Are you interested in starting a grocery store business? If YES, here is a complete guide to starting a grocery store with little money and no experience.
Okay, so we have provided you an in-depth sample grocery store business plan template. We also took it further by analyzing and drafting a sample grocery store marketing plan backed up by actionable guerrilla marketing ideas for grocery stores. In this article, we will be considering all the requirements for starting a grocery store business. So put on your entrepreneurial hat and let’s proceed.
What is a Grocery Store?
A grocery store is a retail outlet where different food and household products are sold on shelves and cabinets. People love to do their shopping in a grocery store because of the convenience it gives them to shop for everything they need in a grocery store without moving from one store to another.
Why Start a Grocery Store?
Starting a grocery store is a very easy business to start and it is not so capital intensive. Getting the right products that people want to buy and good stock keeping records are the secrets of running a grocery store. A grocery store can be run offline in the conventional retail store or online on an online e-commerce retail site.
One family member minded the cash register, another stocked the shelves, and another unloaded the delivery truck. However, today many of the small independent grocery stores in rural communities have either experienced financial difficulties or have been forced to close. Several factors contributed to the closures.
You can also venture into mini-grocery sales. When people are looking for specialty foods or ingredients that can’t be found at the corner store or neighborhood supermarket, they typically head to small grocers, also called mini-grocery stores. Such retail establishments sell food and items that are uncommon and not carried by bigger stores.
Opening a mini-grocery can be a lucrative business venture, especially if you live in a city with little competition. There are several things you can do to help your mini-grocery store succeed.
The information contained in this article can be beneficial to those individuals currently in the grocery business, those who are considering starting or investing in a grocery, or a community wishing to attract or retain a grocery store.
Starting a Grocery Store – A Complete Guide
- Industry Overview
Grocery stores, including supermarkets, account for the largest share of food store sales in the US. In 2013, grocery stores accounted for 90% of the country’s food and beverage store sales, while supermarkets accounted for 95% of the total grocery store sales.
- Interesting Statistics About the Grocery Industry
The food retail industry is a high-volume, low-margin business, with cutthroat competition from all quarters. It includes grocery stores and supermarkets, as well as convenience stores. The staples offered at these stores make the industry non-cyclical.
In addition, grocery stores and supermarkets offer an alternative to restaurants during tough economic times, as buying groceries for home cooking is one alternative. Buying prepared foods, which are new higher-margin offerings at grocery stores, is an additional alternative to restaurants.
However, offering new higher-margin items such as gourmet foods, prepared foods, and general merchandise is making this industry more cyclical than in the past, creating pressures on revenue during the recent economic downturn.
Small chains and independent grocers still dominate this industry, but national chains, such as Kroger, are increasingly growing in dominance. Mass merchants, such as Wal-Mart, are competing with grocery stores at their “supercenters” by offering lower prices through lower cost structures. Wal-Mart is now the world’s No. 1 seller of groceries. Warehouse clubs, such as Costco and SAM’S CLUB (owned by Wal-Mart), can also compete on price by selling in large bulk. Supermarkets have responded to these threats by building larger “superstores.”
Conventional supermarkets are grocery stores with over $2 million in revenue, with average square feet of 15,000. Grocery stores that have less than $2 million in annual revenue sell almost entirely packaged and perishable goods, and are mostly independently owned.
Superstores are supermarkets with about 30,000 square feet, averaging $12 million in revenue. They often have an extended selection of food and nonfood items, with specialty departments such as florists, delis, bakeries, banking, pharmacy, and video rentals. Combination stores are hybrids of superstores and drugstores under one roof, with an average of 55,000 square feet.
Starting a Grocery Store – Market Research and Feasibility
- Demographics and Psychographics
The demographic and psychographic component of those patronize grocery stores spreads across all strata and class of the society, both the rich, middle class, and the poor.
List of Niche ideas in the Grocery Industry
- Ethnic foods and ingredients grocery store
- Locally-sourced grocery stores
- Gluten-free, organic or vegan items grocery stores
- Frozen foods
- bulk-food chains
- small-batch supermarkets,
- Children’s grocery shops
- Millennial-centric grocery stores.
The Level of Competition in the Grocery Industry
There’s always going to be competition. Some of it will be good for you, and some of it will be bad for you. Accept it as part of life. Just keep in mind that you’re in business because you feel you can do a better job; you can do it more efficiently; and you can do it with greater satisfaction to your customers than anyone else. Be aware of the competition, but don’t worry about it. Just stick to your own business plan and you’ll be okay.
List of Well Known Brands in the Grocery Industry
- The Fresh Grocer (Pennsylvania, Delaware)
- Thriftway Supermarkets (Delaware, New Jersey, Pennsylvania, Kansas, Missouri)
- Times Supermarkets (Hawaii)
- Trade Fair (Queens County, New York City)
- Treasure Island (Chicago and Wilmette, Illinois)
- Trig’s (Wisconsin)
- Turco’s (New York)
Once the feasibility checklist is successfully completed, entrepreneurs should conduct a market analysis. A market analysis consists of conducting a market survey and gathering information about potential locations and the community. This will allow the entrepreneur to assess the market potential of the proposed store and select a site.
Usually small independent grocery stores are patronized by those who do not travel outside the community regularly or customers who are in a hurry. These customers are often willing to pay a few cents more for an item rather than drive several miles to a supermarket. Customers also appreciate the personal touch many independent grocers can provide.
The first step in a market analysis is to conduct a market survey. A market survey will help to determine a sales forecast. There are five basic steps:
- Identify the trading area for the store and determine which items the store will carry.
- Determine the potential spending characteristics for the population within the area.
- Estimate the target area’s spending power within the trading area.
- Determine the proportion of the total sales volume (market share) that can reasonably be obtained. Talk to grocers in similar size towns with comparable stores.
- Estimate the total of sales volume you can reasonably attract. Be aware that stores can either attract additional sales volume or simply redistribute business already there.
Is a Grocery Store Worth Starting from Scratch or is Buying a Franchise Better?
Decide whether you want to start your store from the ground up or buy into a franchise. A lot of money will be required in either case, but franchising may be easier in terms of marketing, advertising, and other setup tasks. You will likely have to pay a franchising fee out of your profit, but this may be considerably easier than doing everything on your own.
Though it may be slightly different for a franchise in that you don’t need your own marketing ideas and you have business practices outlined for you, these documents will typically help you secure funding if you need to take out a loan.
If you don’t have them at all, you may run into difficulty securing the required capital. An alternative to starting your own store would be to buy a convenience store that is already up and running. Much of the process would be the same except the store would be transferred from the current owner to you.
Possible Threats and Challenges of Starting a Grocery Store
Most new stores face difficulties in starting and are able to achieve success only after several hurdles are overcome. Knowing ahead of time what to expect can help. Below are some of the common stumbling blocks to consider beforehand:
- Inefficient control over costs and quality of product
- Bad stock control
- Under pricing of goods sold
- Bad customer relations
- Failure to promote and maintain a favorable public image
- Bad relations with suppliers
- Inability of management to reach decisions and act on them
- Failure to keep pace with management system
- Illness of key personnel
- Reluctance to seek professional assistance
- Failure to minimize taxation through tax planning
- Inadequate insurance
- Loss of sales momentum
- Bad personnel relations
- Loss of key personnel
With proper planning, these issues can be overcome or prepared for before your business opens its doors. And, for established stores, continued vigilance on these issues can help to maintain profitability and the long-term survival of a business.
Starting a Grocery Store – Legal Issues
- Best Legal Entity to Use for a Grocery Store
Choosing a legal entity for a business is a huge determinant of the size the business will grow into, so choosing the right entity is very straightforward especially if you decided to grow the business big in the long term. While many business owners remain as a sole proprietor, there are others who form a corporation or a Limited Liability Company (LLC).There are a number of tax and legal protections that you are afforded when you do so.
Therefore, check with a tax or legal professional on the benefits of the different types of business entities and whether you should consider having your business become such an entity.
There are several legal forms of operation to consider: sole proprietorship, partnership, limited partnership, corporation, or an S Corporation. It is a good idea to consult with an attorney when considering which form of business ownership is right for your small business.
- Sole Proprietorship
A sole proprietorship is a business that is owned and operated by an individual. The advantages of this form of business structure include ease of formation, relative freedom in governance and minimum government controls and restrictions.
Disadvantages include less access to capital and financial resources. Also, this form of business organization provides less protection with regard to personal liability (if the owner’s company should get into a position of owing more to others than the amount of cash and other assets it has, the owner’s personal assets — home, car, etc. — may be required to be sold to pay the obligations of the business).
- General Partnership
A general partnership is defined as two or more individuals carrying on an association as co-owners of a business for profit. Types of partnerships include general and limited. Before starting the company, the partners should agree on how much owner equity each partner must contribute the extent to which each partner will work in the company, and the share of the profits or losses to be assigned to each of them. This agreement should be prepared by an attorney in writing to avoid any future misunderstandings.
As with sole proprietorships, a general partnership exposes the owners to personal liability. If the business is not successful and the partnership cannot pay all it owes, the general partners may be required to do so using their personal assets.
- Limited Partnership
A limited partnership is an organization made up of a general partner, who manages a project; and limited partners who invest money but have limited liability and are not involved in day to- day management. Usually limited partners receive income, capital gains and tax benefits; the general partners collect fees and a percentage of capital gains and income. Typically, limited partnerships are in real estate, oil and gas, equipment leasing, family partnerships but can also finance movies, research and development and other projects.
Catchy Business Name ideas Suitable for a Grocery Store
Every business needs a suitable name to run their business; you can consider any of these names for your grocery store;
- Athena Farms
- Brooklyn Fare
- Burpy Grocery
- Couch Potato Austin
- Express Grocery
- Farmhouse Delivery Inc.
- Fresh Direct
- Garden of Eden Delivery
- Giant Food
- Groceries On The Go
The Best Insurance Needed for a Grocery Store
Purchase business insurance such as general liability, workers’ compensation if hiring employees, product insurance or home-based business insurance to protect business assets in the event of a lawsuit or settlement. Worker’s compensation insurance covers employee accident or injury while on the job.
You may also need to purchase a surety bond. A surety bond helps promote an honest relationship between business owner and customer. In the event of a lawsuit or settlement, the state may use the bond to pay for legal expenses.
Proper insurance only helps manage risk, but no business can completely eliminate it. It is important to know what kind of insurance and how much of it to carry. Factors to consider are probability of loss, resources available to meet the loss, and size of potential loss.
Considering the size and frequency of loss to the store will help determine if insurance is required or if the loss should be considered part of normal business. Bad-debt losses and shoplifting are two examples. The store’s financing source may have insurance guidelines or special requirements.
Types of insurance coverage commonly considered by small grocery stores:
- Fire and general property insurance—covering fire losses, vandalism, hail, and wind damage
- Plate-glass insurance—covering window damage
- Consequential— insurance covering loss of earnings or extra expenses when business is suspended due to fire or other catastrophe
- Burglary insurance—covering forced entry and theft of merchandise and cash
- Fidelity bonding—covering theft by an employee
- Fraud insurance—covering counterfeit money, bad checks, and larceny
- Public-liability insurance—covering injury to the public such as customer or pedestrian falling on the property
- Product-liability insurance—covering injury to customers arising from the use of goods purchased through the business
- Worker’s compensation insurance—covering injury to employees at work
- Life insurance—covering the life of the owner(s) or key employee(s)
- Business-interruption insurance covering loss of income resulting from business closures resulting from a disaster
- Malpractice insurance—covering owner against claims from customers who suffer damages as a result of services performed
- Errors and omissions insurance—covering the store against claims from customers who suffer injury or loss because of errors made, or things that should have been done but failed to be done.
Intellectual Property Protection and Trademark
If you are considering starting your own dog breeding business, then you should consider filing for intellectual property protection. Filing for intellectual property protection for your firm is not only limited to your company’s logo and other documents, and but also protecting of course the name of your company.
If you want to file for intellectual property protection and also register your trademark in the United States, then you are expected to begin the process by filing an application with the USPTO. The final approval of your trademark is subjected to the review of attorneys as required by USPTO.
Is Professional Certification Needed to Start a Grocery Store?
All you are required to do is to inform the authorities concerned about your intention. In most cases, an inspector will sent to your business premise to ascertain if all the necessary safety and business regulatory measures have been met. If he/she is satisfied, then you can go on with other plans for starting the business.
Before the start of any business, permits and licenses must be obtained from the relevant authorities. There is no form of professional certification required to venture into the business.
List of Legal Documents Needed to Start a Grocery Store
Register your business with the government. Laws vary by state. Talk to your local Department of Commerce and Department of Licensing to receive the forms that you need to establish your business and to learn if you need a license to do bookkeeping. You can notify the federal government of your business by applying for an Employer Identification Number (EIN). You can also create a business name for yourself and file a “Doing Business As” or “DBA” notice.
These are some of the basic legal document that you are expected to have in place if you want to start a grocery store business in the United States of America;
- Certificate of Incorporation
- Business License
- Business Plan
- Non – disclosure Agreement
- Memorandum of Understanding (MoU)
- Employment Agreement (offer letters)
- Operating Agreement
- Company By laws
- Operating Agreement for LLCs
- Insurance Policy
Writing a Business Plan for your Grocery Store
The creation of a business plan is essential to obtaining financing and gives the business direction. The business plan is an excellent way to communicate to bankers, partners, suppliers, and other business people. Creating a business plan gives the owner a realistic approach to short-term implementation of the business for the next three to five years.
Business plans vary with the type of business for which the plan is prepared and with the business’s reputation and age. However, business plans generally follow a similar format. The aid of an accountant or a local Small Business Development Center is helpful in preparing a thorough plan:
- Cover or Title Page
- Plan Summary
- Operating or Management Plan
- Market Analysis
- Marketing Plan
- Human Resource Management
- Financial Data
- Owner(s)’ Experience and Expertise
Record keeping, payroll, and accounting are all necessary for the success of the business. Record keeping and payroll are functions provided for or by the business. Accounting is the analysis of those functions. Accounting gives the owner a clear picture of the strength and status of the business. Accountants may assist in establishing the type and arrangement of books most suitable for the business. Accountants may also provide tax advice and reminders.
Attorneys generally cover a variety of specialties. It is important to hire one with the specific expertise needed. Among those most important are availability and time for clients, and expertise in the grocery or retail field. It is important to choose bankers, accountants, and attorneys wisely in order to utilize the services of these skilled professional consultants.
A Detailed Cost Analysis for Starting a Grocery Store
Start-up expenses include any expense the business may face during the first few weeks and months of the businesses life. Some may be one-time costs while others may be the first month of an extended contract. Below are examples of some of the initial costs that may be incurred. Each situation is unique but this list is representative of typical start-up expenses for grocery stores.
- Rent (security deposit plus first and last month) $100,000
- Initial Inventory $160,000
- Equipment/Fixtures/Security $20,000
- Leasehold Improvements $5,000
- Licenses/Permits $1000
- Grand Opening/Advertising $10,000
- Utilities/Phone Deposits $2,000
- Accounting/Legal $5,000
- Owner/Operator Salary $3000
- Payroll $10,000
Financing your Grocery Store
Beyond traditional financing, you have a range of options when it comes to raising money. Some suggestions:
- Your own resources-: Do a thorough inventory of your assets. People generally have more assets than they immediately realize. This could include savings accounts, equity in real estate, retirement accounts, vehicles, recreation equipment, collections and other investments. You may opt to sell assets for cash or use them as collateral for a loan. Take a look, too, at your personal line of credit. Many a successful business has been started with credit cards.
- Friends and family-: The next logical step after gathering your own resources is to approach friends and relatives who believe in you and want to help you succeed. Be cautious with these arrangements; no matter how close you are, present yourself professionally, put everything in writing, and be sure the individuals you approach can afford to take the risk of investing in your business. Never ask a friend or family member to invest or loan you money they can’t afford to lose.
- Partners-: Using the “strength in numbers” principle, look around for someone who may want to team up with you in your venture. You may choose someone who has financial resources and wants to work side-by-side with you in the business. Or you may find someone who has money to invest but no interest in doing the actual work. Be sure to create a written partnership agreement that clearly defines your respective responsibilities and obligations.
- Government programs-: Take advantage of the abundance of local, state and federal programs designed to support small businesses. Make your first stop the U.S. Small Business Administration; then investigate various other programs. Women, minorities and veterans should check out niche financing possibilities designed to help these groups get into business. The business section of your local library is a good place to begin your research.
Choosing a Suitable Location for your Grocery Store
There are several factors to consider in determining a location. The store should be accessible to potential customers with ample parking. Proximity to other businesses and traffic density are both important. The history of the site and restrictive ordinances may make the site undesirable. The rent-paying capacity of the business, terms of the lease, or the rent-advertising relationship should also be considered.
The final considerations in choosing a location are:
- The community in which to locate
- The specific site within the community
Selecting an appropriate site location for a grocery store is critical to its success and a poor location for any retail operation can cause failure. Entrepreneurs must weigh the cost of the store’s location with its potential for success.
For examples, a location away from high traffic areas may be less costly but it also can reduce sales. Stores should not be positioned so as to depend on revenue from traffic along small highways if there is a possibility that an improved alternate route will be developed in the future. Also, consider the danger of establishing a store near a single large employer that may close or relocate.
Starting a Grocery Store – Technical and Manpower Analysis
Staff the store with checkout workers, stock clerks, deli and bakery counter employees and supervisors. You may need to wait a few months into the store’s opening before hiring the full number of workers you anticipate you’ll need. This time will allow you to assess the workflow and consumer demand, thereby enabling you to adjust your labor projections higher or lower.
Technological devices also assist store owners with managing of inventory, determining consumer demand for certain products and keeping track of purchases. Find vendors capable of installing RFID scanners and purchase checkout equipment and anti-theft devices. Also assess if you wish to purchase self-checkout stands.
While these stands require spending more money up-front as a fixed cost, your variable labor cost will be significantly reduced over time as a result of this expenditure. As a grocery store owner, you should also be prepared to buy technology equipment including credit card terminals, point-of-sale or POS software, touch-screen monitors and customer pole displays.
Equipment Needed to Start a Grocery Store
Opening a grocery store requires purchasing equipment. Some necessary items will include freezers for perishables, slicers to cut deli meats and cheese, and display cases to showcase pastries and breads. Use the floor layout plan to envision additional items:
The produce aisle, for example, needs carts, sponge matting to hold the fruit and vegetables, misters, plastic bags, weights, and additional shelving to hold less perishable items such as dried fruit and nuts. Go through the other sections including frozen foods, bakery and the deli area and perform this basic task. You should know that equipment is often the second-highest cost of starting the business. You can purchase equipment as an up-front cost, buy it used or opt to lease equipment as a way to keep costs low.
Starting a Grocery Store – The Marketing Plan
- Marketing ideas and Strategies for a Grocery Store
The purpose of advertising is to provide a direct line of communication regarding the store’s products or services to customers or potential customers. Advertising will help:
- Convince customers that selection and products at the store are the best
- Announce new products and services,
- Create a desire for the store’s products or services,
- Promote a positive image, and
- Draw customers into the store.
Effective retail grocery advertising is usually in the form of:
- Direct mail
- Personal selling
Specialty advertising is effective for stores that have selected a target market. Specialty advertising includes such items as calendars, match books, pens and pencils, telephone pads, and magnets. Other media include using shopping bags, brochures, and samples. Social media can also be an effective and inexpensive way to market your business. The U.S. Small Business Development Center’s website is a good source for more information.
Possible Competitive Strategies for Winning your Competitors in the Grocery Industry
Merchandising not only means attractive and pleasing end aisles and case stacks, but also product placement on the shelf. A successful grocery asks herself whether the flow of product makes sense. What products are at eye level and should they be there?
There are two schools of thought on shelf product placement. The traditional approach is to place fast movers on the bottom because the customers will bend down to pick up their favorite product; the other school suggests that you keep the fast movers at a prime location (i.e., eye level) and give them more shelf space to prevent double and triple handling of the product.
For consistent shelf displays, it is important to determine whether your shelf sets are vertical or horizontal. Whatever set design you choose, stick to it! I prefer a vertical shelf set, since it allows each manufacturer a chance at prime shelf space.
Merchandising, and in particular signage, is a great opportunity for nutritional and product information and education, areas where co-ops efforts and results have traditionally surpassed mass markets. This is an area of strength for us that we need to keep constantly improving, because it is what sets us apart from the mass markets, a tool that can keep us competitive.
Possible Ways to Increase Customer Retention for your Grocery Store
You have to find a way to advertise your site to get customers for your products; you can place paid adverts on social networks, create pages groups and build followers, create video on YouTube and make guest posts on popular sites that offer similar products.
You may have competition from big names in the retail store industry like Wal-Mart but that should not scare you. Maintain good quality products at discount prize and give your customers the best service they can get anywhere; your customers will always come back for more.
Strategies to Boost Brand Awareness and Create a Corporate identity for your Grocery Store
Tell your friends and many other people living around you that you sell different species of puppies. You can even convey them around in cages and marketing vehicles. Design graphic posters, banners and handbills and use them to promote your business within and outside your neighborhood.
Connect yourself other puppy breeders who can hook you up with mega business deals for species that they do not have or have just few of them which you also raise. Also, offer your dog mating and crossbreeding services to people and make more money.
When you grow your capital, you can build a bigger dog breeding centre and even establish it as a tourist outfit too. Also, you can think of creating a veterinary section in your breeding site. Employ a good veterinary doctor there and make more money rendering animal health care services to farms, individuals and other customers.
Creating a Suppliers/Distributors Network for your Grocery Store
You’ll need wholesalers to supply you with the goods you will sell, which include food and drink items, cigarettes, alcohol, paper and household goods, and fuel. You’ll have to decide whether or not to use a full-service wholesaler, which may require larger order sizes, or several limited-function wholesalers, which may be more expensive and means additional for you.
Both have their pros and cons, so consider the needs of your business before deciding. Another option, especially if you run a small store, is to get your supplies from a price club store, like Costco or Sam’s Club. You will be responsible for picking up and shipping the items yourself, but you may save money this way.
Tips for Running a Grocery Store Successfully
Stay up to date on convenience store industry trends and developments. For example, a current concern among convenience store owners is the rise in credit and debit card fees. With this type of information, you can adjust your policies and stay competitive. It really is a nickel and dime business. Remember, the smaller the store you have, the higher your per-item wholesale costs. Don’t expect a lot of money immediately.
Managing a successful grocery department requires that you must learn how to wear many hats and take care of all the details. You must be creative, good with numbers, ambitious, a good organizer and planner, and you must be up to date on industry trends and products. And if that isn’t enough, you must also have a heart and remember that some folks have ideas as good as or even better than yours.