How Do Supermarkets Make Money Nowadays?


How Do Supermarkets Make Money Nowadays?

How Do Supermarkets Make Money Nowadays?

Supermarkets are known as the one-stop places for food and household items.

Additionally, they sell vital kitchen utensils, cleaning materials, alcohol, disposable items, candy, self-care items, soft drinks, and much more.

These are items whose profit margins are low so,  you might wonder, how do Supermarkets make make money nowdays?

Supermarkets use a competitive pricing strategy, ensuring they stock unique amenities like fresh meat deli.

They identify their competitive advantage and then exploit it, making their store a preferred local hotspot.

To become this hotspot, supermarkets need to browse their area’s demographics and then target the most lucrative segments.

Indeed, as long as a grocery store is staffed appropriately, it runs like a well-oiled machine.

While grocery stores do not necessarily sell their products, they acquire products from distributions at discounted prices and sell them to their customers.

Many grocery stores establish their customer niche and concentrate on it to retain their customers.

For a grocery store to remain relevant to the customers’ ever-changing needs, it needs to offer low-priced options.

In addition to this, you will need to restock all perishable foods before their expiration dates.

Do Grocery Stores use Specific Strategies To Make Money?

Yes. Mostly, grocery stores rely on volume sales to make most of their money.

Such sales are on processed foods, although they also make substantial amounts of money by offering fresh dairy and meat products, alcohol, and cleaning products.

Their main income is leasing their shelves, where all areas in the store attract a leasing price.

This is why you will find that promotion areas with high visibility attract higher pricing and are offered for shorter lease periods.

How Do Supermarkets Make Money Nowadays?

You might need to know that the small chewing gum and candy shelves next to the cashier are damn expensive due to their high visibility and exposure.

There is a wild variation in the grocery store prices since they boast of a huge product selection.

Indeed, lesser food items will mainly cost very little as opposed to packaged meats that may cost as high as $20.

Grocery stores thrive in offering low prices when you make multiple purchases.

As a grocery store investor, my low-price offers to win me a spot in the local market.

Like all other grocery stores, I wish to reiterate that I realize very low-profit margins, sometimes as low as 1-to 2 percent.

Therefore, you will make money from your grocery store by selling large quantities.

I will also point out that to stay afloat, and I try to minimize theft by both shoplifters and employees.

In addition to this, I try to minimize spoiled products and keep labour costs to a minimum.

I have found that hiring part-time employees is an effective way to minimize labour costs since these attract fewer benefits.

While many large grocery chains normally earn about 1 to 2 percent in net profits, speciality grocers like Whole Foods Market make about 5 to 12 percent in net profits.

Consequently, conventional chain stores like Walmart, Whole Foods, and Publix are very profitable, notwithstanding the high competition.

Can Grocery Stores Make Money Online?

Yes. Indeed, online groceries are currently busier than at any time in history.

Grocery stores have automated the ordering process, making it a faster, seamless process.

However, beneath the evident flurry, the question still begs, how profitable are grocery stores selling from online platforms?

While this is a perennial question that has been with us from the 1990s (when online grocery stores were introduced).

Experts are yet to come to a compromised conclusion regarding profitability in the sector.

There are huge profits realized in some instances, while in other cases, massive losses are made.

Many experts are of the opinion that online groceries scarcely make any money for free deliveries, especially when the orders are small.

Indeed, if you are considering delivering services for your grocery, it might be a good idea to charge for the deliveries.

Unfortunately, it is risky to ask customers to pay more for delivery since customers have a natural resistance to pay more for delivery.

However, some grocery stores have adamantly maintained charging customers for their delivery, including Waitrose and Whole Foods Market.

However, their strategy seems to work as they will deliver the items in about an hour.

This requires a tricky balancing act as too much increase in the prices will impact the volumes, a key area exploited by grocery stores to make profits.

Consequently, online platforms might damage profitability when done carelessly.

You will notice that many grocery stores rely on subscriptions.This is because rising delivery charges too much reduces the sold volumes, damaging profitability.

And since volumes are too important to profitability.

It comes as no surprise that grocery stores prefer subscription models to enhance delivery services without straining the customers too much.

These operate under a simple model where loyal online shoppers get rewarded by accessing cheaper delivery charges.

This does not favor shop hoppers and one-off purchasers as they have to pay more. This is especially true for small baskets.

How Do Supermarkets Make Money Nowadays?

I use the model that Asda, Tesco, Ocado, and Amazon use by offering unlimited deliveries for all orders over a certain amount at a fixed fee.

This model has been used effectively by Tesco, where they provide a mid-week subscription of £2.50 a month.

Can I Start My Grocery Store?

Yes. And it is easy with finances. You can also make money from your grocery store. But you need to be keen on several fundamentals.

You might need to weigh the difference between owning your grocery store and being a large grocery store manager.

Indeed, some grocery stores managers like Whole Foods Market make over $150,000 a year (salary plus bonuses).

It is not uncommon to see a store manager who buys a new jaguar with their annual bonuses while working for large grocery stores.

However, working for a grocery store that isn’t doing well is a different story altogether.

Consequently, for many, compared to the risk involved in being a grocery store owner.

It might make more sense to be a grocery store manager, especially for a large company.

Below are store managers; salaries from several grocery stores:

  • Kroger-$67k to $70k/year
  • Safeway-$88k/year
  • Piggly Wiggly-$50k to $54k/year
  • Wegmans-$78k to $83k/year
  • Whole Foods-$99k/year
  • Sprouts- $82k/year
  • Albertsons-$95k/year
  • The Fresh Market-$58k to $63k/year
  • Publix-$116k/year
  •  Ralphs-$98k/year

You must have noticed that the range is very wide while the job is essentially the same.

The interesting takeaway here is how wide the range is for essentially the same job.

Piggly Wiggly and then The Fresh Market are on the lower end, while Publix is on the higher end.

It is not hard to see why a store manager for Publix makes more money than in Piggly Wiggly.

Consider the size of Publix stores where more moving parts like pharmacies and realize more in terms of sales volume.

With a larger sales volume, you expect not only more employees but also more customers. Both of these aspects take more of a store manager’s time.

This is what makes the salary go high.

What Do I Need To Be A Personal Grocery Shopper?

Before you start a personal grocery side hustle, you will require a reliable car, up-to-date auto insurance, a valid driver’s license, and a good driving record.

Again, delivery businesses perform background checks on all applicants to guarantee safety for their customers.

Additionally, as a personal shopper, you have to work as an independent contractor.

You might also need to know that it is your responsibility to keep track of your expenses, incomes tax, and filing returns.

The easiest way to pay taxes is to set aside a certain percentage of each paycheck they receive to ensure they have the required money for taxes when the time comes.

Is It More Profitable To Own A Grocery Store Than A Retail Business?

The short answer is Yes. According to Payscale, an average retail store owner will make about $49,924 per year.

If you are a sole owner of a large retail store in a small city, you will not enjoy any backup from any corporation.

When you are a store manager for a chain of grocery stores and make a loss, hundreds of other stores come in to balance your loss.

Unfortunately, this is not the case if you are a store owner.

However, if you do it properly, it is possible to multiply your earning potential to thousands of dollars per annum.

Since many retail store owners are franchise owners, they lack enough liberty as independent store owners.

Again, it is possible that these owners paid huge amounts of money upfront when joining the franchise.

Ideally, all franchise companies will demand an initial investment of between $10,000 and $100,000 in cash.

However, a franchise owner can still expect to profit between $20k and $35k.

However, they can work like a dog and earn about $49k per year, although this isn’t paradise.

The only advantage with a franchise is that the risks are minimal and that the start-up cash you require is less than you would require owning a grocery store.

This is because Subway franchise owners have the Subway distribution, marketing, and operations team to support them towards success.

True independent owners have only themselves and their employees behind them.

Do Manufacturers Prefer Grocery Stores?

Yes. In normal circumstances, a manufacturer will sell its products in a long chain.This chain consists of distributors, shopkeepers, wholesalers, and retailers.

This happens over a long duration that may span two or so months.

Unfortunately, if a product has only a few months before its expiry, it might not make it to the retail shop before it is deemed expired.

And even if it gets to the retail store with a month left before it expires, it is unlikely that you will want to buy that product.

Additionally, the manufacturer is likely to lose since a consumer will return the product and get a replacement.

This is a route no manufacturer is willing to take.  

To arrest this delay and avert unfavorable returns, a manufacturer will sell the same product directly to a grocery store with about 25% of the original price.

What this tie-up takes does is that it takes away the “return policy” from the grocery stores.

Now, this creates a perfect scenario for the famous “Buy 1 Get 1” sale. The customers will pay 50% of the price the product originally attracted.

This is still double the cost price of the product. Consequently, the supermarkets end up making a 100% profit.

If some percentage of the products, like 10%, is not sold before expiry, such losses will be covered by the marginal profit.

Anytime you see the sale adverts, know that someone is making good money out of the deal, not you, the customer.

Indeed, this type of arrangement between the manufacturers and supermarkets occasions a large marginal profit for both the manufacturer and the supermarket.

While that might seem like the best way a grocery store will make much money, they will still make money by promoting brands.

It is a common thing to find many different brand outlets in many grocery stores. Have you ever stopped to wonder how the scenario plays?

 Indeed, supermarkets or grocery stores make a lot of money when they offer such brand promotions.

Since a supermarket will scarcely want to promote different brands, they do it for a fee. Who heard of free things in the modern world?

The space such brands occupy is leased. We all know the number of brand outlets at every supermarket, now imagine the money they will be making from it!

Conclusion

It might be very tricky to figure out how some businesses like grocery stores make money.

Indeed, these businesses have to resort to strategic pricing models to entice their customers.

While items with the highest retail mark-up attract the most profit per item, grocery stores choose to lower that to a minimum to enhance volume sales.

This works out very effectively.

Tom

Hi! I' am Tom. I was a manager in one of the biggest stores for over 10 Years, am also an SEO by night. I don't like to call myself a blogger; they are very analytical, do email marketing, and know all SEO stuff. I faced many questions from customers about different products, and there was hardly any help on the internet. After learning all the things about these products as a manager the hard way, I decided to start a blog and help other people.

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