Do Supermarkets Have High Asset Turnover?

The supermarket industry in the United States is highly fragmented. In 2012 supermarkets generated nearly $585 billion in sales. Supermarkets have low profit margins usually ranging from 1 to 2 percent, but natural, organic and gourmet food markets have average profit margins of 3.5 to 6 percent. One of the contributing factors to lower profit margins is higher inventory costs associated with high asset turnover.

Asset turnover measures how efficient a company is at using its assets to generate revenue. The asset turnover ratio is the calculation used to determine this efficiency. Accountants calculate asset turnover for a business by dividing the net sales shown on its income statement by its average total assets shown on the balance sheet. The income statement covers a period of time but the balance sheet provides a snapshot at a moment in time. Therefore, average total assets are calculated by taking the total assets at the beginning of the accounting period and adding them to the total assets at the end of the accounting period, then dividing the sum by two.

Supermarkets and grocery stores generally have low profit margins but high asset turnover. The bulk of their assets exist as inventory. Because supermarkets typically lease their buildings, their fixed assets consist of shelving, lighting, refrigerators and other fixtures required to present the food. Additional assets include the equipment used to accept delivery and stock shelves. Supermarkets require a large, varied inventory to satisfy customers and their demands. In addition, that inventory is perishable, meaning that, if it does not sell within a specific time frame, the store must discard the inventory.

According to a research report published by the CDFI reinvestment fund, cost of goods sold accounted for 70.7 percent of supermarket industry sales in 2010. According to the same report, an individual store generally carries between 15,000 to 60,000 products, -- stock-keeping units, or SKUs -- in industry parlance. The smaller the store, the smaller the number of products stocked.

In addition to customer sales, high turnover can result from spoilage, theft and accidents. For example, if a customer knocks over a can of tomato sauce and the can bursts open, most stores do not charge the customer. Turnover due to customer demand drives revenue; turnover due to theft and spoilage drives expenses. Supermarkets can reduce spoilage by installing point of sale and other industry-specific tracking software, using loyalty cards and conducting surveys about customer wants. The data these provide help purchase items that sell consistently and quickly, reducing spoilage. Tracking software can also reduce theft as can the installation of cameras and a video monitoring system.