People always need food and what better place to stock up on the essentials for the week than a grocery store? Due to this demand, many people have thought about opening a grocery store business of their own. Do you know how to open a grocery store? This business idea is similar to opening a restaurant, opening a coffee shop, opening a food truck, or opening a bakery.
Grocery stores, otherwise known as supermarkets, sell food and household items. They’re the main source for all consumer home food needs. Aside from food, they’re also the ideal place for cleaning products, soft drinks, types of alcohol, and self-care items. Grocery stores are important local resources because they’re the go-to location for so many products.
In the United States, the grocery store industry is worth $682 billion. Since the 1990s, grocery sales have doubled and are only expected to increase over time. Popular big box chains have grown to dominate the market with their private label brands (see Private Label Definition) and products. These include Walmart private labels and Target private label brands.
Despite the intense competition from big-box grocers and other small chains, there is still room for franchise or independent grocers to thrive. If you’re interested in exploring how to open a grocery store, keep reading for the details.
Costs of Opening a Grocery Store
When you think about opening a grocery store, you might ask, “How much does it cost to open a grocery store?” or you may wonder how to open a grocery store in general. It’s a fair question and an important one. The costs of opening a grocery store vary based on the business model you choose, like a direct to consumer business model.
Opening a franchise grocery store won’t cost the same as opening a small corner store. For example, franchises require a one-time franchise fee which can cost you between $50,000 and $75,000. A small mom-and-pop grocery store can cost you about $25,000 to $50,000.
There are other costs that you should also take into consideration. These include supplies, inventory, permits, licenses, and bonds. Renting a location that is already designed to be a grocery store, or deciding against franchising your grocery store, can help you cut your costs.
Grocery Store Startup Costs
In order to calculate the startup costs for your grocery store, you have to figure out the fixed costs, one-time costs, and ongoing expenses. These expenses include the cost of real estate, insurance, wages, business taxes, franchise feeds, inventory pricing, equipment, and signage.
When it comes to funding your startup costs, you can turn to the Small Business Administration (SBA). They help new businesses secure startup capital through loans and grants. You can also consider business credit cards.
How to Open a Grocery Store
A grocery store can be run as a brick and mortar shop or an online store. You can decide the type of grocery store business you want to open, including the size and product offerings.
The five steps to opening a grocery store include:
- Creating a grocery store business plan
- Forming a legal entity and setting up taxes
- Setting up bank accounts
- Obtaining permits, licenses, and insurance
- Defining the brand
1. Creating a Grocery Store Business Plan
All new business ideas should start with a business plan. You should write a business plan that helps you map out the success of your business. It should outline your business model, identify your niche market, and include financial predictions, such as the break even point.
Consider adding the following points to your grocery store business plan:
- A thorough explanation of your business idea
- Cost and profit projections
- Business size
- The products you’re going to sell
- Your target market
- A competitive analysis
- The location of your grocery store business
- Potential problems and their solutions
- Potential grants that you can secure
2. Forming a Legal Entity and Setting Up Taxes
Establishing a legal entity is crucial for a business. Common business structure types can include limited liability company or LLC, sole proprietorship, corporation, and partnership. An LLC or legal business entity can protect you from being held personally liable if a situation occurs and your grocery store is sued.
Before you open a business, you’ll have to set up federal and state taxes through various registration methods. In order to do this, you’ll have to obtain an EIN or Employer Identification Number.
3. Setting Up Bank Accounts
Having a dedicated banking and credit account for your business is crucial when it comes to personal asset protection. This will help you keep your personal and business assets separate in case your business is sued.
When you build business credit, you can become eligible for credit cards and financing for your business. This is can help you get higher lines of credit and better interest rates. A business bank account is also required for you to apply for a business loan. You can explore some of the best banks for small businesses to ensure you choose the right one.
A Net 30 account can help you establish and build business credit. It is also useful for increasing business cash flow. With this kind of account, businesses can purchase goods and repay the balance within a 30-day period.
4. Obtaining Permits, Licenses, and Insurance
To prevent having your business shut down, it’s best to obtain the proper permits, licenses, and insurance ahead of time. Each state has different licensing requirements.
It’s best to check your state and local business licensing requirements before opening a grocery store business. Each state and local jurisdiction will have an SBA (Small Business Association). This will help you figure out what licenses and permits are necessary for your business.
With business insurance, your business can operate in a safe and lawful manner. Business insurance will protect your company’s financial well-being in various situations. You can explore various insurance options and policies based on the risks you want to protect. General Liability Insurance is a great place to start.
5. Defining the Brand
Your brand is how your business is perceived by the public. A strong brand will help you stand out from the competition. Having a logo will help increase brand association. QR codes can also be great for business cards and publications to direct clients to your website. When defining your brand, be sure to understand the B2B and B2C meaning.
In terms of marketing, you should start promoting your business sooner rather than later. Effective locations to promote your grocery store business include college campuses, apartment complexes, and social media (see Social Media ROI). Using word-of-mouth advertising and O2O marketing efforts may also be beneficial.
Grocery Store Business Plan
A successful business starts with a business plan, like a restaurant business plan, winery business plan, or eCommerce business plan. This is no different for a grocery store business. A grocery store business plan will help you ensure that your business is set up to thrive.
Your grocery store business plan should include the following sections:
- Executive summary
- Company overview
- Customer analysis
- Industry analysis
- Financial plan
- Marketing plan
- Operations plan
- Management plan
Within your business plan, you should explain the kind and type of grocery store that you plan to operate. Be sure to include a background of the business. This plan should map out how to open a grocery store.
Your grocery store business plan should answer the following questions:
- Why and when do you plan to start the business?
- What breakthroughs (sales goals, new store openings, etc.) have you achieved so far?
- What legal structure (LLC, sole proprietorship, S-corp) are you looking into?
Frequently Asked Questions About Opening a Grocery Store Business
What Is a Grocery Store?
A grocery store is a business that sells a large variety of food and household products. These include fresh produce, meat products, dairy, packaged and canned goods, pharmacy products, household cleaners, and pet supplies. This kind of business differs from convenience stores, warehouse clubs, superstores, and the meal subscription business, like a meat subscription box.
How Much Profit Do Grocery Stores Make?
Standard grocery stores have an average profit margin of roughly 2.2%. Grocery stores that target the organic, natural, and gourmet target markets see an average profit margin of about 5-10%.
What Items Are the Most Profitable in Grocery Stores?
The most profitable items in grocery stores include:
- Prepared foods
- Non-grocery items
- Cosmetics and beauty supplies
- Butcher and wholesale meat
- Deli meats and cheeses
- Over-the-counter and brand name medications
It's important to keep the food supply chain in mind when picking the products for your grocery store. Look into "what is the food supply chain?", for a better understanding.