Grocery store owners can expect to earn something between $60,000 and $300,000. This is only an average range and it can go far beyond this. The truth is that location, size of the store, and franchise affect the income quite a bit.
For the most part grocery store owners tend to earn much more than managers for stores on the higher end of the spectrum. The same cannot be said for those stores on the lower end.
How much do Grocery Store Owners make?
The short answer is that they can make a decent living although it depends on a variety of factors. Most grocery stores are profitable, although to what extent highly varies across the country. The most basic difference arises between independent grocery store owners and those who are part of a franchise.
Further discrepancies come up between franchise owners as their profit margin will vary quite a bit depending on the franchise itself.
Profit margins explained
Most grocery stores will aim to survive with lower profit margins, as they lean more towards wanting to get a higher number of items sold at a lower price. These smaller stores do not have many employees or facilities that the bigger chains have. This adds to their profit margin as the amount of money that goes to employees is much less. Which in turn, means that they can afford to have a profit margin ranging from one to four percent.
The profit margins of a conventional grocery store are upwards of 2.2 percent, which roughly translates into the store making 2.2 cents for each dollar sold. This very rough profit margin is also why conventional grocery stores are seen as highly unprofitable businesses.
When it comes to chain grocery stores, the profit margin for the most part tends to be higher than that of conventional ones. Since they are part of a chain, they can overcome many other petty costs. Since these stores have contact with a lot of manufacturers across the country, they are often offered discounts on different products. This in turn reduces the cost involved in procuring these products, as a direct result of this their profit margin increases.
Differences in Markups within a Grocery Store
A lesser-known fact about the way grocery stores run is that different departments markup their prices based on three factors. The three factors being price, labor cost and, shrink. A simpler way of understanding this is that different departments have varying levels of operation. Not all departments will require a great number of people and not all departments would have the same casualty costs.
Let’s take a look at the department of merchandise. This area consists of pet food, toilet paper, charcoal and, things of the same variety. We can easily gauge that the markup of this particular department will be lower due to the aforementioned reasons.
The department does not require a lot of employees to keep it running also. This means that the labor cost is significantly lower for this particular department. In addition to this, the products do not stand any chance of expiring, which results in a smaller shrinking cost. All of the factors can contribute to a markup that can range anywhere from ten percent to twenty percent. It should be noted that such markup is comparatively lower than other departments.
To put this into perspective, consider the department of food operations. This department primarily consists of hot and cold bars, pizza ovens, and softie machines. Naturally, one can venture a guess that this department might just require a higher number of employees to run. Everything from managing the making of food, to serving the customers can only be done with a large workforce.
This results in the markup increasing significantly to be able to pay the employees and maintain profit. Adding to that, there is also the disposal of a ridiculous amount of untouched food throughout, making the shrinking cost much higher. The markup can almost reach a hundred percent to cover up for all the costs, while still maintaining a profit.
And so, the markup of most grocery stores relies heavily on the different markups across departments and how the store is managed in general. This, in turn, affects the total profit margin of the store, which ultimately impacts how much the grocery store owner makes.
Primary factors affecting total income of a grocery store owner
Most grocery store owners can foresee a yearly income of roughly $60,000. This figure is subject to even more variation depending on the profit margins. We can analyze some other factors to understand how the income of an owner can fluctuate.
Location of the Store
This is the most obvious factor in most business ventures. The same applies to grocery stores too. A simple fact is that if a neighborhood relies heavily on food stamps, building a grocery store in that location and, capitalizing on that demand then it is most likely that they will definitely make the minimum wage and maybe even exceed it.
Ideally, if one were to start a high-end grocery store on the streets of New York, there is a great profit potential too. And so, location becomes a quintessential factor when it comes to the income figures of a grocery store.
Size of the Store
The size of the grocery store is also a key factor in correlation to income. It is common knowledge that people do not go to grocery stores every day, instead, they go once or twice a month to stock up. An important aspect to note here is that this means that stores should focus on meeting all the requirements of the customers.
So, it means that smaller stores will simply not be able to give customers everything they need. As a result of this, the store’s profit will not be as high as it could have been. Smaller stores will also be under constant threat by bigger stores because customers will always look to bigger stores for an all-in-one shopping destination.
This need not be the situation all the time because location can also act positively for smaller stores. For instance, if there is only a small grocery store in a locality, most people will go there despite the store not having everything.
Smaller independent stores do not have any corporate support, which tends to make maintaining and running the store a bit difficult. If one is part of a large chain, buying, and maintenance costs are significantly lesser, so they can afford to give customers products at lower costs.
Shrink is another element that has an impact on overall income. When dealing with a wide range of items, there’s a good probability that some of them may be damaged. These items cannot be sold to customers if they are substantially damaged. As a result, there will be a loss.
Even if the items aren’t substantially damaged but are dented or marked, they can’t be sold at full price; instead, they’ll have to be offered at a discount, which is still a loss for the supermarket.
As a result, if you are going to establish a grocery shop, it is critical to conduct a thorough study on all aspects before settling on exact features to ensure maximum profit.
While most grocery store owners can make a decent bit of money, the general range is huge. Throughout this article, I have provided the many factors that can determine the income of most grocery store owners. Everything from the markups across various departments to the location and the size of the store are key aspects to consider if one were to move into the grocery store industry.
It is also getting increasingly harder to run individual and independently run grocery stores because of the sheer amount of competition. Moreover, grocery stores with corporate support tend to enjoy a lot more support and discounts than their independent counterparts.
This does not mean that running a corporate-aided grocery store is any easier. It has quite a bit of drawback as well. Most corporate chains insist on a certain quality in everything from service to the way the stores are constructed and maintained. So, if one were to tie up with a corporate chain, one would have to comply with the guidelines set by the organization to enjoy all the benefits properly.
Whether one ties up with a corporate chain or starts an individually run store, the location and size are things that can change the whole scenario. Picking the right spot and catering directly to the needs of the customers are the two easiest things owners can do to ensure good business and high levels of income.
If you are a complete beginner to the industry, it is much more ideal to talk to a store manager or even work as one for some time to understand the industry.
Frequently Asked Questions
- How much does a grocery store owner make?
A grocery store owner can make anything from $60,000 to $300,000
- What are the key factors affecting a grocery store’s income?
The key factors would be the location and size of the store.
Thus we learned all about grocery store owner and their profit.