Do you know how you’re doing on your key performance indicators (KPIs)? You may not have yet identified your target KPIs if you’re like 49 percent of small business owners.
Checking out customers. Stocking shelves. Keeping produce fresh. As a grocery store owner, your days are consumed by immediate demands that keep operations running smoothly. But with razor-thin profit margins in the industry, are you tracking the right metrics to actually grow your business, not just keep the lights on?
This post covers 11 key performance indicators grocery store owners need to track to succeed. We’ll discuss what it is, how to calculate it, and key industry benchmarks for each.
Key Performance Indicators: Grocery Store Basics
Before we explore our list of the KPIs every grocery store should track, let’s talk about KPIs in general. Key performance indicators help businesses track and monitor performance across critical areas. Grocery stores must track the right KPIs to improve efficiency, profits, and customer experiences.
So, why exactly do grocery stores need to track metrics and KPIs closely? There are a few key reasons:
- Improved Decision-Making: Tracking metrics and KPIs is critical for gaining insight into your store’s operations. Using real data, owners can make informed decisions based on real-time information rather than intuition or assumptions.
- Enhanced Operational Efficiency: Monitoring KPIs allows grocery store owners to identify inefficiencies in processes and operations. With these insights, you can streamline operations, optimize resource allocation, and implement changes that increase your efficiency.
Related Read: Cost to Revenue Ratio [Definition, Importance, and What's a Good or Bad Ratio?]
- Better Customer Satisfaction: Tracking metrics related to customer behavior helps tailor your offerings, promotions, and services to meet customer needs.
- Financial Performance and Profitability: Monitoring financial KPIs is crucial for your grocery store's long-term success. Tracking these metrics can provide valuable insights into the financial status of your business.
Tracking the right metrics and KPIs is critical to running an effective, customer-centric, and profitable grocery store. With this in mind, let’s examine our list of the top key performance indicators grocery stores should track.
1. Sales Revenue
The first metric grocery stores must track is revenue. Tracking overall sales revenue is critical for understanding the financial performance of your grocery store.
You can calculate your sales revenue by summing your total transaction values across registers over a given timeframe. We recommend looking at this weekly, monthly, and annually.
For example, if you generated $850K in total checkout transactions over the first quarter, your Q1 revenue is $850,000.
Related Read: How To Use Your Point of Sale Analytics To Increase Profits
As a benchmark, grocery stores should target two to five percent year-over-year growth in annual sales revenue to remain healthy. This growth rate shows you’re attracting new customers and increasing basket sizes over time.
2. Gross Profit Margin
Next, grocery stores must track profit margins. Your gross profit margin represents the percentage of sales revenue you retain after accounting for the cost of goods sold (COGS).
This metric helps you understand your store's profitability on a per-item basis. You can calculate it by dividing your total gross profit (revenue minus COGS) by the total sales revenue you estimated in the last section.
Related Read: How Grocery Store Inventory Leads to Increased Profits: 4 Things To Know
For example, if your store's COGS was $800K and sales revenue was $850K over the last quarter, your gross margin would be $50K divided by $850K revenue, which is just under six percent.
Profit margins for grocery stores are notoriously low, averaging one to three percent, so if your margins are relatively low, it’s no cause for alarm.
3. Inventory Turnover
Tracking how quickly inventory moves from your backroom to the checkout is crucial for grocery stores. You want to avoid tying up too much capital in excess goods while preventing stockouts. Turnover is especially critical in grocery stores because many of the products on your shelves are perishable.
Calculate inventory turnover by dividing annual COGS by your average inventory value over the same period.
For instance, if your COGS was $500K over the past year and you carried an average inventory value of $125K, your turnover rate would be 4x annually ($500K COGS / $125K inventory).
Most grocers aim to have an inventory turnover rate of two to four times annually. A lower rate indicates inefficiencies in the supply chain or excess inventory.
4. Average Transaction Value
Understanding how much the average customer spends each visit is another crucial metric for grocers. You can calculate average transaction value by dividing your total sales revenue by the number of transactions over a given timeframe.
For instance, if you generated $1.3 million in revenue from 300,000 total transactions last year, your average transaction value is $4.33 ($1.3 million revenue / 300,000 transactions).
Industry benchmarks for grocery stores vary based on your clientele and your location. However, it’s a good rule of thumb to aim for your average transaction value to be at least twice as high as your average cost to acquire a new customer.
5. Customer Retention Rate
Building a loyal base of returning shoppers is critical for consistent sales. Grocery stores, in particular, rely on repeat customers, so your retention rate is crucial to your success.
Related Read: 5 Customer Loyalty Program Ideas To Run This Year
Calculate your customer retention rate by dividing the number of repeat annual customers by total yearly customers. For example, if you have 125,000 customers who have shopped at your store multiple times in the past year and 300,000 total unique customers annually, your retention rate is 42 percent (125,000 repeat customers / 300,000 total customers).
Retention rate benchmarks for grocery stores typically range from 40 to 60 percent annually. If your retention falls below 40 percent, it likely signals inventory, pricing, promotions, or even customer service issues that require attention.
6. Sell-Through Rate
Another critical metric for grocery stores is your sell-through rate. Your sell-through rate compares units sold to supplier units received and can help you optimize inventory mix and ordering.
Calculate your sell-through rate by dividing the total units sold by the total units received or stocked from your wholesale sources.
For example, if you sold 1,200 units of a product but received 2,000 units from the distributor, your sell-through rate would be 60 percent (1,200 units sold / 2,000 units received).
Typical sell-through benchmarks for grocers range from 40 to 80 percent, depending on your product mix. Monitoring this metric helps you identify faster and slower-moving items. You can use this data to fine-tune future purchase orders and inform merchandising and promotions.
7. Shrinkage Rate
Tracking inventory losses from theft, spoilage, damage, or paperwork errors is critical to your success.
You can calculate your shrinkage rate by dividing your total shrinkage losses by your overall gross sales revenue for a given timeframe.
For instance, if you experienced $25,000 in shrinkage from inventory issues over 12 months and your gross sales were $850,000, your shrinkage rate is 2.9 percent ($25,000 shrinkage loss / $850K gross sales).
For grocery stores, best-in-class shrinkage rates fall under two percent of gross sales, while a rate under three percent is considered good.
8. Employee Productivity
Another key metric to track is your employee productivity. When you maximize productivity, you can control overhead costs and increase your profit margins. This is a bit of a cheat as there are several metrics to measure employee productivity.
Popular metrics include tracking sales or transactions per employee over a period. You can calculate productivity rates for individuals or teams based on sales totals.
For example, if your store generated $850K in sales over a quarter with 50 employees, your average sales productivity equals $17K per employee ($850K sales / 50 employees). Benchmarks vary greatly depending on store format, size, and service levels, so you should focus on monitoring trends over time to identify low performers who would benefit from additional training.
9. Supplier Performance
With infamously narrow margins, grocers rely heavily on strong supplier performance to boost profits.
Key metrics you might track to measure your suppliers’ performance include on-time delivery rates, product quality/defect rates upon receipt, and adherence to negotiated terms like pricing or dating. Measure performance against existing and new contracts over time to identify vendor issues quickly.
Related Read: The 5 Top Vendor Management Best Practices
For example, you might track that Supplier A delivers 95 percent on time currently with a four percent defect rate upon delivery inspection.
You’ll set your own benchmarks for these metrics, scaling your suppliers. For example, you might set 90 percent on-time delivery rates and defects under three to five percent. Hold suppliers accountable to drive efficiency.
10. Customer Satisfaction Score
Customer retention is critical, and to keep your customers coming back, you must keep them happy. As a result, understanding your customers’ satisfaction with your store is critical to store growth.
Survey customers or gather feedback through channels like email and SMS. Then, calculate your total percentage of positive responses or reviews.
Much of your data from customer satisfaction surveys will be qualitative, but you can also calculate some quantitative data. For example, if 125 shoppers submitted positive surveys and you received 150 total surveys over the past quarter, your satisfaction score would be 83 percent (125 positive responses / 150 total responses).
Related Read: Why Small Businesses Fail: 3 Top Factors
Grocery stores should target customer satisfaction scores over 80 percent positive.
11. Operational Costs
Finally, you must regularly track your operational costs. Monitoring fixed and variable overhead expenses (e.g. rent, utilities, equipment maintenance) helps you maintain healthy profit margins over time. Establish processes for accurately capturing all operating costs by category over a given timeframe to spot unusual spikes in expenses or opportunities to renegotiate vendor contracts.
For example, you might track that your Q1 electricity cost totaled $5,500, gas $6,200, and water $3,250 across your retail location and back office. Your benchmark costs will depend on your location, store size, and product mix, so track your costs over time to set your own ideal benchmarks and note any variability.
How To Track the Key Performance Indicators Grocery Stores Need
Through this post, it should be clear that tracking key metrics and performance indicators is essential for gaining visibility into your grocery store’s operations, financials, and customer behaviors. However, compiling this data manually can be an overwhelming task. Without the right tools, you’ll struggle to manage your operations, wrestling with manual data tracking, processing errors, and other challenges.
The answer? You need to implement a robust point of sale (POS) system.
With POS Nation, you get over 55 built-in reports providing on-demand insights into sales, profits, inventory levels, customer purchases, and more. Our platform automatically compiles and organizes all this invaluable data, enabling smarter real-time decisions and long-term strategy setting.
Ready to effortlessly monitor the KPIs that matter for your grocery store? Schedule a personalized demo of POS Nation today. We’ll show you how our analytics and business intelligence tools can help you track crucial metrics, identify opportunities, and help you grow your store.
