Operations

How to Calculate Markup and Margin for Retail

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Trying to figure out how much to price a product and how much profit you can make when you sell it is tricky. But after 20+ years in retail grocery, here’s what I’ve learned about how to calculate markup and margin for retail:

Margin is the percentage of your sales price that is profit. Markup is the percentage of the profit that is your cost. To calculate markup subtract your product cost from your selling price. Then divide that net profit by the cost. To calculate margin, divide your product cost by the retail price.

But there’s a lot more to know about markups and margin. You’ll want an easy way to calculate both on the fly, and you’ll want to understand both the difference, but also how they relate to each other.

So in this article, we’re taking the mystery out of it. We’re also steering clear of talking like your accountant. That way you can understand in plain English exactly what you need to do; simply and easily.

Let’s get going!

What is a retail markup?

Let’s say you buy a product from a warehouse for $1.00. That’s called your wholesale cost.

Whatever price you decide to sell it at is called your retail price. How much more your retail price is compared to your cost is considered your markup. Usually, this is shown as a percentage.

So markup, broken down as simply as I can state it, is what percentage of the profit your cost is. If something costs a buck and you sell it for 2 bucks then you have 1 dollar of profit. Since both your cost and your profit are 1 dollar, that’s a 100% markup.

In other words, you simply doubled your cost to come up with your retail sales price.

What is a retail margin?

Margin, while similar and related to markup, is altogether different.

If markup is the percentage the profit is of the cost, margin is what percentage of the sales price the profit is. So in a way, it’s the same thing in reverse.

Let me explain. No, there is no time. Let me sum up. (sorry, old guy Princess Bride reference).

Again if you buy something for 1 dollar and sell it for 2 dollars, we know that’s a 100% markup. But for margin, since we marked up the price by 1 dollar, and we sell it for 2 dollars, the profit (1 dollar) represents exactly half of what we’re selling it for. Or a 50% margin.

Most retailers would LOVE to make a 50% margin, so just know that I used simple numbers to make the math easier.

In many cases in a grocery store or other retail environment, you’re likely not seeing margins that high.

What’s the difference between markup and margin

As I just explained above, markup is what percentage of your cost the profit is.

By comparison, margin is what percentage of the sales price your profit is. So they are related and are all based on the same set of numbers. But they are both different (but important).

Here’s a handy chart to help explain the difference and show some examples:

Markup Margin
15% 13%
20% 16.7%
25% 20%
30% 23%
33.3% 25%
40% 28.6%
43% 30%
50% 33%
75% 42.9%
100% 50%

Some people say “sales cure all”.

What they mean by that is if you can find ways to drive an increase in sales, a lot of your problems go away. Where that saying falls a little short or perhaps is naive, is that you have to be driving those sales on a solid financial foundation of systems for setting, tracking, and monitoring things like sales, costs, and shrink.

Otherwise, you’re likely going to find you grow your problems too.

How do you calculate retail markup?

So again, in our example, you buy something for $1.00 and let’s say you sell it for $2.50. That means you marked it up $1.50 from what you paid for it.

That $1.50 we made on top of our cost is called the gross profit.

It’s called “gross” profit because there are expenses involved in running a store that gets subtracted before you know the bottom line. The bottom line profit, after expenses are deducted is called the net profit (more on that below).

As I mentioned, typically markup is shown as a percentage. The percentage of markup represents what percentage of the profit your cost is.

So to calculate the percentage we want to see the profit divided by the cost.

To make it really simple, using our examples, we’ll divide the gross profit ($1.50) by the cost ($1.00). Doing that simple math, we get 1.5%. To look at that math backward, you would simply multiply 1.5 times your cost to figure out what you want to sell the item for.

But in this example, you have a 1.5 markup.

So if your retail store is pretty consistent, in what you buy and sell and you mostly sell a lot of the same kinds of items, you can decide what markup might make sense for you, and just use that every time you price your items.

Where it gets more complicated is when your store sells a wide variety of items, such as a deli section, fresh meat or seafood, or vitamins.

Those categories typically have very different markups both because stores have to be competitive on price with other stores, but also due to what’s called spoilage. Spoilage is when you buy something and it goes bad before you can sell it. Generally, the more perishable an item (like meat, seafood, produce), the higher the spoilage.

So often the markup takes a certain amount of spoilage into account to ensure the store isn’t losing money.

How do you calculate the selling price and margin?

As noted author Stephen Covey says, “Begin with the end in mind”.

In other words, let’s figure out how much money we need to keep the store running, and then work backward. A typical large grocery store might want a gross profit of about 40%. But also bear in mind that the higher the sales, the lower the profit percentage can be.

By that I mean if your store sells $80,000 in products each week, and you have 25 employees, you could probably sell $100,000 in 1 week before you have to hire additional people. In other words, there isn’t a 1 to 1 correlation between expenses, sales, and profits.

But if we want a 40% gross margin, that means, as we explained above, the margin is what percentage of the retail price is the profit. If we know our product cost (let’s stick with the $1.00 example) and we know we want the profit to be 40% of the selling price,

So now we know the why behind how to figure out what margin to set prices at. Let’s do the math.

Let’s say we know we want our small grocery store to hit a gross profit margin of 40% (which is not uncommon).

That means we want the cost of the products we are buying to not be more than 60% of what we are selling it for.  So if we know we want to sell a product at $2.00 because that’s what the competitors sell it for, then we know we want our cost to be at or under $1.20.

If you can hit those numbers, your gross margin will be at or better than 40%. But let’s look at it in reverse. Let’s say we know it costs 1 dollar. 

How much do we mark it up to get to a 40% margin?

Simply take 100-40 (for the 40% margin). Then express that answer as a decimal (.6%). Now divide your cost ($1.00) by that .6%. The answer is $1.67. That is the retail price you should sell a product for if you bought it for $1.00 and want to make a 40% margin.

Want a different margin? Do the exact same math substituting your target margin where I used the 40.

What’s the difference between gross profit and net profit margin?

Gross profit is simply what you sold something for minus what it costs.

Going back to our 1 dollar example, if we buy for 1 dollar and sell it for 2 bucks, the gross profit is $1.00. Net profit, however, takes other expenses into account. Sometimes people call this “bottom line”.

In other words, if you’re running a small grocery store, you not only have to pay for the product, but you also have other expenses like:

  • Rent
  • Utilities
  • Wages for your employees
  • Insurance
  • Marketing costs (website, advertising, discounts)
  • Skrink (products that go bad before you sell them and have to be thrown away or donated)

You might think you’re doing great marking something up 25%, but when you get done subtracting all your costs at the end of the month, you might find that your net profit is a negative number.

While we, as retailers don’t want to be greedy and we do want to sell our products at a competitive price, if we can’t keep the doors open, we are ultimately failing not only ourselves but also our employees and the community we serve.

That’s why we have to balance all the needs and come up with a fair price for our products. That’s also why an average grocery store might shoot for a gross margin (gross profit) store-wide, of 40%.

Because once you’re done subtracting all the expenses, you’ll be lucky if that leaves you 6% net profit.

Final Thoughts

In this article, we took a look at the world of profit margin and retail markup.

We explored how the 2 relate, but also what the difference is and how to calculate each one. We examined how the price you set effects the margin. And we broke it all down in plain English; no accounting degree needed!

Ultimately, we answered the question of how to calculate markup and margin for retail.

How to Build a Grocery Display – Merchandising that Sells!

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They might seem simple enough, but great displays can make or break a grocery store. So learning how to build a grocery display is one of the first things successful grocery store managers need to learn.

A great grocery display has 2-3 products that are likely to be purchased together. It needs to look abundant, with contrasting colors and textures between the items. It also needs to have some depth and height to it, but not contain so much product as to tie up too much money or take months to sell through everything.

But there’s a lot more to know about grocery merchandising and displays. So here, we’re getting into the how and why of grocery store merchandising and displays. We’ll talk about how a display needs to look in order to sell product and the psychology behind it you need to be aware of.

Specifically, though, we’re walking through exactly how to build a grocery display.

Let’s get going!

What is a merchandise display?

A merchandise display is any type of display in a retail store in addition to the regular aisles and shelves. That could be any an endcap display, a free-standing display in the middle of the store, displays outside the store near the entrances, or smaller displays near the check stands.

Unlike the regular aisles in your store, these displays are designed to draw special attention.

In many cases, they are temporary displays that change out every few weeks, or perhaps seasonally. So they aren’t intended as year-round displays.

In that sense, this works great for products you buy on a discount.

That way you can build a big display and pass some (or all) of that discount on to the customers in the hopes of doubling or tripling the sales of that product(s) over what you might sell normally.

Do I need a lot of product to build a grocery display?

In some cases, yes. There are ways around having a ton of product and we’ll get more into that below. But displays work best when they at least look abundant.

Think about it this way.

When you go to a store to buy a product, normally the shelf would be full of that product. But sometimes we get there and there’s just 1 left. Often, from a psychological standpoint, we feel unsure about buying it when there’s just one left.

There’s just something inherently wired into our brains to not want to buy something that’s not abundant in quantity. It’s not logical, it’s intuitive. We might feel like it’s old, or it’s the one that no one else wanted.

Displays need to be the same way; it needs to look full of product. Abundant, fresh, and colorful. That also means it will need to be maintained throughout the day and during the entire promotion; it’s not set it and forget it.

How much product do you need to build a display?

Of course, that varies a lot depending on if you are building your display on a fixture, or just stacking cases on the floor. Generally speaking, these days, most smart retailers use fixtures or shelving to build displays.

That way it’s much easier to make a display look abundant without investing a ton of money into product that (in some cases) might take weeks or months to sell. It also makes it much easier to keep the display looking good throughout the promotion.

Here’s a good example of how NOT to build a display.

I took this picture in a Whole Foods store some years back.

There is a theme here (low-carb), but there are soy tortilla chips, 3 different kinds of bread, breakfast cereal, and some sort of (presumably low-carb) cookbook.

It’s a jumbled mess.

Yes, whoever built it probably thought people on a low-carb diet (Atkins was the flavor of the day back then) might want all those items.

But it isn’t cohesive. None of those things really go together and low-carb is the only common denominator.

A more focused approach would have been to have the chips with jars of salsa and maybe fresh avocados from produce. Or have the cereal along with aseptic containers of unsweetened almond milk.

In short, have fewer products that people will naturally want to buy together. Even on a low-carb diet, I may not be looking for 2 different kinds of bread, soy chips, and breakfast cereal.

How many different items should go on 1 display?

A display needs about 2-3 different products in total.  It’s OK to have different flavors of the same item but don’t have more than 3 completely different products on 1 display. 

So why 2-3?

If you only have 1 product, then you are forced to buy a LOT of that product from your distributor. If you misjudged the demand for that 1 product then it can take you a LONG time to sell through it.

Then you find yourself moving the display to different parts of the store so it looks fresh, but every time you touch a product, you lose money.

Let me repeat that; every time you touch a product, you lose money. Ideally, you want to build it, sell it, and then order something new when it’s gone.

But too many products and the display lose focuses and gets junky.

The related part is hugely important too.

Every day in stores I see displays that make NO sense. I see boxes of pasta, not with jars of pasta sauce or bottles of wine or even non-refrigerated containers of parmesan cheese, but things like jarred pickles.

In short, it’s grocers putting up displays of whatever they happen to have the most of in the back room, thinking they are being smart by getting the products out on the floor, but then wondering why 2 weeks later it didn’t sell.

It makes NO sense.

You want to motivate your customers, not through words, but intuitively, to buy everything on your display. If I see a brand of pasta I like, I might buy it if it’s on sale. But I’m VERY unlikely to buy a jar of pickles next to it, no matter how deep the discount it.

I would, however, buy a jar of pasta sauce and a bottle of wine (and if those auxillary products aren’t on sale, it helps your margins!)

How to build a grocery display without a lot of product

Sometimes, either for budget reasons or just quantity on hand, we find ourselves needing to build a display without a ton of product.

So there are a few good tricks to know when you’re wanting to look abundant without actually being abundant.

Sometimes I find this easier building displays with cardboard cases of products.

The reason for that is I can take 8 (cases are often 12 of something) out of a case, leaving 4 to provide structural support. If I have 12 cases of something, doing that method, and free stacking the individual boxes, I can easily make that look like 36 cases, or something close to it.

On a wooden fixture, you could also dedicate a shelf to demo samples of the product or stacks of coupons for the product or other product information or literature your customers might be interested in.

The picture above is a Valentine’s display I took a picture of in an Atlanta Whole Foods in 2005.

It might look like a TON of product. But in actuality, those champagne cases only have 4 bottles each in them and the cases of truffles are empty and all the individual boxes are just stacked loosely on top.

It’s a giant freestanding display that is really made with a fairly small amount of product. It makes a statement without tying up a huge amount of money in inventory.

What are the 4 elements of visual merchandising?

While you will have signs up on your displays, and on some occasions have an employee sampling the products, the display itself needs to tell a story. You tell that story by combining different elements of visual marketing.

Here are the 4 elements of visual marketing:

  1. Color (you must have color breaks to make product delineations clear)
  2. Touch and feel (different packaging provides needed contrast too)
  3. How the products related to each other (they must make sense together)
  4. The size and shape of the display (it deeps depth and height)

Visual merchandising is more than just the products. You have to think not only about what products go good together, but you also have to think about how they look side by side or above or below.

Bananas and blueberries look good together because of the contrast of both color and shape. Red bags of tortilla chips wouldn’t look good with red jars of salsa because of the lack of contrast in the color.

Check out this handy infographic which goes more in-depth into these concepts.

Why do grocery stores rearrange everything?

In short, times change, trends change, products change. Grocery stores (and retailers in general) need to keep up with the times or be left behind.

In the world of non-dairy milk, for instance, in 1990, soy milk was all the rage. I’m guessing that’s now the slowest seller, way behind almond milk and coconut milk.

If stores still had huge displays of soy milk, customers would flee to their competitors.

The other big reason to do what retailers refer to as a reset is to keep things fresh, and yes; to keep customers guessing and (more importantly) walking every aisle rather than cherrypicking down a shopping list.

When customers (like me) cherry-pick specific items and don’t go up and down every aisle, they don’t often run across as many impulse purchases as they would otherwise.

Finding ways to get customers to add unintended items to their purchase builds sales and what’s called basket size (the average amount per shop customers spend).

That’s why grocery stores change stuff around in a major way a couple of times a year.

Final Thoughts

In this article, we took a look at the world of grocery store displays.

We examined why grocery stores have displays. But we also looked at what to do if you don’t have a lot of product or a small budget to order product. We also looked at the psychology behind a good display to see why some sell tons of products while others collect dust.

Ultimately, we broke down EXACTLY how to build a grocery display. That way your store can sell more, help more people, and make your business more successful.

How have you been building your displays?

All pictures taken in Whole Foods were taken by me

How to Fire an Employee With a Bad Attitude

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As a store or department manager, eventually, you have to reprimand or even fire someone. The worst of these situations often lead to us wondering how to fire an employee with a bad attitude.

For employees with a bad attitude, first, address the issue verbally. Then in written form, if no improvement is made. Give them a period of time to correct the behavior and have a follow-up meeting scheduled. If no improvement is made, issue a final warning, with termination being the outcome for no improvement.

But there’s a lot more to know about how to deal with bad attitudes and problem employees.

More importantly, we’ll get into the right and wrongs ways to deal with toxic employees. Done right, you can save yourself unemployment costs and hearings.

Let’s get started.

Employee issues in the workplace

Virtually all issues an employee might have can be separated into 2 categories:

  1. Poor Work Performance
  2. Policy Violations

The latter is a whole lot clearer. For example, if an employee steals, or is chronically late, or calling out sick beyond what your company policy allows for. Those are clear cut, not up for debate or interpretation. Either the employee did those things or did not.

Work performance issues, on the other hand, include a whole lot of things that are subjective, such as:

  • Slow work speed
  • Poor customer service
  • Creating a hostile work environment
  • Sloppy work
  • Having a bad attitude

While the policy violations are quick and easy to deal with, performance issues like a bad attitude are slow and messy to deal with.

How do you change an employee’s bad attitude?

You can’t make someone happy who isn’t happy. You can ensure they have a pleasant working environment. But beyond that, you can only address issues in the workplace that arise from an employee’s bad attitude.

But most of us in leadership roles have tried to help employees with bad attitudes.

It ends up being very time consuming and is very unlikely to change anything. In the end, you will find yourself spending a lot of time on this employee with a bad attitude.

When we spend a ton of time on those “squeaky wheels” we are, by default, NOT spending time with the productive and happy members of your team; the ones who are really driving the business forward instead of into the ground.

That’s not only not fair to the good people, but it’s counter-productive to the success of the business.

For starters, what a “bad attitude” is might mean different things to different people. It also requires some validation and corroboration, especially because a store manager may not work directly with this person and may not be seeing it first hand.

The other thing to know is that you can train virtually any employee with a good attitude to do anything. But it’s virtually impossible to train an employee to have a positive attitude unless it stems directly to some genuine mistreatment at work and you correct that.

How do you address an employee with an attitude problem?

Address an employee with a bad attitude by:

  • Focusing on how their behavior affects the workplace
  • Do not discuss their personal life
  • All discussions should be held privately
  • Potentially contentious discussions should have a witness; ideally someone from HR or leadership
  • After the initial conversation, if no improvement is seen, the next conversation should be documented
  • After the 1st written documentation, issue either a 2nd written warning or a final warning if no improvement is seen
  • After the final warning, termination would be the next step if no improvement is seen

Even though you’ll be unlikely to change an employee’s bad attitude, it’s not right to just fire them without any sort of due process.

Everyone has the capacity to change.

But unfortunately, as my old friend who was high up in HR at Whole Foods used to say “there’s no better predictor of future behavior than past behavior“.

So even though you aren’t likely to turn them around, it’s crucial for the overall health of your workforce, and from a legal standpoint, to go through the steps and do this the right way.

After all, all your good employees know this person is a problem. But if you just fire them outright, it sends a message even to the good employees that they too could be fired at any time for any reason.

You don’t want your employees afraid of you.

So this is the process I followed for virtually ANY performance issue with any employee. Your company may have different rules or systems. It’s also possible the state or country you live in may have different rules.

When in doubt always consult someone in HR in your company or a labor law attorney.


But this how I handled employees with a bad attitude:

1. I started with a verbal 1-on-1 conversation

This conversation, like all HR-related conversations, would be private and not held on the sales floor or in front of their peers.

I would address the issue, but mostly ask questions. I find asking questions, rather than making accusations or statements, puts people more at ease and more likely to talk about what’s really going on.

Make no mistake.

In 99% of the cases, a bad attitude has NOTHING to do with you or the job. It’s something going on in their life on a personal level and they haven’t dealt with it. But as leaders and managers, we can’t ask them about their personal life or make personal recommendations (at least in any official capacity).

At the end of the conversation, make it clear what has been observed (but do not name any names of their peers who may have reported it to you). Then make it clear what the consequences will be if it happens again (and it will).

2. I would issue the 1st written warning

When an issue arises again, now is the time to take it more seriously.

Again in private, but this time with a witness who is in a leadership or HR role. As a matter of course, always position yourself and any official witnesses such that you are not blocking the exit to the room where the discussion is being held.

The employee must never feel like they are being held or unable to leave if they wish. Of course, if they were to leave before being dismissed, that too is a violation that will need to be addressed.

This conversation should be shorter and less casual.

You let them know what was observed, that it’s unacceptable, and what the complete process looks like if they continue the behavior. Do give them the opportunity to explain their side of the story, and to write it down if they choose.

But limit the amount of time you give them for this as these types of people can often go one and on wasting everyone’s time.

In the end, they will sign the written warning as will you and the witness. If they refuse to sign (which is their right) you would note that on the form and still sign yourself with your witness.

3. I would issue a 2nd written warning

This would be issued exactly like the first one.

4. I would issue a final written warning

Like the previous two warnings, but this one should be clear that the next instance will result in immediate termination. The form would ideally indicate this as well, very clearly.

Make sure to keep copies of all documents in case the employee files for unemployment after you fire them. In most states, employees can file for unemployment for any reason.

That doesn’t mean they’ll get it, but the burden of proof will be on you, not them. So have a system where these documents are easily accessible.

I preferred to keep a paper copy in a locked file cabinet but also a scanned copy on my computer. But your company and HR department may have different systems or policies.

5. I would fire them

Firing should be short.

The time for discussion has passed; it’s not up for debate, interpretation, or opinion. You speak, they listen. Stay calm and cool; never yell or raise your voice (even if they do).

Again, have a witness present and document the firing on paper with all persons ideally signing the form.

You state the facts very clearly and logically without emotion: “on this day, you did this, and as we discussed in your previous warnings, the result of this behavior is termination. You are now terminated from this position.”

Ask them to turn in any work items they may have in their possession. If they have a locker in a personal area, escort them to their locker and then see them to a public area.

If they make any sort of a scene ask them to leave immediately and if they refuse, call the police. You never want to escalate anything yourself or do anything other employees may witness that is anything less than 100% calm and professional.

If you follow all these steps, however, the employee will in no way be surprised they are being fired. And if that’s true, they are unlikely to make too big of a scene.

That’s usually reserved for when we, as store managers, didn’t clearly follow this process and the firing came as a surprise.

Can you get fired for a bad attitude?

In short, yes.

That doesn’t mean you can legally be fired on the spot. But generally, many employers have policies against what they call “creating a hostile work environment”. Now if an employee is just a little grumpy, or walks around like Eyeore, that probably doesn’t meet the test of that.

Most companies would be more likely to classify as bad attitude as being:

  • Backtalking supervisors
  • Gossiping about other’s personal information designed to embarrass, create animosity or discredit someone else
  • Verbally harassing others
  • Yelling or raising their voice to others
  • Using profanity directed at others

In those cases, while still following a series of disciplinary steps, an employee could definitely be fired.

What are the legal reasons to fire an employee?

At-will states have laws that basically say that the employer can fire an employee at any time for any reason without legal liability. That doesn’t mean the employee can’t file for and possibly get unemployment compensation, but it would prevent the employee from suing for wrongful termination.

But this depends, assuming you’re in the US, on whether you live in what’s called an At-Will state or not.

Of course, if you’re needing advice in this area, always consult a labor law attorney.

Technically all states are at-will, but some have exceptions that others don’t have. So it doesn’t make sense just to list the at-will states.

Many states have laws on the books that state if the employer has a policy or handbook which specifies why an employee can be terminated, then that is legally binding.

Here, however, is a list of states that DON’T recognize that:

  • Delaware
  • Florida
  • Georgia
  • Indiana
  • Louisiana
  • Massachusetts
  • Missouri
  • Montana
  • North Carolina
  • Pennsylvania
  • Rhode Island
  • Texas
  • Virginia

Then we have some states with a public policy exception.

Normally, for instance, an employer cannot fire someone who files a worker’s comp claim after they get injured on the job.

These states, however, do NOT recognize that right:

  • Alabama
  • Florida
  • Georgia
  • Louisiana
  • Nebraska
  • New York
  • Rhode Island

As I pointed out above, virtually all employee issues fall into either policy violation or poor work performance. In either case, typically following some due process most companies have in place, you can be fired for any of those reasons.

It’s worth pointing out, however, that if you’re working for an ethical employer, they are not just going to fire you for no reason with no warning. And if you do get fired from an unethical company, count yourself lucky you didn’t work there longer.

What qualifies as wrongful termination?

Wrongful termination is when you were fired illegally. Where an employer violated either state or federal law when they terminated the employee.

Wrongful termination, plain and simple is NOT when you think you shouldn’t have been fired. It’s also not when you feel you were fired unfairly.

As an example, if an employer fired someone on the basis of their race, gender, ethnic background, religion, or disability.

As it stands now, while there could be state protections, there is no Federal protection on the basis of sexual orientation or gender identity.

Another illegal reason to fire someone is if they are a whistleblower or have filed a legal complaint against the employer. You also can’t be fired in most states (see the section above) for filing a worker’s compensation claim following an injury.

In other words, the employer cannot retaliate against an employee operating within legal guidelines.

Now on the one hand, if I were fired due to one of those reasons I wouldn’t want to work for those people anyway, and I’d count myself lucky to be rid of them.

But it’s also not right that they get away with it either. At this point, you would definitely want to hire a labor law attorney to see if your claim of wrongful termination has merit.

Final Thoughts

In this article, we took a look at the world of HR and running stores. We examined what is often every store or department manager’s least favorite task; firing someone.

Toxic employees with a bad attitude are a reality that hits every kind of business.

In a way, it’s the worst kind of offense as it’s not as black and white as stealing or harassment. But dealing with employees with a bad attitude can be a huge time suck, so it’s crucial for all the great employees you have to not let it fester.

So here, we explored how to fire an employee with a bad attitude. And more importantly, how to do it in the right way so it’s fair to everyone and keeps you out of hot water with your company’s HR department and the state unemployment office.

 

Is Grocery Outlet’s Independent Operator Program a Good Deal?

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I have a good friend that just became an owner of a store with Grocery Outlet.  As I heard him tell me about his experience, I began to wonder is the grocery outlet independent operator program a good deal?

You need a minimum of $25,000, but be prepared to invest up to $200,000 total, the bulk of which the company will finance. A lower initial training salary, an unwritten policy to franchise mostly to married couples, and possible relocation mean this isn’t for everyone. But some operators make up to $300k per year.

But there’s a lot more to know about the Grocery Outlet chain and how they structure their store ownership and whether it’s a good deal.

So we’ll get into whether it’s a franchise in the traditional sense. But we’ll also look at how much owner-operators get paid and how much it costs to buy into the company.

So let’s dive in!

Who is Grocery Outlet?


If you don’t know Grocery Outlet Bargain Market, they are a nationwide chain of bargain grocery stores.

They are a full-stop shop, meaning they carry all main types of grocery store items including produce, meat, and seafood. However, they focus on close-out items, short-dated items, and other low-priced items with prices that are often up to 60% lower than other grocery stores.

They were founded in 1946. They’re also a publically traded company and currently have well over 300 stores in the US.

Unlike a Wal-Mart or other chain, Grocery Outlet’s offerings often change from month to month depending on what items are available. So only about 20% of the merchandise are items you’ll find every single visit.

Also unlike conventional grocery stores, or even places like Whole Foods Market where I worked for 2+ decades, Grocery Outlet stores are independently owned and operated in what looks like a franchise arrangement.

If you’ve never been in a Grocery Outlet, they are a little smaller than a conventional grocery store (anywhere from 10,000-15,000 square feet). And they might have anywhere from 15-30 employees, which is also smaller than most conventional grocery stores.

The average Grocery Outlet Bargain Market does $130,000 per week in sales. By comparison, the stores I ran for Whole Foods Market did anywhere from $400,000/week to over a million a week.

But given Grocery Outlet’s focus on low-priced bargain items, and often being positioned in low-income neighborhoods, the lower sales model isn’t surprising.

What is the Grocery Outlet Independent Operator Program?

Rather than simply hiring store managers like most grocery stores, Grocery Outlet prefers to find what they call independent owner-operators, the vast majority of which are married couples.

While my friend who is an owner-operator is a solo operator, they almost exclusively hire couples feeling like their business model works best with 2 people in the lead. Given my friend just took his first 3 days off in 8 months, I can understand the benefit of sharing the workload!

As an independent operator, you control the employees and the possible HR headaches.

So in that sense, it’s a great deal for Grocery Outlet. After all, most grocery stores spend a lot of time and money on an HR team, unemployment hearings, and processes, as well as mediating conflicts between employees or between employees and managers.

How much does it cost to become an Independent Operator at Grocery Outlet?

As an independent owner-operator, you buy into the company, typically somewhere in the $200,000 range.

The good news and bad news is that you can finance most of this initial investment through Grocery Outlet. That means you’re beholden to them for a quite a while as you pay that back.

Do plan to have a minimum of $25,000 to invest though.

They are kind enough to not require interest payments below a certain sales volume. BUT that interest is still accruing in your account, meaning you will eventually have to pay it back.

As an owner-operator, while you are 100% responsible for the employees, you still have to buy from Grocery Outlet warehouses and approved product vendors (so they get a cut on the front end and the back end).

You also can’t stray too far from their overall business model.

They call the process “shared risk” with the owner-operator buying most of the equipment in the store (from refrigerated cases to grocery carts, to cash registers, to forklifts). Even if an owner-operator is buying an existing store, these expenses still have to be purchased from the company or the previous owner-operators.

For brand new stores there is also an additional expense of training the employees. That cost too falls to the owner-operator and can run upwards of $70,000.

From a purchasing standpoint, the good news is the owner-operator does not pay for merchandise until it sells so that at least helps keep weekly cash-on-hand needs on the lower side.

What is the Grocery Outlet operator agreement?

The original agreement founder Jim Read had for his owner-operators was written down on a napkin. That was for the first owner-operator, Leonard Downs.

But the company has grown quite a bit since then. Being publically traded now, the company also is under a lot more scrutiny and legal eyes. So it’s not surprising the agreement has become very formal.

First, you have to qualify. After all, they don’t just give these stores to anyone.

They require their owner-operators to have “five years of retail management experience, as well as proven marketing and community skills, merchandising skills, hiring, teaching and coaching skills, and financial and business skills and meet additional financial and background qualifications.”

Then, once you qualify, you’ll be in a training position (what they call their “aspiring operators in training” or “AOT” program) for about 6 months at one or more of their existing stores working with a seasoned owner-operator learning all the processes you’ll need to know to run your own store.

The training program may or may not be in a store in your area, so understand it could mean temporarily relocating.

The typical candidates to be an owner-operator with Grocery Outlet is going to be a married couple who have both worked as store managers for a large retailer. That could be Wal-Mart, Target, or a grocery store.

They are most likely going to be middle-aged. Maybe hit the salary cap at their current employer, or maybe even been laid off. So they are looking for an outside the box opportunity since starting over with another retailer would often mean a much lower salary.

You can read greater detail on the independent owner-operator program on Grocery Outlet’s website.

Is Grocery Outlet a franchise?

Yes is the short answer.

By definition, a franchise is simply a business opportunity where you buy into an existing company in the hopes of not only making that money back but also generating an above-average salary for that type of work.

You pay for their brand name, the systems and business model they already have in place. In exchange, you get to share in the profits you generate by driving sales.

While it’s not the same level of freedom and flexibility as truly owning your own grocery store, there is safety in having Grocery Outlet’s systems and team to assist and guide you. In other words, like working for an employer, you still have to follow rules that other people set. BUT, unlike most employers, you do have greater freedom to make the decisions that you think are best for your store.

And if your decisions drive additional sales or profit, you benefit directly when you get paid.

So it makes sense for someone who has a little cash on hand but doesn’t want the risk that comes with opening their own business from scratch. In Grocery Outlet’s case, the grocery industry is EXTREMELY competitive. Meaning there are grocery stores every few blocks in most major cities.

If you decided to open your own 10,000 square foot grocery store, you stand a very good chance of going out of business trying to compete with Safeway, Wal-Mart, Whole Foods or Trader Joes. So if grocery is your background, buying into a Grocery Outlet franchise might make sense.

How much do Grocery Outlet owners make?

The model at Grocery Outlet works by paying the owner-operator a fluctuating pay based on the gross profit a store generates. So it varies.

Now Grocery Outlet is quick to imply that their store owners make well over $120,000/year. However, the website Glass Door, which independently tracks job salaries, shows their average owner-operator annual pay between $97k-$107k for a year. So a slight difference.

It’s also worth noting that Glass Door’s reviews are pretty kind to Grocery Outlet.

They give them a 3.4-star rating (out of 5). They also get an 89% approval rating for the company’s CEOs (Eric Lindberg and MacGregor Read). By comparison, Whole Foods Market rates 3.6-stars and 65% approval.

But going back to the salary, I can tell you that of course, the more sales a store does, generally the better the gross (and net) profit.

After all, a store doing $85,000/week in sales probably could do $100,000/week in sales without needing to hire any more additional people. That naturally makes a store more profitable.

That being said because the potential to drive sales in your store is theoretically unlimited.

So is your salary potential, and there are owner-operators making $200,000-$300,000 in a year. For a couple who run a store together, that would be the combined salary potential; not each.

Above, I mentioned a 6 month training period when you first come on as an independent owner-operator. Just be aware the salary is fairly low during this period, often as low as $60,000/year.

Who is Grocery Outlet owned by?

James Read founded Grocery Outlet in 1946. At that time he called the store Cannery Sales as he focused mostly on reselling government surplus canned goods.

His sons, Steven and Peter Read took over after their father’s death in 1982.

The current CEO of the company is Eric Lindberg, with former co-CEO MacGregor Read now in the role of Vice-Chairman. MacGregor is the son of Steven Read and Eric is the son-in-law of Peter Read.

In terms of true ownership, the company is currently owned by private equity firm Hellman & Friedman LLC, who bought it from another equity firm, Berkshire Partners LLC, in 2014.

They changed the name from Cannery Sales to Canned Foods in 1970. Then from Canned Foods to Grocery Outlet in 1987, and then became Grocery Outlet Bargain Market in 2009.

What is the “Grocery Outlet” business model?

In very simple terms, as Grocery Outlet puts it, “we buy, you sell” (you meaning the owner-operator).

The Grocery Outlet warehouse buyers find the best deals available from lots of well-known brands. These could be cases of Captain Crunch cereal that got misplaced by the Captain in a warehouse somewhere and now only have 3 months left of the use-by date.

But it might also be a great deal on a trendy brand of coconut water or kombucha.

Grocery Outlet computers know what’s on hand in the warehouses and store owner-operators order that product. Since most products are limited in quantity, the operators who order the earliest usually get the best stuff and are more likely to get everything they order.

The early bird gets the worm, and my friend who is an owner-operator usually starts his day at 4 am.

Because only 20% of the products are year-round items, Grocery Outlet owner-operators are constantly doing resets of their shelves to accommodate new items or reduce space for items they can’t get any more.

Because Grocery Outlet stores are smaller and lower sales volume than the stores I ran, they are not as departmentalized.

What I mean by that is at Whole Foods, someone who works in the cheese department doesn’t also cashier or stock apples. In Grocery Outlet, however, virtually all employees go where they are needed. The upside to that is a highly flexible workforce.

The downside is you have a store of generalists instead of specialists.

As the owner-operator, you buy products from Grocery Outlet, and you not only pay them for those products, but they get a cut of the profits too, so they make out like bandits getting a cut on every side.

Now I don’t fault them for wanting to make money; there’s nothing wrong with that. And ultimately it’s their name on the sign and their success is in the hands of the independent owner-operators.

So is the Grocery Outlet Independent Operator Program a good deal?

Ultimately it makes sense for some people and not for others.

If you’re semi-retired from retail management, over age 40 and finding your career options limited and have a little flexibility (such as being an empty-nester), and you have some savings on hand you can access, this could be the right move for you.

I say the above as you need the flexibility to possibly temporarily relocate for the 6 months of training you’ll undergo once your application gets approved (they don’t take just anyone).

You also ideally need to be married to someone willing to run the business with you. At the very least, you should have a friend or other business partner as they very rarely take solo operators.

You’ll need to have at least $25,000 in cash you can get your hands on for the initial investment. And of course, that’s in addition to borrowing upwards of an additional $175,000 from the company which you’ll pay back with interest.

Because of the possibility of some long hours (my friend often works 4 am to 9 pm), this job is not for a couple with young children. But as you get your store dialed in, staffed well, with the right systems in place, you can, of course, cut back on those grueling days.

But this is not a job for someone not willing to put in a lot of hard work.

So ultimately this is not something I would do as I have 3 young children and a wife I enjoy spending time with who wouldn’t be able to run the store with me.

But for others, especially those in their 40’s or 50’s with a lot of experience who find that employers aren’t receptive to paying them what they are worth, it could be a great opportunity.

It is definitely a great deal for Grocery Outlet, and that shouldn’t go unmentioned.

After all, you pay them to buy in, buy the products from them (so they make money on the wholesale side), give them a percentage of the profits plus interest on the money you borrow from them.

And you have all the potential headaches of HR, customer and employee liability in the case of injury, and other things that cost retailers a lot of time and money.

So it’s clearly a win for them. But for the right person, it could be a win for you too.

Final Thoughts

In this article, I took a look at the world of Grocery Outlet and their owner-operator program.

The program is essentially a franchise program. That means limited ownership and control and shared risk. But the possibility of a very good salary once you get your store dialed in.

I personally spent more than 2 decades with Whole Foods Market in leadership positions. In addition, one of my best friends is an owner-operator for Grocery Outlet. So I brought a great deal of experience and knowledge to the writing of this article.

Are you considering joining Grocery Outlet?

Photo credits which require attribution:

Grocery Outlet in Eugene, Oregon by Rick Obst is licensed under CC2.0