network of Suppliers and Distributors
You need to create a reliable network of suppliers and distributors for your grocery store. Because the supply and distribution of the products you sell will depend on them.
You need to work with wholesalers who will supply and distribute goods such as packaged food, beverages, paper, fuel, or other household goods to your store. You can work with wholesale suppliers such as Core-Mark Incorporated, Eby-Brown Company, or McLane Company Inc.
You also need to choose between a full-service or limited function wholesale suppliers. If you choose the former, you will have to order products in bulk to avail the full service. Hence, it will be more expensive. So, consider the wholesaler you choose depending on your expenses and store size.
If you plan to start a small grocery store, you can get your goods from a price club store, such as Sam’s Club or Costco. In that case, you will have to pick up and ship the goods yourself, but this is much more cost-effective than full-service.
10. Create a Web Presence
Launch your grocery store online. Create a page on social media, followed by a website. This way, you can create an online presence and attract more customers.
Again, if you are launching new systems like membership cards or giving out year-end discounts, then by posting that information you can draw in customers. Like this, through your online presence, you can engage and create a loyal customer base.
If you create a business website, your customers can know more about your company and what it represents. They can also find out more about the products and services you are offering.
Tips for Running a Successful Grocery Store
Now, that you understand the basics of starting a grocery store I’m going to give you some tips that are sure to be beneficial and grow your business fast. Here they are –
- Stay up-to-date with the ongoing developments, products, and trends of the retail food industry.
- Get creative with your marketing strategies. But make sure you do not incur any losses while doing so.
- Manage your inventory properly to prevent huge product loss. Use spreadsheets to keep a record of inventory and check the shelf life of products.
- Pay attention to the little details, like making an eye-catching uniform and wearing hats, etc.
- Making the customer feel welcome in the store is crucial. So, hire friendly and warm employers.
- Maintain maximum levels of hygiene. Keep your grocery store clean and well-organized.
The demand for grocery stores will never diminish. Because they are the part-and-parcel of every locality. Even if there is a supermarket like Walmart nearby, many people will still need to visit the local grocery store.
To start any business, you have to be smart and cautious with it. It’s the same for opening a grocery store. I hope my article on “How to Start a Grocery Store” has helped you prepare for your future business endeavour.