How to Start a Grocery Store: Cost and Profit Potential

These are the key elements to think about when starting your grocery store:

1. Location — Choose a high-traffic location with good visibility and accessibility. Proximity to residential areas, schools, and businesses can attract more customers. Also, consider parking availability for your customers.
2. Store layout — Design an efficient and attractive store layout that makes shopping easy and enjoyable. Ensure that high-demand items are easily accessible and create appealing displays for fresh produce and specialty products.
3. Licenses and permits — You will need to get a permit from the health department, a food handler’s permit, an alcohol beverage license, and a tobacco license.
4. Suppliers — Establish relationships with reliable suppliers for a steady supply of high-quality products. This includes wholesalers, local farmers, and specialty suppliers.
5. Inventory management — Implement an efficient inventory management system to track stock levels, manage orders, and prevent overstock or stockouts. Use technology to automate and streamline inventory processes.
6. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
7. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
8. Hire professionals — Hire and train staff to ensure smooth operations. This includes cashiers, stock clerks, and managers.
9. Loyalty programs — Implement loyalty programs to reward repeat customers and encourage them to return. Offer discounts, points, or exclusive deals for members.

Step 1: Decide if the Business Is Right for You

Pros and cons

Opening a grocery store has pros and cons you should consider before you decide if it’s right for you.

Grocery store industry trends

Despite an increase in online shopping, consumers are also demanding more from grocery stores. They want speedy checkout, in-store dining, and good customer service, according to software firm ServiceChannel.((https://servicechannel.com/go/the-state-of-grocery-full-report/)) 

The survey also showed that most people still want to do their own grocery shopping, rather than place an online order. This does not mean online ordering and delivery options are not important for grocery stores. Consumers want to be able to order groceries for delivery or curb-side pick-up, and you should research these tools.

Industry size and growth

• Industry size and past growth – Market analyst IBISWorld values the supermarkets and grocery stores in the US at more than $800 billion. Thanks to the pandemic, the industry expanded a stunning 15% in 2020 as people cooked and ate much more at home, bringing the average annual growth over the last five years to 2.6%.((https://www.ibisworld.com/industry-statistics/market-size/supermarkets-grocery-stores-united-states/))  
• Growth forecast – The global food and grocery industry is projected to grow 3% annually through 2030.((https://www.grandviewresearch.com/industry-analysis/food-grocery-retail-market))
• Number of businesses – More than 63,000 supermarkets and grocery stores are operating in the US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/supermarkets-grocery-stores-united-states/))
• Number of people employed – US supermarkets and grocery stores employ more than 2.8 million people.((https://www.ibisworld.com/industry-statistics/employment/supermarkets-grocery-stores-united-states/))

Trends and challenges

Trends in grocery stores are:

• Growing consumer preference for natural and sustainable products
• Strong demand for online and delivery orders
• Use of automation and AI across the grocery value chain

Challenges faced by grocery stores include:

• Rising prices are pushing consumers to look for the best value for money
• Maintaining quality and freshness of food products
• Pandemic-driven supply chain disruptions

Consumer spending

• Average consumer spend – US households spent an average of $4,942 on groceries, or food at home, in 2020, according to the Bureau of Labor Statistics.((https://www.bls.gov/opub/reports/consumer-expenditures/2020/home.htm))
• Potential customer base – There are more than 131 million households in the US.

What kind of people work in grocery stores?

• Gender – 80% of grocers in the US are male, while 20% are female.((https://www.zippia.com/grocer-jobs/demographics/#gender-statistics))
• Average level of education – 37% of grocers hold a bachelor’s degree and 36% have a high school diploma.((https://www.zippia.com/grocer-jobs/demographics/#degree-level-types))
• Average age – The average age of a grocer is 39 years old.((https://www.zippia.com/grocer-jobs/demographics/#age-statistics))

How much does it cost to start a grocery store?

Startup costs for a grocery store can range from $60,000 to nearly $300,000. The main cost will of course be the initial rent or down payment on your store space. Opening a smaller convenience-style shop would put you at the low end, while opening a supermarket will be significantly more expensive.

In addition to the store space, you’ll need a handful of items to successfully launch your grocery store business. Here’s a list to get you started:

• Shelving
• POS system
• Shopping carts
• Carts to move food boxes

Startup Costs	Ballpark Range	Average
Setting up a business name and corporation	$150 - $200	$175
Licenses and permits	$100 - $300	$200
Insurance	$100 - $300	$200
Business cards and brochures	$200 - $300	$250
Website setup	$1,000 - $3,000	$2,000
Deposit on a space to rent	$5,000 - $20,000	$12,500
Space preparation including shelving and checkout counters	$15,000 - $100,000	$57,500
POS system	$5,000 - $10,000	$7,500
Inventory	$35,000 - $150,000	$92,500
Total	$61,550 - $284,100	$172,825

How much can you earn from a grocery store business?

Grocery stores generally see a profit of 3%, though it can be 10% for specialty and high-end stores. Given these numbers, let’s give your store an 8% margin.

The average person spends $50 on a trip to the grocery store. So in your first year or two, if you get 50 customers per day, seven days a week, you’d bring in more than $910,000 in annual revenue. This would mean more than $73,000 in profit, assuming that 8% margin. As your brand gains recognition, you could do 150 customers per day, annual revenue of $2.7 million and a tidy profit of nearly $220,000.

What barriers to entry are there?

There are a few barriers to entry for a grocery store. Your biggest challenges will be:

• High startup costs
• Strong competition from local markets and national chains
• Profit margins are low, so you’ll need a lot of customers

Step 2: Hone Your Idea

Now that you know what’s involved in starting a grocery store, it’s a good idea to hone your concept in preparation to enter a competitive market.

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Research other grocery stores in your area to examine their products, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a small natural foods store or a mini supermarket.

This could jumpstart your word-of-mouth marketing and attract clients right away.

What? Determine your products

After you’ve decided what type of grocery store to open, figure out what’s most in-demand in your area to determine what to stock. You’ll need everyday staples, but your local research will inform your broader selection. Visit similar stores nearby to see what’s on their shelves. It may take some trial and error to figure out what sells best.

How much should you charge for groceries?

The prices you charge will be based on your purchase prices from wholesalers and suppliers, in addition to labor and overhead. The average markup for a grocery item is 12%, though some will be much higher. Pre-cut produce, for instance, is typically marked up 40%, while prepared meat, such as fried chicken or steak kabobs, is marked up 60%.

Use our markup calculator to calculate your sale price and how much revenue and profit you will earn with different markup percentages.

You should aim for an 8% profit margin. Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will tend to be people interested in buying locally, rather than from large chain grocery stores. Those people may tend to be a younger demographic, so you can find them on Instagram. You shouldn’t limit your marketing, however, because your target market may be very broad.

Where? Choose a grocery store location

You’ll need to rent out a large enough space for your store in a convenient location, preferably where few or no other grocery stores are located. You can find commercial space to rent in your area on Craigslist, Crexi, and Commercial Cafe.

Begin by researching the local market and demographics, focusing on areas with a high concentration of your target audience. Consider factors such as population density, income levels, and the presence of competitors in the area.

A location with convenient access to major roads, public transportation, and parking will make it easier for customers to visit your store regularly.

When evaluating potential sites, consider the size and layout of the space, ensuring it meets the needs of your store concept, including sufficient shelving, refrigeration, storage, and checkout areas.

Keep your budget in mind, accounting for lease or purchase price, utilities, taxes, insurance, and any necessary renovations or improvements.

It’s also important to choose a location in a safe and pleasant neighborhood, as this will encourage customers to shop at your store and foster a sense of community.

By carefully considering these factors, you can select the ideal location for your grocery store and maximize its chances of success.

Step 3: Brainstorm a Grocery Store Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better
• The name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “grocery” or “foods,” boosts SEO
• Choose a name that allows for expansion: “The Daily Market” over “Gluten-Free Grocer”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Grocery Store Business Plan

Here are the key components of a business plan:

• Executive Summary: A concise summary outlining the key aspects of the grocery store business, including its mission, vision, and overall business strategy.
• Business Overview: A detailed description of the grocery store, including its location, target market, and the unique value proposition it offers to customers.
• Product and Services: A comprehensive list of the grocery products and services the store will offer, emphasizing quality, variety, and any unique selling points.
• Market Analysis: An examination of the local market, identifying target customers, market trends, and potential opportunities for the grocery store business.
• Competitive Analysis: A thorough assessment of competitors in the area, analyzing their strengths, weaknesses, and strategies to position the grocery store effectively in the market.
• Sales and Marketing: A detailed plan for promoting and selling products, outlining marketing strategies, pricing, and sales tactics to attract and retain customers.
• Management Team: Profiles of key individuals responsible for managing and operating the grocery store, highlighting their skills, experience, and roles within the business.
• Operations Plan: A step-by-step guide detailing how the grocery store will operate on a day-to-day basis, covering aspects such as inventory management, supplier relationships, and customer service.
• Financial Plan: A comprehensive financial forecast, including startup costs, revenue projections, and profit margins, to demonstrate the financial viability and sustainability of the grocery store.
• Appendix: Supporting documents, such as market research data, resumes of key team members, and any additional information that provides depth and credibility to the business plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to grocery stores.

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your grocery store will shape your taxes, personal liability, and business registration requirements, so choose wisely.

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best options, other than friends and family, for funding a grocery store. You might also try crowdfunding if you have an innovative concept. 

Step 8: Apply for Grocery Store Business Licenses and Permits

Starting a grocery store business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your grocery store business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.

You can use industry-specific software, such as ITRetail, LS Retail, or ECRS, to manage your ordering, inventory, and bookkeeping.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Here are some powerful marketing strategies for your future business:

• Professional Branding — Develop branding that emphasizes freshness, quality, and community connection through store signage, logo design, staff uniforms, and the overall layout of your store.
• Website Optimization — Create a user-friendly website showcasing your product range and services like delivery or curbside pickup.
• Local SEO — Optimize for local search engine visibility with keywords related to grocery shopping, specialty foods, and local produce. Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
• Social Media Engagement — Use platforms like Facebook and Instagram to display your products, share recipes, and promote special deals or in-store events.
• Content Marketing — Maintain a food and nutrition blog offering healthy eating tips, meal planning advice, and food trends. Feature recipes using store products and create video content that highlights your store and provides cooking demonstrations.
• Email Marketing — Send newsletters to inform customers about weekly specials, new products, and upcoming events.
• Experiential Marketing — Host in-store events like cooking classes, food tastings, and nutrition workshops to engage customers and add value to their shopping experience.
• Local Producer Spotlights — Feature local farmers and food producers in your store with special events such as tastings or meet-the-maker days.
• Customer Loyalty Program — Implement a loyalty program offering discounts, points, or special benefits to frequent shoppers.
• Customer Feedback Initiatives — Foster a feedback culture with surveys or suggestion boxes to gather insights and improve services.
• Targeted Local Advertising and Seasonal Promotions — Advertise in local media and use community bulletin boards, along with targeted online ads, to reach local customers. Leverage seasonal events and holidays for themed promotions and sales.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your grocery store meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your grocery store business could be:

• Natural foods for your healthy lifestyle
• All our meats and produce are locally-sourced: shop local, eat local
• Order online and pick—up/delivery in one hour or less!

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a grocery store, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in supermarkets and grocery stores for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in grocery stores. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.

Step 12: Build Your Team

If you’re starting out small, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a grocery store business would include:

• Checkout Workers – Ring up food, collect payment
• Stock People – Stock shelves
• General Manager – Staff management, ordering, accounting
• Marketing Lead – SEO strategies, social media, other marketing

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Run a Grocery Store – Start Making Money!

Grocery stores will always draw business, and studies show that people still love to shop in person. Some consumers, however, want to have the option of online shopping and delivery, so you might want to consider partnering with top food delivery apps like Instacart.

If you start a clean, friendly grocery store with great products and a warm atmosphere, you’ll be providing a great service while capturing a slice of a $800 billion market to make a healthy profit. Now that you’ve filled your cart with knowledge, you’re ready to start your entrepreneurial journey and build a grocery empire!

Quick Answers

How profitable is a grocery store?

Profit margins are low, but sales volumes are high, so even with a small store you can make good money. You need a strong location, though, to ensure a steady stream of shoppers.

Don’t most people shop for groceries online?

While online grocery shopping is growing, studies show that most people still like to do their shopping in person. Many people like to choose their own items, particularly meat and produce, and enjoy browsing the aisles.

How do I differentiate my grocery store business from competitors?

To differentiate your grocery store business from competitors, you could focus on providing a unique shopping experience such as personalized customer service, offering locally-sourced or organic products, implementing innovative technology such as self-checkout or mobile ordering, or offering additional services such as home delivery or meal planning assistance. 

What is the difference between grocery store and supermarket?

The main difference between a grocery store and a supermarket is the size and scope of the business. A grocery store is typically smaller and offers a limited selection of products, while a supermarket is larger and offers a wider range of products, such as fresh produce, bakery items, and prepared foods. Supermarkets also tend to have more specialized departments such as a pharmacy, deli, or bakery.