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Supermarket and grocery store business is very lucrative

There is no doubt that supermarket and grocery store business is lucrative. If you are observant, you must have noticed that the rate at which people start supermarkets and grocery store nowadays is high.

One thing you need to know is that, if the business is not lucrative, people will not be rushing into it. When you see people rushing into starting a particular business line, it might be an indication that the business is profitable. However, I am not suggesting that you should rush into starting a business you know nothing about. Before you start any business, it is advisable that you do your own due diligence. So, if you are considering starting a supermarket or grocery store, this article provides a basic guide on how you can start one. It may just be a mini supermarket or a mega grocery store.

What do you need to start a supermarket or grocery store? Where can you locate your supermarket or grocery store? This article will provide answers to these questions and other ones which may be bothering your mind.

Read Also: 150 Small Business Ideas to Start in 2020

Business Plan

Generally, supermarket and grocery store business is a good business. Nevertheless, you need to carry out your own feasibility study. If supermarket and grocery store business is profitable, why then do you need to carry our feasibility study? It is very important because your own business is very unique on its own. It does not matter whether you will be doing the same thing with another person, your own situation may be totally different from the other person’s own. You need to consider the amount of capital you have at your disposal and other possible sources of capital. This will determine the scale of operations of the superstore. You need to find out whether mini-supermarket can thrive in your area or you need to start a large supermarket. Developing a business plan will help you determine the amount of capital you need to start the supermarket. With a business plan well prepared, you can easily approach lenders or investors for funds. A good business plan will also guide you on how to you can run the business successfully.

Read Also: 8 Reasons You Need a Business Plan for Your Small Business

Register your Business

I should not forget to mention that you need to register the name of your business. Choose a name that is catchy and easy to remember.

Being a supermarket or grocery store, it is important that the name of the business should be the type that is easy to brand. The legal structure of your supermarket depends on your preference. If you are the sole owner of the business, it can suffice to register it just as a business name. Some people like naming their supermarkets or grocery store after their names such as: Blessing Supermarket, Mary Grocery Store etc. You may also choose a coined name such as Good Price Supermarket, Affordable Price Supermarket. If you are starting the supermarket or grocery store with somebody, forming a partnership can be a suitable option. Alternatively, you can decide to form a limited liability company. You should note that each legal structure has its legal and tax implications. Therefore, the choice of legal structure of your supermarket or grocery store is not a thing you can make arbitrarily. If you don’t know the legal structure that may be suitable for your supermarket or grocery store, it is advisable to contact an attorney or a consultant. The token you will pay as a fee is worth the price as this may save you some bucks in the future.

Register With Tax Authority

It is important that you register your business with relevant tax authorities both at state and federal levels. As an entity, there are certain taxes your business should pay. Also, if you hire staff working for you, you need to deduct tax from their salary which you are expected to remit to the state tax authority. Doing otherwise will be seen as tax evasion. Of course, this has its own legal implications.

Open a Bank Account

It is important that you have a bank account for your business. Even though you have a personal bank account, you still need to open a separate account for your business where you can lodge all the supermarket revenues. Also, you should make all the expenses relating to the business from the company. This makes you more accountable. At the same time, it will be easier for you to source loans from the bank when needed. Furthermore, having a bank account makes it easy for your accountant to prepare the financial statements of the supermarket.

Raising Capital

Supermarket is not a business idea you can start with little capital. On average, I will say that the business require huge capital. Although the level of capital needed to start a supermarket or grocery store depends on its size, a mini supermarket or grocery store still requires that you have sufficient capital. Mostly, the initial capital you need will be spent on rent, furniture, fixtures and fittings, purchase of sizeable generator, freezer, refrigerator, inventory management software and hardware and inventories. You need to set aside adequate money as working capital. It is not worthwhile to spend all your money on rent and not be able to stock the supermarket or grocery store with enough inventories. You will not only need varieties of inventories, you need to stock different brands of the same product. This will allow customers to choose their preference.  Failing to give your customers their preferences may discourage them from patronising you.

Read Also: How to Raise Initial Investment Capital for Small Businesses

Find a good location

If you want your supermarket or grocery store  to succeed, you need to choose a good location for the business. What determines whether a location is good or not? Well, a good location for supermarket or grocery store is a place where there is a large concentration of mid-income earners. It is a place where there is a good traffic of people. Also, a good location should have a good parking space. No one will like to park his car where he will be harassed for obstructing road traffic. If a customer comes to shop in your store, he may be forced to park somewhere that is not suitable for parking if you don’t have enough parking space. Supposing his vehicle is impounded for the reason of wrong parking, you can be sure that he will never come to your supermarket again.

Furthermore, the layout of the location of your supermarket or grocery store should allow good arrangement of your inventories. Inventory should be easily accessible to customers and there should be enough free passage. The place should be well lighted. You need a standby power generating plant in case of electricity power failure. To guide against pilfering, you may need to mount CCTV cameras all around strategic places within and around the supermarket or grocery store. With this, you will be able to monitor every movement in the supermarket or grocery store. You need to provide a space that will serve as stores for the storage of inventories that you don’t have a space to display on the shelves. It is very important that you have a good inventory control system in place that will allow you operate First In First Out (FIFO) method. That is, you should ensure that all old stocks are sold before you start selling new ones. This will prevent you from keeping obsolete items on your shelves or stores. Selling obsolete items can damage your reputation. It can also lead to legal suit being taken against you. You should not forget to put fire extinguishers in strategic locations within and outside the supermarket or grocery store. No one prays for fire outbreak. But in case it happens, you can easily curtail if from spreading.

With all that being said, that alone is not enough to justify that a location is good for a supermarket or grocery store. For instance, if you are already having a large supermarket or grocery store located in the same place, then the place may no longer be a good location to site your supermarket. You just have to get this issue of location right. Just of recent, a supermarket was opened in a particular place. With the way they stocked the supermarket, it was obvious that money was not a problem to the owner. Good enough, there was a good parking lot for would be customers to park their cars. But something fundamental was wrong! It was located in an isolated place. The bad news is that, after few months the supermarket was opened, the owner had to shut it down. It is better not to start a supermarket or grocery store at all than to start one in a wrong location. If you can’t find a good location yet, you need to exercise patience.

Obtain business permits and licences

You cannot operate a supermarket or grocery store without obtaining permits from regulatory authorities. It is not just about making payments; the regulatory authorities will ensure that your facility meets required standards. It must not be found wanting in health and fire protection issues. Please, don’t open your supermarket or grocery store without obtaining the necessary approvals. Otherwise, you will be opening your business to litigation.

Locate suppliers

The secret for operating a successful supermarket or grocery store lies in the ability to secure inventories in cheap prices. The margins on supermarket or grocery store items are very low. The operators leverage on volume. In order to enjoy good prices, you may need to buy directly from the manufacturers. In case, you don’t have that financial capability to buy directly from the manufacturers, you can buy from their distributors. When you buy in bulk, you can enjoy bulk discounts.

Hire staff

Supermarket or grocery store business is not the type of business you can run alone. You need to hire staff who are trusted. Some of the personnel you will need include; Cashiers, Stock Keepers, Stock Movers, Security Personnel, Cleaners. As your supermarket or grocery store begins to grow, you can hire Marketing Manager, Human Resources Managers. Because of the sensitivity of the supermarket and grocery store business, you may require your staff to provide guarantors who can vouch for their integrity, reliability and trustworthiness.

Marketing

Supermarkets and grocery stores business is no longer just a brick and mortal type of business. Though you can choose to operate that business model, you need to have a website for the business. Just the same same people are searching for restaurants near me, a lot of people are conducting searches on the internet for “supermarket near me”, “grocery store near me”. A lot of people like to buy grocery online. You can imagine what you are missing if these people cannot find your grocery online. If at all you cannot maintain a full eCommerce website, you need to have a website that will give basic information about your supermarket or grocery store. It is important that you get listed in local business directories. With this, those people searching for “supermarket near me”, “grocery store near me” can easily locate you. This can also help draft traffic to your website. Part of your marketing efforts will include printing and distribution of flyers within your neighbourhood. It will also be beneficial to have presence on major social media especially Facebook and Instagram. With this, you can display different pictures of your grocery online. Also, you can relate with your customers effectively.

Read Also: How to Create a Website Using WordPress

Business Analysis of Supermarket

I will suggest that you carry out your own SWOT Analysis so as to be sure that starting a supermarket or grocery store business is suitable for you. Today, I will use Porter’s Five Forces Model to analyse the business. If you are not familiar with these business analysis tools, I suggest you read about them in our business analysis tool page.

Porter’s Five Forces Model

We are using this model to help you understand the risks that may be involved in starting a supermarket or grocery store business. It is important to note that the risks mentioned here may not be comprehensive but at least the model focuses on vital aspects of the business. Here we go!

Threat of New Entrants

Supermarket and grocery store business is growing. A large number of people both local and international organisations are going into supermarket and grocery store business. So what happens to your business after you must have started? Supposing there is a new supermarket or grocery store within your locality, what happens to your own? Will you be able to develop your brand to the point that new entrants will find it difficult to break into your market? You should bear in mind that there is no restriction preventing anybody from starting a supermarket or grocery store. It does not require any specific qualification. If you have the money and are able to meet with the regulatory requirements, you are set to start a supermarket or grocery store. Therefore, before you invest your money into the business, you need to assess the impacts the new entrants may have on your own business. Can you easily diversify if need be? What is your lease arrangement? If you have signed on for a long term lease, it may be difficult for you to relocate to another place without losing much of capital you have invested in the property.

Threat of Bargaining Power of Customers

When it comes to supermarket or grocery store business, no individual customer has the ability to dominate the business. You will be selling to various customers. Therefore, if any customer decides to leave, it may not have much effect on your business. However we should not undermine the effect a negative comment may have. A negative comment from any aggrieved customer can damage the reputation you have struggled to build over the year. For instance, a comment about you selling expired products can drive away your customers. There is need for good customer service.

Read Also: The Power of One Customer

Threat of Bargaining Power of Suppliers

Who are your suppliers? Do you depend on a particular supplier for most of the products you sell? Do you have any other suppliers as backup in case your major supplier disappoints you? Can you buy your products elsewhere at the same rate? If you depend too much on a particular supplier, your business may be threatened if you fall out of favour with the supplier.

Threat of Substitutes

What are the substitutes to the products you sell? The substitutes may be the same products which your customers find cheaper elsewhere. It can also be related products to what you sell. Of course, in this business, there will be lots of substitutes to the product you sell. Therefore, you will not be able to increase your prices arbitrarily. If your prices are considered high, your customers may decide to go to the open market to make their purchase. So, you should have it at the back of your mind that the margin in supermarkets and grocery stores business is low. You will have to drive sales to maximize profits.

Threat of Competition or Rivalry

You need to be aware of competition in supermarkets and grocery stores business. How close are other supermarkets or grocery stores to your own? What products do they sell that you don’t sell? If you are unable to stock varieties of products as your competitors do, your customers may decide to go to them. The essence of buying from supermarkets or grocery stores is for the individuals to be able to do all shopping in one place. Also, if you don’t have access to suppliers where your competitors buy their products cheap, your price may become too high when compared to that of your competitors.

SWOT Analysis of Mini Supermarket

Before you decide on starting a mini supermarket, let’s analyze the business further by using the tool called SWOT Analysis. Essentially, SWOT Analysis helps you look determine your strengths, weaknesses, opportunities and threats. If you can identify your strengths, you will want to maximize them so that you can use them to your advantages. Your strengths are usually internal to you, therefore, you have control over them. On the other hands, your weaknesses are your weak points. They are also internal. That means you can take deliberate steps to overcome them. Opportunities are external factors that can be beneficial to your mini supermarket if you choose to explore them. Threats are those external factors which can mitigate the success of your mini supermarket. You don’t have control over them. Therefore, you need to develop a strategy that can help your business succeed with them.

So, what are the possible strengths, weaknesses, opportunities and threats of mini supermarkets? Let’s look at them below:

Strengths

The possible strengths are highlighted below:

Low Capital: Mini supermarkets do not require much capital to start when compared with what you will need to start a large supermarket. This means that you can start small. There is beauty in starting small. You can learn from any initial mistakes you might make without the mistakes having much impacts on the business.

Self-funding: Since you may not require large capital, you may be able to fund the supermarket yourself. This puts less pressure on you to return profitability immediately.

Experience: If you have prior experience on how to run a supermarket, this will be an advantage to you. It is possible you have worked in a big chains and you have under studied their mode of operations. Experience is very key if you want to start a mini supermarket. You would have known the line of products that are fast moving which you can quickly buy and sell and make profits. If you don’t know the kind of products to stock, you may end up buying goods that there is no demand for. Such stocks may soon become obsolete. This will be a loss to you.

Trained Staff: Even though you are starting small, there is tendency for you to hire people who will be working for you. If you have trained staff in the areas of customer service, store and inventory management, this will be a plus. You need a staff who understand how to attend to customers in a friendly manner. You need staff who can help you in issuing stocks in “First In First Out” basis.

Good Location: Having your mini supermarket located in a place where there are high traffic is a strengths. This will guaranty high patronage and quick turnover. Also, having a large parking space is ideal for a supermarket. Your competitors who don’t have enough parking space may be losing customers to you without knowing.

Weaknesses

No matter your strengths, you will still identify some weaknesses about your mini supermarket. Some of them may not be obvious to you. However, I will try to direct your attention to possible weaknesses your mini supermarket may have and these include the following:

No Competitive Advantage: In term of volume, you may not have that competitive advantage that will enable you sell products at cheaper prices. This means that customers may not have reason to prefer your goods to your competitors since you may likely be selling at the same prices.

Less Knowledge: Whatever the business you want to invest in, you need to have adequate knowledge. Nevertheless, in case you don’t have enough knowledge, the weakness can be overcome by investing in training. You may also decide to work in a supermarket for some times before establishing your own.

High Staff Turnover: Your mini supermarket may experience high staff turnover as your business may not be able to support paying fat salary that can make you retain good hands. Each time a staff leaves you, there will be a need for hiring new one. This increases your recruitment and training costs.

High Rental Cost: Getting a space in a strategic location with a good parking space does not come cheap. You may be paying a high rent that may well be above the level of your operations.

Small Portfolio of Products: One of the reasons some people like to shop in supermarket is that, they can afford to complete their shopping in one location. When you are starting a mini supermarket, you may not have enough funds to buy large portfolio of products. You may be limited to few categories of products.

Limited Budget for Advertising: We all know the importance of marketing. But a mini supermarket that is still find it difficult to stock enough goods may not have money for advertisement.

Opportunities

As mentioned, these are external factors that can influence the growth and success of your mini supermarket. And these include the following:

Exclusive Product Offering: If you sell goods in which you have exclusive right to sell, it means that customers may not be able to find the products from your competitors. Customers will need to get to your location to buy such goods. In the process, the customers may decide to do other shopping in your supermarket.

Growing Trend: There is a growing trend in the number of people that buy from supermarkets. Before, buying from supermarkets used to be the exclusive of the rich. Buy now, all classes of people visit supermarkets to buy different items.

Increase in Population: A growth in the population around your mini supermarket is an opportunity for your business to grow. For instance, having a new estate located to your mini supermarket will likely boost your sales.

Improved Standard of Living: When there is enough disposable income, people tend to buy more. But if the economy is not doing well, sales will definitely slow down.

Read Also: How to Start a Networking Marketing Business

Threats

Bigger Supermarkets: If you have a new bigger supermarket coming to your area, it may signal collapse of your mini supermarket as it may be difficult for you to compete with them in term of pricing and wide product offering.

Online Markets: There is a growing trend of people buying online. Some people are no longer visiting supermarkets. They prefer placing orders online and have their goods delivered to them at home.

Pilferage: Shoplifting is rampant in supermarket especially if you don’t have enough security system in place such as CCTV camera system.

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