The supermarket business is a low-margin industry, with the average profit margin for supermarkets typically ranging from 1 to 2 percent. However, natural, organic and gourmet food markets enjoy higher averages from 3.5 to 6 percent. There are also things smaller grocery stores can do to compete with large chains and help boost their margins.

Average Profit Margin

According to a paper published by the CDFI Fund, the average profit margin for the supermarket industry was 1.9 percent in 2010. The profit margin varies by sub-classification. According to analysis of Yahoo! Finance data, the average net profit margin for publicly traded US-based grocery stores for 2012 is close to 2010's 1.9 percent average. Sagework's research shows that privately owned grocers had average profit margins of 2 percent in 2010 and only 1 percent in 2011.

Supermarket Industry Overview

The supermarket or grocery store industry is highly fragmented. The top 10 supermarket chains account for 35 percent of the total number of stores. However, these chains generate significantly more revenue than smaller retailers and mom and pops, with 68 percent of total industry sales in the U.S. The supermarket industry includes traditional and limited assortment supermarkets like Kroger's, supercenters including Wal-mart, superettes and natural and gourmet markets such as Whole Foods. Chain supermarkets account for 95 percent of all supermarket sales; independent grocers comprise the remaining 5 percent, according to the CDFI Fund.

Margins for Small Markets

According to research conducted by Kellogg University, smaller supermarkets can increase their profits and margins by focusing on customers who tend to shop between 9 a.m. and 5 p.m. on weekdays. These customers tend to be less price sensitive and more loyal. Offering fresh produce and fresh seafood in addition to ready-to-eat side dishes or meals can help small markets stand out from larger competitors. In addition, doing promotions or advertising to get people into the store more often typically translates into more sales.

Subcategory Profit Margins

Natural and organic food markets have some of the highest profit margins. For example, in 2012 Whole Food's net profit margin was 3.79 percent and Fresh Market's was 5.58 percent. Traditional grocery stores have net profit margins ranging from 1.96 percent for Harris Teeter and 1.91 percent for Kroger's to 1.77 percent for Safeway. Small markets that focus on providing fresh, organic produce and meats, gourmet products and prepared salads and meals like Whole Foods and Fresh Market can reap similar margin increases.