How to Open a Grocery Store
If there’s one thing people always need, it’s food. That’s why we have grocery stores — a $682 billion industry in the United States. Grocery sales have nearly doubled since the 1990s, and they’re only expected to grow in the future. According to some reports, the industry has expanded much faster than the rest of the retail sector.
Right now, the industry employs over 2.7 million people, with big box grocers like Kroger and Walmart taking up the majority of the market share while grocery delivery services edge in on the competition. Still, there’s plenty of room for new, independent grocers or franchises to blossom.
If you’re wondering how to open a grocery store of your own, this guide can help you get started.
Benefits of Opening a Grocery Store
In 2018, the New York Times reported a boom of small grocery stores that were thriving as larger supermarkets struggled. Their niche was helping advance social causes, and that’s the thing: There’s a lot of creativity that can go into opening a grocery store, and in a way, it’s recession proof.
People will always need groceries, but the type of groceries they choose can vary. For example, high-end food stores can thrive in affluent areas but may struggle when the economy sinks and people search for lower prices. Luckily, there’s a lot of room to grow with grocers, whether that’s offering grocery delivery, expanding to include a deli, or opening new locations.
How to Start a Grocery Store Checklist
Opening your own grocery store is similar to opening any kind of store. You’ll need the right paperwork, the location, and the goods, but the most successful grocery store owners think of a unique business idea and jump in where there’s a market need. There are a lot of ways this can go, from focusing on organic foods like Whole Foods or bulk purchases like Costco or Sam’s Club. You may even want to forgo a storefront and open an online grocery. It all depends on your target market.
The first question with how to open a grocery store is whether or not to franchise. Franchising is more expensive, but it’s got a built-in base of consumers and much more support for business owners. Opening an independent shop is cheaper and lets you use your creativity, but it will be more difficult to attract a regular consumer base. Either way, this checklist can help guide you in the process.
1. Create a Grocery Store Business Plan
Most new businesses have a business plan. This helps put you on a targeted path to success by outlining your business model, your target market, and your financial projections. When you’re crafting a business plan, consider the following:
- An explanation of your business idea: Will you dive into e-commerce or go full brick-and-mortar?
- The location of your business: Small towns may lack grocers while cities have more competition.
- Cost projections: How many square feet does your store need? That’s more expensive in New York City than a rural area.
- A competitive analysis: How are you different from the competition?
- An understanding of your target demographics
- A full idea of products: Are you selling deli meats, alcohol, prepared foods, or produce?
- Potential grants or tax breaks
- Potential problems and solutions: Do you have a backup distributor? What happens when there’s a disruption in the supply chain?
You can check out our complete guide to writing a business plan for more in-depth guidance.
2. Choose a Business Structure
All businesses have to choose a business structure. That’s for tax and operation purposes. This is how you obtain a business license and file taxes with the IRS. Most grocers opt for either a limited-liability company (LLC) or sole proprietorship — and here’s the difference.
Sole proprietorships are the most basic form of business structure. They’re often used by one-person operations that don’t have a lot of liabilities (think: freelancers, those who own small e-commerce stores, etc). For a grocer, a sole proprietorship can offer a quick start with limited paperwork and lower costs, but it does not offer liability protection.
An LLC would offer more personal liability protection, provided the business owner keeps their personal and business finances separate and does not muddy the line. This comes in handy in the case of a lawsuit. Like a sole proprietorship, LLCs also have a favorable tax advantage because you’re avoiding the so-called “double taxation” of a corporation. Instead of paying a corporate tax, profits are pushed to a personal return (or split among the personal returns of all partners).
To start an LLC, you just have to file in accordance with state law. This can be done online for a small fee. Check out our complete guide to forming an LLC for more guidance.
3. Determine Your Grocery Store Business Costs
The costs of a grocery store vary greatly based on the business model. Franchising a massive store isn’t going to cost the same as opening a small corner grocer. For example, a 7-Eleven franchise requires a one-time franchise fee of between $50,000 to $75,000. However, there are the other costs, like inventory, supplies, business licenses, permits, and bonds, which can amount to an estimated $29,000. You can cut your costs if you don’t franchise and lease a space already designed to be a supermarket.
To calculate the cost of starting your own store, add up fixed costs, on-going expenses, and one-time costs. This includes everything from the cost of real estate, wages, insurance premiums, and utilities to initial inventory pricing, franchise fees, business taxes, equipment, and signage. Remember: different types of products have higher costs. Local, organic goods generally cost more than regular groceries. Refrigeration and freezers for perishables are also larger expenses.
How can you fund your startup costs?
Most grocery store owners and retailers need to seek funding for their shops — and this is where the Small Business Administration (SBA) comes in. The SBA can help new business owners find startup capital by helping them secure a loan or seek alternative options like grants, such as a food co-op initiative grant. There are also other options like rural grocery initiatives, but they require some searching. Generally, most business owners turn to:
- Business credit cards
- Family and friends
- Franchises that offer financing options
These all have their pros and cons. Look into the interest, the time requirements, and the possible emotional toll. For example, some business owners feel more comfortable paying interest than they do owing family and friends.
4. Name Your Business
Your business name needs to be easily recognizable, but it also can’t be already taken because you can face legal repercussions. Nobody wants a lawsuit, so you should check local business registrations to make sure your idea is unique. After that, register a domain and your social media accounts. As a guideline, make sure the name reflects the kinds of foods your customers are looking for.
5. Register Your Business and Open Financial Accounts
Before you can open your grocery store, you need to register your business structure, open all your accounts, and obtain the various licenses and permits. This housekeeping requires a lot of paperwork, and it will likely include:
- Registering your business structure
- Obtaining an employer identification number (EIN) from the IRS
- Obtaining the proper insurance, from general liability to worker’s compensation. If you have employees, there are certain insurances mandated by law and you may also want to consider a group healthcare plan.
- Obtaining a business license
- Obtaining a retail food store license (and/or a retail certificate or whatever retail license is required in your state).
- Obtaining a license to sell alcohol: this also varies state-to-state. For example, grocers in NYC need a Grocery Store Beer License to sell beer.
- Obtaining the necessary inspection and permits from the Department of Health, especially if you serve prepared and made-to-order food. These vary county to county.
- Opening a business bank account
In addition, you may want to purchase membership to a trade organization — like the National Grocers Association (NGA) — that can guide you during the startup process.
6. Purchase Equipment For Your Grocery Business
Grocery stores need a lot of equipment to get started, especially if you’re not already leasing a building outfitted to be a grocery store. At the most basic, this includes:
- Commercial freezers and refrigerators
- Shelving and other furniture
- Cash registers and point-of-sale systems
- Shopping carts
- Paper and plastic bags
- Industrial cleaning supplies
- Your starting inventory
- Office supplies
Some grocers may need supplies for a deli, like meat slicers and knives. Others need full-service kitchens for bakeries and prepared food. Still others may need things like conveyor belts and scales for self-checkout stations.
You can find a complete guide from the Illinois Institute for Rural Affairs. It’s particularly helpful for opening a grocery store in a rural area, though much of the advice is universal.
7. Market Your Grocery Business
In the digital age, all businesses should have a comprehensive social media strategy across all major platforms like Twitter, Facebook, and Instagram. Hootsuite has an excellent guide to help you get started. You should also consider registering your store with Google My Business, Yelp, and other local business directories. Good reviews definitely help with word-of-mouth marketing, but where grocery stores really shine are the special offers.
To get more people in the door, you may want to consider a print campaign, such as a monthly circular showcasing daily deals. Remember that you’re competing with the likes of Amazon. It’s tough, but it’s doable with solid marketing. Just make sure your profit margin remains sound.
Examples of Grocery Businesses to Start
Grocery store owners certainly aren’t short of options. For example, Costco acts as a wholesale club for consumers. Trader Joes grew its business by cutting out the middleman and working directly with manufacturers to provide unique goods at the lowest possible cost.
Whole Foods focuses on the organic and healthy eating market, and other grocers like Wegmans shine when it comes to prepared foods. The sky’s the limit, whether you’re a co-op, convenience store, large grocer, or cornering the e-commerce market.
The grocery industry is growing year over year, meaning your market is waiting. Overall, opening your own grocery store is a relatively low-risk endeavor compared to other businesses and doesn’t require exorbitant startup costs. Basically, your store can be what you make it, so let your creativity fly.
Grocery Store FAQs
- Do I need a license or permit to open a grocery store?
Yes. Grocery stores need various permits and licenses, from retail grocery permits to a business license. It depends on what you sell, so check with your local municipality.
- How much does the average grocery store owner make?
Some reports claim grocers can make anywhere from $60,000 to $300,000 per year depending on the size, location, and type of grocery store.
- How much money do I need to open a grocery store?
Some franchises require tens of thousands of dollars upfront. Independent groceries stores may cost less, but it depends on the size, real estate, type of inventory, and the number of employees.
- How do I register my grocery LLC?
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