When planning to create your own retail business, at first it becomes a matter of choosing what to sell. You can often hear the opinion that you need to trade something special in order to succeed as a businessman. Of course, it’s great if you have an exclusive product with great potential demand. If there is none, and you want to start making a profit soon without any special risks, do what the majority does, food.
The pros and cons of a grocery store will be discussed further. It is worth mentioning that only convenience stores will be considered as the most popular start-up for business start-ups. Supermarkets, discounters have a slightly different specifics of work associated with a tougher competitive environment in which they have to exist.
Grocery Store Pros:
1) The presence of a large, well-predictable market. The basic need of any person is the need for food, and we want to satisfy this need with the help of a grocery store. The food market of any developing city is huge, and it only grows over time.
You should not worry whether they will buy in your store, but how much depends entirely on you. For a successful existence of a small grocery store, it may be enough for residents of a couple of apartment buildings to regularly shop in it. Good predictability of demand is also difficult to overestimate – once and for all, setting up the store, you do not have to chase fashion and customer moods. Significant fluctuations will be associated only with seasonality.
2) Ease of assortment formation. When opening a grocery store, you will not need to rack your brains to include this or that product in the assortment matrix. At first, it will be enough for you to fill the store with the goods that all your competitors of similar formats sell and with what you think is popular with people. And, this simple approach to assortment formation will nevertheless be very effective.
3) A developed system of wholesale deliveries and a high level of service from wholesalers. Be sure, you will very rarely have to go somewhere, buy and bring goods to the store yourself. Sales representatives of supplier companies will advise what would be best sold in your store, take the order themselves, deliver the ordered goods on time, and in most cases help with display and commercial equipment for their goods.
4) Not a big investment in inventory. As a rule, you can make purchases for any product 1-2 times a week, and therefore it simply does not make sense to keep excess inventory. The goods on the shelves for a week or two trades (and for dairy and bakery products 1-2 days) is what you need. A well-run store may have an average monthly turnover of 3-4.
5) Low required entry level of sellers. Due to the fact that work in a grocery store does not usually require special, specific knowledge from sellers, you can hire cheaper staff and save on the payroll.
6) The increase in prices and revenue of the store is proportional to the level of inflation. As a rule, selling prices for food products from suppliers increase several times a year due to rising prices for raw materials, as well as changes in exchange rates. Accordingly, your prices rise along with the prices of the entire market, with no decrease in the number of buyers.
You don’t have to take annual inflation into account when planning your activities – just keep your margin at a fixed level. For example, retail prices in many other industries are very difficult to increase without an outflow of customers, and business owners try to keep the price as long as possible, making less and less profit. For a grocery store, this is usually not a problem.
Grocery store cons:
1) A large daily amount of work associated with the purchase and acceptance of goods. The average markup in conventional grocery stores is 15-25%, so the store makes its profit by the amount of products sold.
If we also take into account the high turnover of inventory, you can count on dozens of daily purchases that need to be made and the same number of daily receipts of goods that must be accepted and put on receipt in the automated accounting program (1C for example). All this, of course, requires time and material costs.
2) The traditionally high level of shortages in grocery stores. Shortfalls are made up of the following factors: theft of customers (especially in the self-service format), theft of personnel, errors in the acceptance of goods, errors in the work of cashiers.
You need to immediately take into account this moment, and plan a system of liability for personnel and controls for inventory. As you understand, all this again results in nerves, shortfall in profits and a decrease in staff motivation due to the deduction of the amount of shortfalls from their wages.
3) A high amount of work to control expiration dates. Due to the limited period of sale of all products (to a lesser extent, groceries, flour group, etc., and to a greater extent, dairy and bakery), an established system is required both for working with suitable expiration dates and with already expired products.
From experience, the bulk of the overdue goods can be returned to the supplier (within reasonable limits, of course), but there will certainly be goods that will either need to be written off as losses or deducted from the wages of financially responsible persons. The cost of writing off expired goods and dealing with the right deadlines still undermines your bottom line.