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How to Start a Grocery Store

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Published on December 21, 2021

Updated on September 13, 2022

How to Start a Grocery Store

Disclaimer: Step by Step Business’ content is for informational and educational purposes only. It’s not intended to be a substitute for professional legal or tax advice. All of our articles are thoroughly reviewed and fact-checked by our editorial team. Read our editorial guidelines for more details.

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Fast Facts

Investment range

$61,550 - $284,100

Revenue potential

$910,000 - $2.7 million p.a.

Time to build

3-6 months

Profit potential

$73,000 - $220,000 p.a.

Industry trend

Growing

Commitment

Full-time

How to Start a Grocery Store

Everybody needs to eat, which is why grocery stores are an essential part of any community and the US grocery market is worth three-quarters of a trillion dollars, and growing. You can start your own grocery store and grab a share of that huge market while providing a valuable service to friends and neighbors. Whether you open a specialty store, a local co-operative that sells natural and organic foods, or a general grocery store, you can make good money.

Starting a grocery store is a huge undertaking and will take time and hard work. You should start with knowledge of the industry and what’s involved in developing your business. Thankfully, this step-by-step guide is full of insights and information to get you on your way.

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.

Pros

  • Essential – Every community needs grocery stores
  • Strong Demand – Food will always be in need
  • Provide Jobs – You’ll create jobs in your community

Cons

  • High Costs – Renting space and stocking shelves is expensive
  • Long Hours – Grocery stores tend to open early and close late

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.[1]https://servicechannel.com/go/the-state-of-grocery-full-report/?submissionGuid=21b295de-485e-40fc-8b00-8e58de3c656d 

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%.[2]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.[3]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.[4]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.[5]https://www.ibisworld.com/industry-statistics/employment/supermarkets-grocery-stores-united-states/
grocery industry size and growth

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
grocery industry Trends and Challenges

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.[6]https://www.bls.gov/opub/reports/consumer-expenditures/2020/home.htm
  • Potential customer base – There are more than 131 million households in the US.
grocery business consumer spending

What kind of people work in grocery stores?

  • Gender – 80% of grocers in the US are male, while 20% are female.[7]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.[8]https://www.zippia.com/grocer-jobs/demographics/#degree-level-types
  • Average age – The average age of a grocer is 39 years old.[9]https://www.zippia.com/grocer-jobs/demographics/#age-statistics
grocery industry demographics

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 CostsBallpark RangeAverage
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.

grocery business earnings forecast

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

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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.

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.

You might consider targeting a niche market by specializing in a certain aspect of your industry such as organic foods, or specialty gourmet foods.

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

What? Determine your products or services

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%.

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 your business premises

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.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
grocery business idea rating

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

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: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

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 Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assess their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

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

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

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 ZenBusiness’s 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.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

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 Licenses/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.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

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.

Marketing

Some of your business will come from the casual passerby or online visitors, but still, you should invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Order Now”. This can sharply increase purchases. 
  • Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.

Kickstart Marketing

Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as 20% off on Tuesday mornings.
  • Signage – Put up eye-catching signage at your store and website.
  • Flyering – Distribute flyers in your neighborhood and at industry events.
  • In-Person Sales – Offer your products and services at local markets and trade shows.
  • Sponsor events – You can pay to be a sponsor at events that are relevant to your target market
  • Post a video – Post a video about your grocery store. Use humor and maybe it will go viral!
  • Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal. 
  • Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
  • Press releases – Do press releases about new products, sales, etc.
  • Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
  • Pay-per-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
  • Influencer marketing – Pay people with large social media followings to promote your grocery store. You can find micro-influencers with smaller followings and lower rates.
  • Create infographics – Post infographics and include them in your content.

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. 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. 

You can create your own website using services like WordPress, Wix, or Squarespace. 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.

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!
unique selling proposition

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: 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!

Grocery Store Business FAQs

How much does it cost to start a grocery store?

Starting a grocery store requires the right space with a good setup, a POS system, and an inventory of products, none of which come cheap. You should be able to start a small store for around $60,000, but a large store will run you $300,000 and up.

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.

What licenses do I need to start a grocery store?

If you sell alcohol, you’ll need an alcohol license. You’ll also need business licenses and permits at the state and local levels. Check with your local governments for requirements.

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.