will always need food that’s a fact. And with it, starting a grocery store business could be one of the shrewdest moves any small business owner could make. But knowing how to start a grocery store has a whole lot more to it before you open its doors to consumers, as you’ll see throughout this article.
With the evermore challenging economic times today — and what’ll possibly come ahead of us — this could be a good idea for a small business owner to expand or for a new business owner to start a new business. It’s one of the few business models that are considered recession-proof, and in this article, you’ll learn everything you need to know on how to start a grocery store, and also:
And more along the way. After this article, you’ll learn everything you need to know and be confident to apply what you learned here. So, let’s get going.
What Are the Benefits of Starting a Grocery Store:
As you saw above, a grocery store business can be considered one of the few examples of recession-proof business models. No matter how bad the economy may look, people will always need food. Grocery stores, convenience stores, and supermarkets are the ones that offer it, and consumers will always look for the best deals — which is a good idea to implement on your own.
Putting into perspective, here’s a quick checklist of the possible advantages available to a grocery store owner:
- A recession-proof business. This business model is battle-tested to endure hard economic times.
- With the dawn of the internet, you can also opt for an online grocery shop. With a well-executed business model, you could stand out from the high-traffic websites.
- A well-organized small grocery store can compete with larger retail chains. In 2018, grocery stores saw great success and managed to surpass expectations — due in part to a move into digital.
- Going with the step above, they’re one of the simplest business models to expand or even franchise if you choose this option.
- They’re highly customizable. You could customize your groceries, goods, or services on account of your customers or location.
Doesn’t the United States Have Sufficient Grocery Stores Already?
While you could say that the U.S. has a tremendous number of grocery stores — with 63.328 supermarkets and grocery stores in 2022 — competition is serious in highly populated cities with grocery stores all over.
But on the topic above, we said that in 2018, grocery stores thrived, even when some large retailers saw difficulties. That’s the power of small, local businesses with a well-built business structure. They’re highly customizable, and with a good business structure, a good idea of your target market and demographics, and a more personable approach that large retailers cannot do, grocery stores can become very lucrative.
An example, in a highly populated city like New York, you’ll see a local grocery store on every corner. Each grocery store owner will have its business edge and have a different type of business than its competitors.
Continuing with the example, if he looked at the target demographic and saw a majority of Indian-speaking people, a good business idea could be a grocery store that imported high-quality goods from India. Even in a highly competitive city, that would have its edge and draw business to his store.
Starting a Grocery Store Also Has Difficulties: Here’s What to Consider:
By now, you had a few examples of how a grocery store business could be a lucrative endeavor for any small business owner, but it’s not all easy. Startup grocers will see a lot of difficulties starting, and a new business owner must account for every variable. Let’s look at a few examples of what you might encounter:
- High upfront capital outlay: One of the main difficulties you might face is the capital upfront you have to dedicate to the startup costs. You’ll need substantial capital for real estate, equipment, hiring a team, getting suppliers, and much more. You must also account for the recurring costs and your location. While a less populated area might be cheaper, your customer base will not be the same as in a high-density area.
- Competition in this field is high: We saw above that you can have a successful grocery store business even with high levels of competition, and it’s true. But you’d be making a tremendous mistake if you didn’t account for the competition all the same. You can have a successful grocery store, but it will require lots of work and effort to stand out from the competition and establish a solid and loyal customer base.
- Inventory management is very challenging: You must keep an eye out and double down on inventory management. Not only due to the current supply chain issues that seem to be here for a while longer, but also because you’re dealing with a lot of perishable goods. You also have to deal with theft, which, unfortunately, is a big issue for grocery store businesses.
- It requires a lot of effort to manage your staff: Your staff will be the saving grace of your small business, but first, you need to invest in your team. That requires time, effort, and money, which you’ll need to train, educate, and compensate them. Also, no business owner is immune to its workforce quitting. Also, account for injuries suffered during work, which can put you and your team even more stretched.
All these points are challenging for any small business owner, new and veteran ones alike. But they can also be avoided or, at the very least, minimized by investing capital into your business. Looking for ways to fund your grocery store will be vital going forward, so you must reach out and keep tabs on the SBA and banks that can provide you with loans.
But, if you’re already having difficulties getting funded or approved by them, you can also reach out to alternative lenders that are much easier to see your loan request go through — like Biz2Credit.
Step-by-Step Guide on How to Start a Grocery Store:
Your business plan must contain everything you need for your grocery store business to succeed. You know the old saying:” Failing to plan is planning to fail” and many entrepreneurs swear by that idea. It should contain everything from your business model, target demographics, projected sales, and even steps you can take when things don’t go accordingly. Here are a few ideas:
- What will be the focus of your grocery store business? Will you go with the eCommerce route or stick to a brick-and-mortar storefront?
- Where will the location be? Also, the business location is ideal for your small business?
- What are the target demographics? Who will be your customer?
- What products will you sell? Will you be an organic, fresh produce vendor or opt for other grocery industries?
- Planning for the worst-case scenario: How will you deal with the rising cost of essential goods, supply chain issues, people saving money with fears of recession, etc.?
Choose the Best Business Structure for Your Grocery Store Business:
Once you’ve created a business plan that covers everything your grocery store will need, it’s time to tackle the business structure of your small business:
- Sole Proprietorship: With a sole proprietorship, you are the single owner of your grocery store business. You’re 100% responsible for running the business and revenue generated, but you’re also fully liable for any legal implications and responsibilities.
- Partnership: With this option, you conduct your business with one or multiple partners. There’s more room to grow and improve, but also you have to split the net profit margin with the rest of the partnership.
- Limited Liability Company (LLC): An LLC offers you more general liability protection, meaning your personal goods won’t be in danger should a legal entity charge you with a lawsuit. LLCs have advantages and drawbacks on their own, and if you choose this option, it’s best to conduct thorough research on every step.
With this step, you’ll have a better understanding of the costs involved with the initial capital outlay for your grocery store. To have an idea of what’s involved, here are a few more examples:
- Real estate costs if you choose a storefront:
- Reforming costs: re-structuring your real estate, buying equipment like freezers, refrigerators, and cash registers, initial inventory, managing suppliers and distributors, hiring a team, etc.;
- Legal expenses and signage costs;
- Security needs;
- Rent, energy costs, salaries, supplier and distributor contracts, and more;
If you have registered your business structure, you can now get your employer identification number (EIN) from the IRS, which allows you to register for state and federal taxes. After it, you have to open a business bank account to separate your personal and business costs and help you protect your personal assets.
With it, you can also apply for a business credit card. A credit card can help you take benefits of business-related purchases and expenses and help you build your business credit score for a small business loan later on. Learn how to apply for a business credit card here.
Now it’s time to acquire the necessary business licenses and documents to open a grocery store business. You can always reach out to the Small Business Administration’s Small Business Development Center (SBDC) if you need help in this area. But generally, most grocers need:
- Retail food store license.
- Permit to sell alcohol.
- Permits from the department of health.
- Insurance permits (general liability insurance, workers’ compensation insurance, etc.)
Have a Funding Option Available if You End Up Needing Capital:
If you follow these steps, you should be opening — or be very close to opening — your grocery store business. You’ve researched your potential customers and locations, started a social media marketing campaign, and now have your business name at the entrance. All is looking well — but what about cash flow?
With the current economic hardships going, it’s normal for most small businesses to be affected — actually, they’re the ones who suffer the most with one. Maintaining good relations with lenders and a solid credit score will allow you access to funding that can be essential. For example, quick funding options such as small business lines of credit, business credit cards, or even online lenders like Biz2Credit, can make a difference in your grocery store in just a few days.
Whatever it might be, you must have a backup plan like funding registered in your business plan. It’s better to be there and don’t need it than to end up needing it later when the recession comes — and financial institutions are too strained to pass them.
Some Essential Tips for Small Business Owners Looking to Start a Grocery Store:
- Invest in a good marketing campaign: Marketing is, by far, one of the steps that’ll separate your grocery store from the rest — even large retail stores like Costco or Kroger. If you want your potential customers to notice you, you must be active in this field. Consider hiring a good social media manager that can set up highly successful social media campaigns with discounts and more. You can also hire freelancers to set up your website with content and e-mails. Be proactive and keep reaching out to your potential customers.
- Set up systems that will improve efficiency and reduce expenses: From your grocery delivery system to pick-ups to check-out, you want to conduct an effortless and easy-to-manage system that requires minimal staff members and effort. You can also go with a point-of-sale (POS) system that will allow you to manage everything in one place.
- Don’t opt for a cheap security offering: Thefts are, unfortunately, a big problem any grocer has to deal with. So, it’s a good idea to look at this problem and do what you can to avoid it — as it can put your cash flow in the red overnight. Invest in good security systems and insurance plans to avoid being left with an empty storage department.
- Keep an eye out for unprofitable products and don’t be afraid to remove them: At the end of the day, no matter if you sell deli meats or organic foods imported from sustainable farms, the point of a grocery store business is to make money. So, every month, go through your inventory and discover the products that are not selling well. Exchange them, if possible, for lucrative ones or try a new vendor that can offer better products at a better price.
FAQs Most New Grocery Store Business Owners Ask:
Is a Grocery Store Business Still a Viable, Long-Term Commitment?
As you saw throughout this article, people will always need food, and the market size will continue to grow in the foreseeable future. Food and grocery retail market projections point to a growth of $17.1 trillion by 2030.
How Much Does a Grocer Make on Average?
While it’s true that the net profit margin of grocery store businesses is considerably shorter and must come from the volume of sales, it doesn’t mean that grocers can’t be profitable themselves. Many factors contribute to the equation, but a grocery store owner can make anywhere between $60.000 to $300.000 a year.
How Long Does It Take to Get the Grocery Store Licenses?
It depends on the type of grocery store — meaning the number of licenses you’ll need — and the state can play a role too. It’s important you take time into consideration as it can take anywhere around 4-8 weeks to get your licenses approved, and it might involve an inspection of your new business.
How Much Does It Cost to Open a Grocery Store? How Can I Get Funded?
It depends on the size and what you offer. Small grocery stores cost around $25.000 to $50.000, while bigger, more ambitious stores can easily surpass $100.000.
Getting the funding needed might be the hardest part. With threats of recession, traditional lenders won’t pass many loans. But if you’re in need of a fast and nearly guaranteed injection of capital, take a look at Biz2Credit’s offers and talk with our small business funding expert to see what’s the best option for you.