Grocery stores are one of the cornerstones of small and medium-sized businesses. And they are always in demand no matter what is happening in the world. But if you’re considering starting your own, no doubt you’ve asked, how long does it take to build a grocery store?
Here’s what I know from helping build several:
As a general rule, a grocery store can be built in 4-6 months. However, the size of the store, whether it’s being built in an existing building or from the ground up, and how friendly the local government is to small businesses are all contributing factors.
Grocery stores are a $682 billion industry!
These stores are an indispensable part of our communities. And, they are good investments to boot. But, they’re not the best if you’re looking for really high returns on your investment. (I ought to get that out of the way).
Don’t get me wrong, they are profitable, but low profits are the norm.
In this article, we’ll explore how much money it takes to build a grocery store, how to start a small-town grocery store, whether owning a profit store is profitable, and other vital issues around investing in a grocery store.
Before I became a consultant, I was a general manager at Whole Foods for 20+ years.
Let’s dive right in…
Whole Foods has selected the #LBSU Basic Needs Program and ASI Beach Pantry to be a recipient of their 5% Community Giving Day! On Wed., Nov. 6, the NEW Whole Foods located on PCH and 2nd will donate 5% of the store’s net sales to support students in need so make sure you shop! pic.twitter.com/5itVWDXumA
— CSULB ASI (@CSULBASI) November 6, 2019
How much money does it take to build a grocery store?
A small grocery store can be built and stocked for as little as $500,000, whereas a large grocery store may require as much as 5-10 million dollars or more. Cost savings can be significant if simply renting an existing building as opposed to building from the ground up.
Grocery stores come in different shapes and sizes, so the cost of building one depends on a couple of factors.
As you know, the cost of real estate varies from place to place. If you’re planning to build a store in Idaho and someone else is planning to set up theirs in New York, you’d be looking at different budgets, right?
But as I said, opening a small grocery store in an existing building might only be about $500,000.
This ought to cover the cost of the land on which you’d have the store itself and a small parking lot and the actual cost of construction, equipment, permitting, and the initial product orders.
Now, every project is unique, so there will be variations from one to another.
Below I’ll share some costs that may be common.
- Architect fees – 17%
- Builder fees – 14% (Plus an additional 14% to 15% extra on top of costs)
- Equipment Fees – 8%
- Construction material – 40%
- Outfitting (finishing costs) – 38%
Expect to use the following professionals at these rates:
- Excavators – $70/hour
- Mason – $70/hour
- Carpenter – $70/hour
- Electrician – $40 – $120/hour
- Painter – $49/sq.ft.
- Plumber – $45 – $200/hour
- Structural Engineer – $100 – $500/hour
Of course, as I’ve said, if you are just renting an existing building, that will bring the costs down.
And if that building was already a grocery store previously and still has the fixtures and equipment, that can save you substantially more.
Same in Matthew, NC. Costco a huge asset to the whole region of NC. We need one in Rockingham.
No news crews there as people act like human beings always do in #NorthCarolina.
Free food samples are history. No issue there during a #WuFlu pandemic. pic.twitter.com/OoCkUu1PLW
— Statue Loves Trump (@SLT20201) March 15, 2020
How do I start a small-town grocery store?
Start a small-town grocery store with a simple business plan that outlines:
- Projected sales
- Customer demographics
- Equipment needs
- Available product distributors
Then start the process on the following:
- Open a business checking account
- Secure any financing needed
- Incorporate your business
- Register your business with the IRS and state
- Check with your local business planning office on permits required
If you’ve never done anything like this before, it would also be a good idea to hire a consultant. That could be a small business attorney, but it could also be an expert in your town.
Another reason why the business plan is important is that it is a requirement most financiers want to see before they loan you money or invest in your business.
What are some of the stuff it would cover?
Sales projections will be crucial as they will determine how many people you need to hire and how much product you need to order.
Demographic info on your customer base is also crucial, although it may be simple in a really small town.
But the average age, income, education, and likelihood of kids will all affect what kinds of foods you should stock.
A vital part of the plan should show why you think a store such as the one you’re about to start has a market.
Is there a gap you’ve observed in your town/city?
A gap is simply something there is customer demand for that no other store is offering. An example could be one of the following:
- Gluten-free or vegan foods
- Organic foods
- Gourmet foods
An alternative to starting a grocery store on your own is to opt for the franchise route.
In a recent article of mine, I looked at the upsides and downsides of Grocery Outlet, a grocery store franchise program. Is it worth it? To write that article, I went and worked for 3 days in a Grocery Outlet store one of my best friends owns.
Just click the link to read it on my site.
Investments In Same-Day Fulfillment, Private Label Grow Target’s Grocery Sales https://t.co/ajNUK9cowI pic.twitter.com/PnbU1O4z2F
— nmachi jidenma (@nmachijidenma) May 19, 2021
Is owning a grocery store profitable?
Owning a grocery store is profitable. The bottom-line profit of conventional grocery stores is 1-2 %, while 2-4% is more typical for independent grocery stores. And natural or gourmet stores may see as much as a 10% net profit.
5-12% is not uncommon for grocery stores such as Whole Foods Market.
Understandably, big stores can get quantity discounts seeing as they buy in bulk. Their marketing spend is more efficient because they have a lot of stores.
Smaller stores lack these upsides. This is why their profit is low. (That’s in addition to the fact that they are small operations).
The grocery store business is a volume business.
Owners rely on selling a lot of items as quickly as possible to make a profit. Most items have low margins and low markups (there are exceptions though).
It’s also a business where there isn’t much differentiation. You can simply go to another store if you are not happy with the high prices in one store.
Like other businesses, there are strategies you could employ to improve the potential profit of owning your grocery store.
So, you could earn more than the average profit, as long as you know that it’s a highly demanding business.
You and your employees will have to work hard.
But on a realistic note, because the average profit is low, the likelihood that an owner might make losses for years is also high.
Interested in a more detailed expose on grocery store profitability?
Check out a recent article of mine where I looked at themes such as the typical profit margin of a grocery store, how different departments markup products, the cost of starting a grocery store, and other related issues.
Just click the link to read it on my site.
ICYMI: A new Kroger store is on the way to save Uptown https://t.co/GoqoBEDhgW pic.twitter.com/HG3e0kP7u0
— Dallas Morning News (@dallasnews) February 2, 2016
What permits do you need to open a grocery store (and how long do they take?)
Some of the commonly needed grocery store permits include alcohol and tobacco sales, occupancy, zoning, fire inspection, building inspection, and sales tax. The permits needed to open a grocery store vary from state to state and can take 4-6 weeks or longer in some cases.
Ideally, the department of commerce should be consulted to know all that is required. Some permits are also provided by local authorities.
But, the best thing to do is to check out the government website of the state you live in, seeing as the nature of permits required varies from place to place.
And check out the section on retail food operations.
There you’ll have access to a form with which you could get the permit you’ll need to start a grocery store. It may take 4- 6 weeks to process once you’ve paid the fee. But it can also take a lot longer in some cities and states.
The number of inspectors and their backlog is a big factor.
But the occupancy permit, for example, won’t be issued until most of the others are in place, and you’ve passed inspection.
Then, and only then, will you be allowed to bring any food products into the store.
New #Sprouts store opens on Hwy. 72 West near Nance Road http://t.co/Hg3d2NUJR9 pic.twitter.com/OOmgE55VlV
— News 19 (@whnt) March 18, 2015
How long does it take a small grocery store to make a profit?
On average, it takes a small grocery store a minimum of 6 months before it starts making a profit. For that reason, always have enough capital on hand to sustain the business after the opening.
But there have been stores I opened that were almost instantly profitable.
So it really varies. How much competition there is, whether your location has a lot of drive-by traffic, and how you’re advertising are all factors.
But it’s also crucial that you have as accurate a sales projection as possible before opening.
That projection will feed your profit and loss statements. If you project and budget for weekly sales of $100,000 and you only end up doing $50,000, you’ll end up in big trouble.
After all, your product ordering and employee hiring will have been based on that higher number. Now you may find you are spoiling too much product and having to lay off people.
But also don’t forget about the J-curve.
Almost all stores start off strong out of the gate. Word gets around, and everyone wants to check out the new game in town. But not everyone who comes and shops at first will stay your customer.
It could be they are a bargain shopper, and you went gourmet.
So 2 months later, they’re back at Dollar General, and you’re wondering why your sales are down from what they were.
Don’t get me wrong. You can control the J-curve drop-off a little.
But expect your sales to drop off 20% from opening week. So, avoid the urge to stock up and hire up until you’re at least in week 3 or 4 following the opening.
And even then, hire flexible part-timers who can work more if needed.
Margin or mark-up? It can be confusing, right? Not anymore because a recent article of mine is about how both are calculated for retail. I explained both in a way that’ll help you grasp what both means and how to easily compute them.
Just click the link to read it on my site.
We looked at how much money you’ll need to build a grocery store and how to get started setting up a small grocery store.
Then, we proceeded to the elephant in the room: Is owning a grocery store profitable? We also checked out the permits you’ll need and how long it takes.
We called it a day by checking out how long it would take before a small grocery store makes a profit.
Want to talk with me about your project?
I do consultations all the time! I can chat via Zoom, Skype, or just a phone call. I charge $100 for 30-minutes and offer multi-slot discounts as well.
Just CLICK HERE to go right to my calendar to check out the available days and times.