Start a grocery store by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your grocery store. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a grocery store?
When startup investment is considered, grocery store owners can expect to spend between $70,000-$100,000 on equipment. A good point-of-sale system will require another $40,000. Initial inventory can be a massive investment, sitting around $160,000. Pre-opening expenses, including rent and insurance, can add another $10,000. These expenses, when combined with grand opening advertising, security deposits, and working capital, can easily surpass $500,000.
What are the ongoing expenses for a grocery store?
In some states, you can pay your employees between $7.25-$10 per hour, although in major cities that number could be much higher, and there are also currently 12 states with a minimum wage over $10 per hour. Utilities can be expensive, costing a grocer as much as $5,000 per month, depending on the size of their freezer section. Food needs to be restocked, which is a varying expense. To save money, purchase goods in bulk.
Who is the target market?
Preferred customers are locals. Because the grocery store business is competitive, small grocers thrive on local communities. Many shoppers choose to go to big-box stores like Walmart, Costco, Kroger, or Target for their food. Because of this, a new grocer will need to prioritize small communities, individual households, and college campuses by offering affordable food.
How does a grocery store make money?
Grocery stores generate most of their volume selling processed foods, but they also make money by offering fresh meats and produce, cleaning products, and alcohol.
How much can you charge customers?
Grocery store prices vary wildly, as they offer a huge selection of products. Lesser food items may cost as little as $1, while packaged meats can cost as much as $20. As a rule of thumb: offer lower prices for multiple purchases. Again, your low-value offers will win your spot in the local market.
How much profit can a grocery store make?
In 2016, the average American supermarket had total sales over $17 million. However, grocery stores are volume businesses with thin margins, as the average supermarket has a profit margin of just 1% to 3%. Even then, a successful independent store can profit up to $300,000 annually. Of course, these rates vary greatly on the area, the store’s specialty, and its size. For this reason, the average grocery store owner’s typical income is a bit unclear.
How can you make your business more profitable?
The easiest way to increase your store’s profitability is to stock the front of the store with impulse buys. Items like magazines and batteries can have profit margins of up to 70%, meaning that selling just a couple of these items can bring back the same profits as another shopper’s entire cart. Also, diversifying your store by adding amenities like a coffee shop can dramatically increase your profit potential.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your grocery store is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
In most states, it is necessary to obtain a grocer’s license. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
In particular, if you want to sell alcohol at your grocery store, you will need a liquor permit, the specificities of which vary locally.
State & Local Business Licensing Requirements
Grocery store businesses may also wish to look into applying for a resale certificate, which allows retailers to purchase goods intended for resale without paying sales tax.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
When selling food, you will need licensing from a local health department, because all establishments serving food are required to pass a health inspection. Check out these tips for faring well on health inspections.
There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business.
Certificate of Occupancy
A grocery store is generally run out of a physical location. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a grocery store.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a store:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your grocery store will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a grocery store
Grand opening promotion should be widespread. A successful grocery store will promote in apartment complexes, college campuses, nearby stores, and on social media. Because grocery store products have such a steady demand, they cater to a wide-ranging audience. As for marketing, grocery stores survive and thrive from word-of-mouth advertisement. Once your grocery store becomes known for its low cost, high-quality food — or for its unique options — it will market itself.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Customers will be attracted to your store through typical marketing campaigns, but retention is more difficult. Because a grocery store needs to target mass audiences instead of individual customer types, it needs a “selling point,” which is usually low prices. However, a bit of creativity can create your own allure. Specialize in fresh meat, add a sushi station or hot bar, etc. Find out what local competitors are doing, and offer something different.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Grocery Store In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Any individual who enjoys point-of-sale work, food, management, or finance can open a grocery store. The grocery business is competitive, but those who have a knack for making strong selling plans, capital-intensive business plans, or retail plans definitely have a shot. A grocery store owner should understand food very well, and they should have a passion for providing the best food around town.
What happens during a typical day at a grocery store?
A grocery store needs to stock a variety of products. They also have to help customers find, carry, and buy them. These products include ethnic foods, organic foods, frozen foods, and more. They must restock any perishable food before its expiration date. Additionally, the grocery store will need to stay competitive by offering low-priced options. Daily management includes cleaning, restocking, auditing, and selling.
What are some skills and experiences that will help you build a successful grocery store?
First, a grocery store must have a competitive pricing plan. It should also have unique amenities, like a fresh meat deli. Some grocery stores gain competitive advantages by offering in-house craft beer stations, too. Over time, a successful grocery store will be a preferred local hotspot. To become this hotspot, you’ll need to browse your area’s demographics—targeting the most lucrative segments.
What is the growth potential for a grocery store?
Grocery stores account for the largest share of food sales within the United States. In 2013 alone, grocery stores accounted for about 90% of the country’s overall food and beverage sales. The food retail industry is a low-margin, high-volume business. It has quite a bit of competition, and much of that competition is from well-established providers. If a small grocer doesn’t create a niche selling point, they may be outclassed by the big-box stores.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a grocery store?
Make sure your highest-selling goods don’t perish quickly. If they do, market the store as a preferred “fresh market” of sorts. Vegan food and other organics are in high demand, and a newly started grocery store can thrive if it creates a niche for itself. That said, any additional costs will need to be leveraged against the revenue gained from your specialization.
How and when to build a team
For a grocery store of any size, your beginning team will probably need to have at least five people. Grocery stores are hard to manage, and you’ll need constant support to micromanage sales, restock inventory, help customers, and provide security. If you’re a small grocer who’s specializing in niche products, you may be able to get by with only having three workers. As your store grows, you’ll need at least ten employees, and possibly far more.
Read our grocery store hiring guide to learn about the different roles a grocery store typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.