Grocery stores can have a hard time turning profit since their earnings mostly depend on the volume of sales and having competitive prices. How do grocery stores increase profits?
You can boost profitability by reducing shrink, incorporating new loss leaders, strategically displaying products, using customers’ impulsivity to your advantage, and making sure they aren’t overwhelmed with variety and choices.
We will uncover so much more on how to make your grocery store more profitable so keep reading!
How to Make Your Grocery Store More Profitable
Unlike some other types of retail stores, grocery stores usually operate on pretty discouraging profit margins (around 1% to 3% on average). And with more and more people heading to online stores, it makes the profit margins go even lower.
Grocery stores will never go obsolete but owners have to keep thinking of new ways to make more profit, have higher volumes, and stay competitive.
Keep reading for some ideas on how grocery stores can make themselves more profitable.
1. Boosting Advertising and Promotion
Display ads in newspapers and weekly advertising inserts are some of the most common ways a grocery store can grab attention. However with readership down, reaching customers in less traditional ways may result in increased customer traffic and sales. Many newspapers have websites that can send the ad to many more readers than the traditional paper ad.
This method is two fold. You will bring people in that are in need of those products on sale and you might even bring in others who don’t need it but come anyway because they love a good bargain.
Online catalogs, such as the one Lidl (a new player in the US market) has, inspired shopaholics to visit the store for a few key things (usually limited high-value items), which is a good start in and of itself. Once there, shoppers are likely to buy even more stuff if the store has done its job well and made items, especially those essentials, practically irresistible.
2. Creating a Wonderful Experience
Since visual representation is everything, a clean, well-stocked store is more likely to make someone’s wallet itch than one with empty aisles and mess at every step.
The staff should try to make the shopping experience better by offering help. If the shoppers don’t want help, though, a great way of making sure they leave with full carts is by making the store easy to navigate, categorize end caps, bulk items, and offer meal kits for convenience.
3. Giving Customers a Chance to Grab a Bargain
Offering coupons and loyalty programs may seem like the grocery store is purposely trying to earn less money.
Not true! And here’s why.
We need volume here to raise the profit margin. And by giving shoppers a chance to get something for less money from time to time (or even every time they come in!), they are definitely going to be more eager to shop in just one grocery store.
Plus, sales and coupons promote buying in bulk, which, in the minds of the customers, makes a store more valuable than others.
It is also more practical, budget-friendly, and even exciting to shop at a store with great coupon sheets, frequent sales on the stuff we cannot live without, and occasional promotions of various niche products. And remember increased sales reduce fixed expenses, (costs) recouping some of the markdown dollars.
5 Tips & Tricks for Making Your Grocery Store More Profitable
- Implement Grocery Automation Software. Not only will it increase your profit margin by 1-2%, but it will allow you to spend more time working on employee training and customer service.
- Reduce shrink by focusing on loss prevention. In essence, tackle theft, minimize waste and optimize internal operations to boost profit margins.
- Consider incorporating new loss leaders. Classics like eggs and cow milk no longer bring in the results; it is time to focus on healthier alternatives that would inspire a longer stay at the store (or another visit) due to the excitement of getting a real bargain.
- Group displayed products strategically. You can entice the shoppers to buy a few items that together make a meal or recipe by displaying them together.
- Bonus: Combine higher-cost items with lower-cost ones so that there’s a better chance of selling them all at once.
How You Can Improve Your Grocery Store (4 Ways)
With a grocery store at almost every corner, the competition is tough even for the most experienced business owner. But this is not entirely a bad thing.
The great thing about having so many competitors is that we can use them as inspiration to improve our grocery stores and our profit margins.
One of the key ideas behind improving a grocery store is seeing the store from the customer’s perspective.
Despite how eager we are to add products we personally believe are a great deal, the ultimate test is whether or not our customers would like it.
How do we go about doing this?
1. Learn, Optimize, and Train
Learn about your customers. This can be done through various surveys and polls, and it is also especially important to ask for feedback. Not only is this a good way of showing customers that their opinion matters, but it is also a way for us to know which parts of our business are lacking and may be contributing to lower profit margins.
Another way of improving our grocery stores is through operations optimization. In particular, we should pay close attention to checkouts. We have to find a way for customers to get what they want and pay for it in as little time as possible. Long wait times, especially in crowded stores, can easily discourage someone from ever shopping there again.
Train your employees well. A lack of properly trained staff dampens the mood. If a customer cannot find something or needs to know the price of a particular item fast, they shouldn’t feel as if they’re boring or inconveniencing the staff.
2. Implementing the Right Technology
Technology can be daunting for those smaller to mid sized grocery stores.
So let’s talk about it!
One of the best ways of improving a grocery store is to automate as many tedious and/or complex tasks as possible. There is software that even independent grocers can use to stay up to speed with crucial metrics without having to check for everything individually (or making their staff do it).
For example, such software could analyze historical data, competitors’ stores, and the market — and then suggest when to introduce temporary price reductions to pull more profit.
Another way this software could help is by identifying gaps in the store’s operations. It could predict how the staff should optimize their work hours and tasks to deliver better results. Some programs can even suggest how to lower theft and shrink rates.
There is no way around the rise of technology and grocery stores need it to help stay afloat.
To see automation technology software in action, visit our website here:
3. Making Shopping More Convenient Is a Must
People are busy. Busy people need convenience. You need to start implementing some digital options and become omnichannel.
To keep increasing your sales volume, you can offer customers the ability to shop in a few different ways. These include:
- BOPIS (buy online and pick up in-store)
- BORIS (buy online and return in-store)
- ROPO (research online and purchase offline)
- BIMBO (browse in-store, on mobile and buy online)
There are a lot of other factors that make these experiences fruitful.
Fruitful how? Let’s talk about it.
If, for instance, someone has researched an item online and goes to the store to get it, the staff can use their skills to make that foot traffic more worthwhile through additional purchases.
By making returns possible in-store only, we can save customers time on return shipping and maybe persuade them to exchange it for something else or make other purchases.
4. Examples of Successful Methods
Now, let’s see how some of the most popular US stores have made themselves more profitable:
Methods to Improve Your Grocery Store
A Glimpse into the Grocery Store Profit Margins
To know exactly how much a grocery store has earned, we use profit margin formulas.
Profit margin is a profitability ratio that determines if and how much money a company makes.
In layman’s terms, the number itself tells us how many cents the company generates per dollar of sale.
The most important level is Net Profit, and that’s the thing we’d usually inquire about when talking about a company’s profitability. This figure is calculated by:
- Deducting COGS (Cost of Goods Sold), operating and other expenses, interest, and taxes from revenue
- And then dividing the result by revenue
To get the percentage, we then multiply the result by 100.
While sales are up, profit margins are trending down across the US. Grocers are fighting to keep the market share gains they have enjoyed over the last year.
Here are some examples of profit margins across a few US stores and how much they’ve changed in a year:
Grocery Store Profit Margins
*The values displayed reflect the company’s net profit margin.
Grocery store operators need to think outside the box.
Grocers should try to improve operations in general and deal with the main profit destroyers like shrink and theft.
Always go the extra mile! Grocers ought to embrace technology and use it to optimize operations, introduce new services, and cut their expenses wherever they can.
This would allow them to step into the modern innovation-driven world and get an inch closer to being on the same wavelength as their customers.