As an aspiring small business owner, numbers are constantly swirling around in your head. How many employees do you need to hire? How much will it cost to stock your grocery store? How many customers can you expect to visit per day?
But one number stands out above the rest: how much do small grocery stores make? And more specifically, what is your grocery store’s unique earning potential?
Whether you’re deciding whether to open your own grocery store or wondering how your business compares to the industry average, we’re here to reveal how much small grocery stores make and share our top tips for increasing profitability.
How Much Do Small Grocery Stores Make?
So, how much do small grocery stores make? Unfortunately, the answer isn’t cut and dry.
Your grocery store’s earning potential depends on a variety of elements, including:
- Location: In a busy area, you can charge higher prices and expect heavier foot traffic, but you’ll also have heftier expenses for rent and utilities.
- Product selection: High-end specialty products have higher profit margins, but are more expensive to stock and have slower inventory turnover.
- Store size: A larger store means a more extensive selection of products and more space for customers, but it also comes with pricey rent, expensive utilities, and a need for more staff.
- Staffing: To attract reliable employees, you need to offer wages and benefits that are competitive for your area.
- Competition: If you’re competing with nearby grocery stores, you might have to lower your prices to attract customers.
Since these factors and more influence your business’ expenses and revenue, we’re going to focus on small grocery store profit margins. Independent grocers typically report profit margins between one and three percent. That means a grocery store bringing in $20,000 of weekly revenue will earn between $200 and $600 in profits.
There’s no way around it: grocery store profit margins are razor-thin, but fortunately, there are some simple strategies you can use to cut costs, increase revenue, and boost your profits.
Pro tip: Want to see how your grocery store’s profit margins compare to the industry standard? You can calculate it by hand using the net profit formula, but it’s much easier to use your point of sale (POS) system’s analytics features. These reports should reveal your store-wide profits and profit margin by item, making it easy to keep a close eye on your profitability.
How To Reduce Your Grocery Store Operating Expenses
Want to increase the amount of money your small grocery store makes? The first half of the equation is getting your costs under control. Here are three ways to lower your operating expenses.
1. Minimize Waste
Every spoiled steak and wilted vegetable you throw away is money down the drain, so monitoring and reducing waste is a key part of cutting your grocery store’s costs and maximizing profits.
The best way to prevent spoilage is to invest in a POS system designed for perishable inventory management. Here are the key features to look for:
- Inventory tracking shows your stock levels in real time, helping you take action before products reach their expiration dates.
- A barcode label printer makes it easier to monitor products’ expiration dates and implement a first in, first out (FIFO) stocking approach.
- Flexible promotions let you offer enticing discounts to turn near-expiry products into profit before it’s too late.
- Scale integration makes it a breeze to track your weight-based inventory like meats and cheeses.
These tools can help you reduce waste and keep a closer eye on your perishable inventory levels.
2. Increase Inventory Turnover
Even shelf-stable products can turn into a waste of space and money if they don’t sell. That’s why we recommend digging into your sales reports to investigate your inventory turnover and identify underperforming products.
Let’s say your potato chip sales have been slowly creeping down as customers opt for healthier options like dried fruit and trail mix. To make room for these in-demand products, consider ordering fewer varieties of chips, and launch strategic promotions to clear out your underselling varieties.
To discover your grocery store’s inventory trends, all you have to do is review your POS system’s sales data. These reports should break down your overall and item-specific inventory turnover, helping you make more informed stocking decisions to prevent overstocking and waste.
3. Consider Adopting Self-Checkout
Your employees’ wages and benefits are one of the heftiest line items in your grocery store budget. Plus, reliable employees can be hard to find.
One way to address both of these problems is to invest in self-checkout technology. While self-checkout stations can be a significant expense up front, they can save you money in the long run by reducing your staffing needs and letting you serve more customers in less time.
However, we have two quick words of warning. First, take security seriously to prevent shoplifting. Install cameras, train your staff to spot theft, and leverage your POS system’s shrinkage monitoring features. Next, continue offering at least one traditional, cashier-led checkout option for customers who prefer a personal touch.
How To Increase Your Grocery Store Revenue
The other way to boost your grocery store’s profits is to bring in more revenue. Here are three ways to attract customers, make more sales, and increase your average basket size.
1. Implement a Customer Loyalty Program
Did you know that it’s much more expensive to attract a new customer than to retain an existing one? That’s why a customer loyalty program is one of the best ways to keep your marketing expenses in check and boost your sales.
A loyalty program encourages customers to rely on your store for all their grocery needs, visit more often, and spend more each time they shop with you.
Most grocery loyalty programs are points-based, which means that your customers earn more rewards the more they shop with you. Some grocery stores also offer exclusive discounts to loyalty program members, offering even more incentives to shop.
Setting up and managing a loyalty program might sound like a hassle, but all you need is a POS system with built-in customer management features. This tool lets you customize your program’s structure, easily enroll members during checkout, and learn more about your most valuable shoppers.
2. Offer Enticing Promotions
Offering lower prices to increase your grocery store’s revenue might sound counterintuitive, but promotions are vital to any sales-boosting strategy. An enticing discount can bring new customers through your door and encourage them to add more products to their shopping carts. Your customers will spend and save more — a win-win for everyone.
Here are a few promotion ideas to inspire you:
- BOGO deals: Buy one, get one deals encourage customers to stock up on all their favorite items. To keep your profit margins high, consider giving customers 50% off an item after they purchase one at full price, rather than a buy one, get one free promotion.
- Category-wide discounts: Which of your grocery store’s departments earns the highest profit margins? Consider offering a percentage discount across this entire category to encourage customers to buy more of these profitable items.
- Upselling and cross-selling: Looking for a cost-effective way to boost sales? Use your store’s layout, displays, and signage to upsell more expensive or cross-sell related items.
These promotions boost your profits by bringing new shoppers through your doors and giving customers a reason to add more products to their grocery carts.
3. Embrace Grocery E-Commerce
Launching an online grocery store is another effective way to grow your business’ earning potential. E-commerce is quickly becoming one of the most popular ways to shop for groceries — and if your store doesn’t offer convenient options like delivery or pickup, you could fall behind.
Fortunately, getting into the grocery e-commerce game is easy. Simply choose an e-commerce platform that integrates with your POS system. This will let you seamlessly manage your in-store and online operations, ensuring customers get a consistent, high-quality experience regardless of where they shop with you.
Achieve Small Grocery Store Success With POS Nation
How much can your small grocery store make? The best answer is that it’s up to you!
One of the most important ingredients for high grocery store profits is the right POS system. This powerful tool should:
- Automatically calculate your profit margins overall and per individual item
- Give you in-depth data on your inventory turnover, product sales performance, and sales trends
- Monitor your inventory levels to prevent stockouts and spoilage
- Let you set up and manage a customer loyalty program
- Make it easy to offer enticing promotions
- Seamlessly integrate with top grocery e-commerce platforms
Searching for a system that checks all these boxes? You’re in the right place. POS Nation is an all-in-one POS solution designed for grocers just like you. With robust inventory management tools, sales-boosting options, and advanced reporting and analytics, POS Nation has everything you need to grow your grocery store profits.
Take our software for a spin by scheduling your personalized demo today.
