The grocery industry spans everything from tiny mom-and-pop shops in residential neighborhoods to billion-dollar chains offering tens of thousands of different products. The diversity of possibilities shows that there are myriad ways to make a grocery business work. However, you should have a clear vision and a solid business plan before moving forward because competition is stiff and margins can be tight.
TL;DR (Too Long; Didn't Read)
To start a grocery store, define your target market, find an accessible location and stock products that fit your mission and vision.
Types of Grocery Stores
- Supermarket. This is a large operation with a wide array of products. It often includes separately staffed departments such as meat, deli and bakery.
- Specialty supermarket. Similar to a mainstream supermarket in size and scope, specialty supermarkets like Whole Foods have a special focus, such as healthy and natural goods.
- Big-box stores. These warehouse-style stores such as Costco and Sam's Club tend to carry products that come in larger sizes with a lower price per unit or per ounce. They often require a membership fee.
- Discount groceries. These operations buy and sell surplus and discontinued grocery products at bargain prices. Their selection of goods can be inconsistent because of this purchasing strategy.
- Mom-and-pop grocery store. This style of neighborhood grocery is often (but not always) family owned and operated. It is characterized by being independently run and being located in a residential neighborhood. Mom-and-pop grocery stores tend to have higher retail prices than supermarkets because they buy in smaller volume and have less purchasing power.
Location, Location, Location
Much contemporary grocery shopping relies on convenience. Customers can choose from online orders delivered directly to their doors, superstores with massive parking lots and corner establishments in close proximity to apartments and office buildings. If you're offering unusual and sought-after items, customers may be willing to travel to an out-of-the-way location, but if your focus is on everyday staples, your store should be easy to reach.
Parking is important because simple car access makes it easier for customers to stop and shop. Shoppers who buy a week's worth of groceries at once will most likely be traveling by car. A dedicated parking lot is ideal so you don't have to compete with neighbors for street parking, and its convenience for your customers may justify the cost of leasing the extra real estate.
If you plan to open a grocery store in an urban area, access by bus and foot is at least as important as parking. If your store is on a busy street where people work, walk and go for entertainment, it will be convenient for customers to stop in and grab snacks or staples. Also look for a location that already draws members of your target market, such as an affluent neighborhood for a store that specializes in gourmet offerings.
Infrastructure and Equipment
Some of the equipment you need to run a grocery store, such as shelving, can be relatively inexpensive. Other items, such as refrigerators and freezers, can be quite costly. You may even choose to base your product mix on what you can afford to install. However, if you're using this approach, make sure you're still able to offer what your core customers need.
If your grocery store will include any kind of food production, such as a bakery or deli, your buildout will be especially expensive, but if you plan your operation carefully, you should be able to pay off these steeper initial costs with increased sales and higher margins on products you make in house. House-made items can also be a special draw for customers who want foods that are especially fresh or even tailored to their specific tastes and needs.
Develop a detailed and thoughtful cash flow projection listing your equipment and buildout costs along with expenses for rent during your buildout, deposits on your space and any other startup costs that you will need to recoup. Use this spreadsheet to determine how much revenue you will need to break even and how much operating capital you will require to cover your day-to-day expenses until your cash flow moves into positive territory.
Marketing Your Grocery Store
Market your grocery store to the people most likely to shop there. Large families are likely to frequent big-box stores, while health-conscious consumers will be more apt to shop at specialty supermarkets. Mom-and-pop stores cater to their immediate neighborhoods, and mainstream supermarkets attract shoppers looking for convenience and one-stop shopping.
Your grocery store marketing plan should address how you plan to lure shoppers inside your front door and then how you will entice them to buy once they have entered. Your outside signage should be clear and appealing. Customers who are driving by will have only a quick moment to absorb your initial message, so your sign design should be simple, and it should reinforce your core message, such as a vegetable motif for a health-food store or an old-fashioned font for a mom-and-pop store.
You can also attract customers with print coupons and online ads, but once they are inside, your layout and sales strategy should aim toward maximizing sales. Use shelf talkers (small signs) to communicate items that are on sale and specific selling points, such as whether an item is locally produced. Know your core customers, craft a message that will resonate with them and reinforce that message in tangible and intangible ways, such as providing stellar customer service at a specialty supermarket.
Grocery Store Product Mix
It's unlikely that your grocery store will be able to be all things to all people. Even superstores the size of football fields make choices about inventory, such as whether they will carry specialty or generic items and whether they will cater primarily to customers buying ingredients to cook from scratch or shoppers seeking ready-to-eat convenience foods.
Regardless of how you narrow down the selection you offer, your product mix should include a broad enough array of items for customers to meet most of their grocery needs at your location. Even if your grocery store specializes in fresh, local produce, your customers still have to buy toilet paper somewhere, and when you offer it in addition to the produce, they'll have less reason to make an extra stop after leaving your store.
You may choose to carry a strong selection of specialty offerings, such as high-quality baking ingredients or hot sauce. Alternatively, you may opt to carry fewer items in each category while covering every possible category, from breakfast cereal to meat substitutes. Whatever choice you make about your product mix, make sure that it's a good fit for your clientele and reinforce it with your marketing strategy.
Purchasing Inventory for Your Store
If you had a crystal ball and could anticipate exactly what your customers will buy, you'd be able to manage your inventory without over-ordering or wasting any product. In the real world, you will need to strike a careful balance between having enough stock on hand to meet customer demand and maintaining inventory levels that are lean enough to not sap all of your cash.
When you're first starting your grocery store, you won't be able to anticipate exactly what your customers want. You can certainly drive demand by displaying high-margin items in locations with optimum visibility, but you'll still need to learn through trial and error what your core customers are especially likely to buy. This experimentation phase may leave you with items that you need to mark down for clearance, but it can also show you the presence of demand that you wouldn't have been able to anticipate otherwise.
It's better to be overstocked on shelf-stable items than on perishable ones because shelf-stable items won't become unsellable if they don't move quickly. Frozen foods can keep for an extended period of time, but freezer space is expensive, both in your retail area and in your warehouse. Items such as milk and yogurt, however, need to be sold not only by their pull dates but with enough time on them for customers to be able to consume them at home.
Grocery Display and Merchandising
Grocery display is both an art and a science. If you have a good eye and a sharp sense of design, you will be able to design appealing arrangements of products and compelling signage that encourages strong sales. Use plenty of color to make your display eye catching, incorporating both the colors in product packaging and the spectrum of backgrounds and print options available for custom signs.
Learn the basics of grocery merchandising from a class, a book or a mentor. Place items that you most want to sell in spots that are most visible, such as end-aisle displays or shelf spaces at eye level. Place merchandise that is likely to attract children, such as juice boxes, on lower shelves at their eye level. Stock impulse items such as candy and magazines near the cashiers, where customers will see them as they wait to check out.
Keep your shelves and bins fully stocked to create an impression of bounty. Customers are much more likely to buy an orange from a large pile of oranges than to purchase a lone orange on an otherwise-empty shelf. Keeping your shelves fully stocked may cost you extra in wasted perishable product, but you'll usually make up for the loss with additional sales from a more enticing display. Have employs face items when you're running low, by bringing the remaining ones to the front of the shelf and neat and orderly.
Your checkout lines are where you collect the money for the products you sell in your grocery store. They are also opportunities to collect information about what customers are buying and to use this data to replenish inventory and understand customer needs. Your checkout system should be straightforward enough for cashiers to move customers through the line efficiently while being sophisticated enough to give you relevant information on an ongoing basis.
If you operate anything other than a mom-and-pop grocery store, you'll probably need a scanner so you can enter products into your system via bar codes. If you sell bulk items that customers can purchase in custom quantities, you'll either need a system for customers to weigh and price items as they dispense them or a scale at your register for cashiers to weigh items as they ring up orders.
If your store is relatively small and you carry a limited number of items, you may be able to get by with a free or low-cost platform such as those offered by Square or PayPal, although you'll still have to pay for credit card processing no matter what system you use. Find a solution that makes sense for the scale at which you intend to start and develop a plan for adding onto it as you grow.
Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.