A Complete Guide to Opening A Grocery Store

Grocery stores are a vital component of any society, as they are where people go to buy food and other necessary household items. Although there is an increase in the availability of online grocery shops, most customers still prefer visiting a physical store to choose their own groceries. Regardless of any trends, emergencies or prevailing situations, the demand for a grocery store does not diminish. Unlike other retail items, such as clothing and furniture, the demand for groceries is frequently recurring, with most people going grocery shopping at least once every week.

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Opening a grocery store can be an immensely successful endeavour, depending upon the location of the store and the variety of goods offered. Based on the products sold, there are numerous types of grocery shops. These include those selling fresh produce, dairy, meat, staple foods, grains, packed food, novelty grocery ingredients, regional food, international food, and household goods. There are also cuisine and diet specific grocery stores, for example, for Chinese food or vegans.

It takes a significant amount of time, effort and money to open a successful grocery store. By knowing all the details about how to launch a grocery store, you can increase your chances of success. Here is a step by step guide on how to open a grocery store.

Step 1: Understand the Costs Involved

Opening and operating a grocery store is expensive. Based on the products sold, and the region, there are multiple licenses required. Also, major categories of groceries are perishable, and cannot be kept indefinitely. Any existing perishable stock must be carefully and accurately monitored, so that expired products are not sold.

Understanding the costs can help you prepare an accurate financial plan. While you can expect reasonable profits from grocery store, it can take time to get established and figure out a supply schedule that matches your sales frequency. Therefore, it is ideal to have enough funds for at least 2-3 months before depending upon the profits. Apart from running costs, there are additional one-time costs involved for setting up the grocery store.

Here are some of the major costs you should plan for:

Location

Whether you are renting or purchasing or building a store, the location costs are going to be a major expense. Depending upon the locality, costs can go higher or be more affordable.

For any store, location is important, but even more so when it is a grocery store. There are already many grocery stores in the market, and so, to beat the competition and make your own place it is vital to choose the right location. The ideal location should be close to customers, easily accessible, has ample parking and is at a sufficient distance from any similar competing grocery stores.

Licensing

For a grocery store, licensing can be complicated, especially if you plan to offer multiple categories of perishable food items. Based on the state where you are opening the grocery store and the products for sale, the required licensing and licensing costs can vary.

In Australia, the licenses and permits for retail and wholesale are managed by the state or territory governments directly. There may be separate licenses for dairy, meat, produce, alcohol, plant products, and ready-made foods. Consider what categories of food you would be selling, and accordingly plan costs for the licenses.

Inventory

Any store needs to have an inventory of products that would be sold to the customers. For a grocery store, inventory costs tend to be higher, based on the products stocked. As many grocery products are perishable or have a ‘sell-by’ date, inventory cycles need to be completed on time, regardless of sales. For some product, the costs may vary depending upon season.

Inventory management will improve over time, as you gain a steady flow of regular customers. Nevertheless, for the first few months, keep a reasonable budget to fully stock your inventory as required. This includes variety of products and quantity of each individual product.

Staff

Based on the size of your grocery store, you would need to hire staff. Employees would be required to stock inventory, help customers, and carry out transactions. For a larger grocery store, a few managers might also be needed. Initially, the staff will also have to undergo training, incurring additional costs.

Utilities

Another recurring cost is of utilities. There will be expenses for electricity, water, and depending upon location, heat and air-conditioning. For frozen products, there will be additional costs of high-power freezers and refrigerators.

Equipment

To set up a grocery store, you will require several types of equipment. In contrast to inventory, rent and staff payments, the equipment costs will most likely be a one-time investment. This would include, store shelving, aisle setups, signage, shopping baskets/carts, and cleaning suppliers. For refrigerated goods, you would need additional storage coolers and display refrigerators.

Apart from the display and store equipment, you would need a point of sale (POS) system for the checkout lanes. A POS system involves the POS hardware components and software. Depending upon the number of checkout points you wish to setup, the cost of the POS system can vary. In addition to the POS system, if you want to support card payments you would need an EFTPOS and payment processors.

Step 2: Prepare a Business Plan

At the foundation of any sound business is a business plan, acting as a blueprint. The more time that you spend in developing a sound business plan, the easier it will be to launch your grocery store. A business plan should outline how your grocery store differs from others, who is the target audience, how do you plan to succeed, and what time frame do you expect the entire process will take.

There are several components of a business plan:

Business idea

The core business idea behind your grocery store will be a key indicator of the likely success of the venture. There are plenty of grocery stores in the market, how do you expect to set yourself apart from the competition? What is the USP or unique selling proposition?

For a brick-and-mortar grocery store, the business idea needs to correspond to the location of the stop and the competition in that area. A business idea can be anything from offering products in an area with few full-service grocery stores, or particular niche products in a location with that demand.

Funding

A grocery store involves a significant amount of funding to launch and operate. While there is great earning potential from a well-run grocery store, you will need funding to begin with. Consider the basic costs involved in opening and operating a grocery store. How are you planning to fund it? Will it be individually funded? Are there investors involved? Having clarity at the outset helps avoid situations where you are short of funds for running or launching the grocery store.

Business Name

Choosing a business name can be fun and exciting, and it is a big step in bringing your business to life. Nevertheless, choosing an appropriate business name is an important decision, since it will effectively represent your business to the public and be the basis of branding efforts in the future. When choosing a name, select a unique name that resonates with your business idea, is memorable and does not resound with any competitor names. Verify that the name has not already been used, and if a domain name is available in case you plan to expand to selling online.

In Australia, every business before operating requires an Australian Business Number or ABN. Also, you should register your business with the Australian Securities and Investments Commission (ASIC) to be able to operate in any region or state. Keep in mind, registering with the ASIC doesn’t make your business name exclusive. For an exclusive business name, it would need to be registered as a trademark.

Customer Research

At the core of any business are its customers. Before you launch a grocery store, thoroughly research the target customers. Are they interested in your business idea? Where are they located? What are their shopping patterns? What are their needs and preferences? It is only by understanding your targeted customers that you can run a grocery store with consistent success. Even minor details such as what time people prefer to shop can help you, as you can use that information to influence your store timings.

Competitor Research

Every industry, business, and niche have some form of competition. This can be in the form of nearby stores, shops in the next town, similar shops, and also eCommerce websites. Conduct an in-depth research of where your targeted customers currently shop. Also check, which grocery shops are in the vicinity, and what product range do they offer? How are their pricings?

If there is a significant clash between the competitors in a particular area and your business idea, you may need to revise either your location or USP. With an existing store that has a similar offering, it would be difficult to establish the presence of your grocery store, unless you offer sizable price cuts.

Identify Products

Guided by your business idea, finalise a list of products that you are planning to offer in your grocery store. The best way would be to move according to categories, so that you can make sure that you know which licences would also be needed. Analyse your target market and competitors to find any products that might have been left out. Also identify unique products that you can offer to your customers, and can help in building your brand image.

Identify Suppliers

Apart from a finalised list of products, you also need to have a list of suppliers that will provide you with the products you intend on selling. According to the categorisation of the products, check that you have a reliable supplier available that can provide you with quality products on time. Also, verify the costs of the products, and the financial model you will use with suppliers.

Check with the suppliers how frequently deliveries would take place for finalised products, and the delivery schedule in general. Problems with suppliers can disrupt inventory management and harm your overall image in front of customers.

Marketing Strategies

Marketing is a powerful tool that no business can afford to ignore. It is through marketing that you can reach your target audience and increase awareness about your brand, sparking interest in potential customers. Consider where does your target audience spend most of their time and utilise those mediums for promotion. For a specialised store, you can post on niche forums and discussion pages. Since a grocery store will depend upon nearby customers, explore local promotional mediums.

Try to develop marketing strategies for different stages of your grocery store journey, for example, before the opening, soon after the launch, a month in, and long-term strategy. Keep the strategies flexible so that they can be adapted based on the customer response.

Step 3: Register the Business

With a detailed business plan and a clear vision on your grocery store, you need to register the business and make it official. This involves defining the legal structure of your business, applying for required licensing and registering for taxes.

Legal Structure*

The legal structure of a business influences setup costs, how they can raise funding, how they will pay taxes, and overall asset protection. In Australia, there are 4 primary types of legal business structures that are recognised.

i) Sole Trader

A simple and straightforward legal business structure that is also easy to set up and inexpensive is the sole trader. An individual files as a sole trader, becoming entirely legally responsible for the business, including losses, debts, and day-to-day business decisions. The sole trader gets full control and unlimited liability, with the tax returns being filed from the individual’s personal tax file number.

ii) Partnership

A partnership legal business structure involves 2 or more people registered as partners that share losses, liabilities and income from the business.

Partnerships can be of three types: General Partnership (GP), Limited Partnership (LP) and an Incorporated Limited Partnership (ILP). In a GP, all partners have an equal amount of responsibility and liability towards the business. In a LP, the partners have a liability based on their contribution to the business, with passive investors having minimal involvement in daily management decisions. An ILP involves multiple partners, with at least one general partner who has unlimited liability and would be personally held responsible for losses or debts.

iii) Company

An independent legal entity, a company has the same rights as individuals to sue, be sued, and take debts. Although setting up a company can be expensive and a complicated process, individuals involved would not have liability for any debts or losses of the company. In a company, directors control the business operations and shareholders have ownership.

iv) Trust

In a trust, a trustee is appointed by beneficiaries to hold business assets and be legally responsible for the operations of that business. Setting up and operating a trust can be expensive and would require a formal trust deed outlining the operations of the trust.

Requisite Licensing

As edible commodities are sold, the licensing requirements for a grocery store are more complex than traditional retail shops. The specific licences required will depend on the concerned state or region and the products sold. Local governments act as the enforcement agencies for food businesses such as grocery stores, supermarkets, restaurants and cafes. There may be different licensing requirements for selling plant products, meat, dairy, eggs, alcohol, medicines, ready to eat food, and other items.

Registering for Taxes

Every business is required to pay business taxes and registration is mandatory for the tax file number. Based on the legal structure of your business, the number of employees and annual turnover, other taxes and registration requirements may be applicable. For example, An Australian Business Number (ABN) is needed to trade within the country, Australian Company Number, Goods and Services Tax (GST), and Payroll Tax. Other state and federal levies would depend on your business type.

Step 4: Choose Business Tools

There are several business tools that you can use to help your grocery store run smoothly, while also saving on costs of hiring extra staff. Identifying these tools and selecting those that have the best fit with your needs in advance will make the tools easier to implement.

Inventory Management

Grocery stores typically deal with large volumes of products with varying expiry dates, and so effective inventory management is crucial. Using an SKU (stock keeping unit) setup along with a barcode system can help streamline the inventory management process.

Employee Management

Even a small grocery store would need a minimum of 3-4 employees, while larger stores can have anywhere above 15 employees. From the beginning itself, having an employee management system will help you monitor the staff and maximise performance.

Customer Relations

Encourage repeat customers by having a customer relations program in place. This can include loyalty points, membership clubs, additional coupons, and anything in between. Having a customer relations program in place at the time of the store launch will enable you to offer consistent services and scale up as required.

POS System

A point of sale (POS) system has become a vital part of every business that deals with customers, from retail shops to restaurants, healthcare and more. It is set up at the checkout points of your store, and identifies the products selected by customers, generates bills, and completes payments.

A POS setup involves hardware components such as an operating system, display, barcode scanner, receipt printer, EFTPOS, and cash drawer, with add-ons available depending upon need. For a grocery store, a weighting scale is a great bonus component. Apart from the hardware, you also need POS software. An effective POS solution can also help you with accounting, payments, inventory management, employee management, customer relations, and advanced reporting.

Accounting

Every business requires accounting to keep it running smoothly. Instead of hiring staff for accounting, there are plenty of accounting software tools that you can try. There are also accounting tools that can connect directly with your point of sale system, and recording and syncing each transaction as it takes place. Software tools for accounting improve accuracy, reduce need for manpower, and securely store all the data for future use.

Step 5: Set up the Grocery Store

Once all the details of the grocery store have been worked out, it is time to set up the actual grocery store. Based on your niche, consider how you want the store layout to look, and if you want to invest in a professional designer or use your own inspiration.

Finalise the Location

Choose the final location for your grocery store, and complete all the formalities. Make sure that there is sufficient space for all the products you plan to offer, and that it is close to the target audience.

Prepare Store Layout

Using the floorplan of your location and inspiration from grocery shops in a similar niche, plan out how you want to layout the products and different categories. Decide where you want the aisles to go, ensuring that there is sufficient spacing for carts to move through. Will the customers have to go through each aisle to exit, or is the layout flexible? With a detailed floorplan ready, set-up the aisles and the display areas, allocating space for where products would go.

Setup the POS System

Identify and setup the checkout spaces, and all the required POS hardware components. Install the POS software and check that the payment methods you want to offer are functional. Confirm that the POS system is fully integrated with the other business tools. Enter all the products on sale into the inventory database using the barcodes and SKUs.

Hire Staff

Find capable workers to hire and train as staff for the grocery store. The number of employees should be proportional to the size of the shop and the number of expected customers. For a grocery store, it is especially important that the employees know the location of each product in the store, so that they can guide the customers.

Display Products

The last step before officially opening the grocery store for customers is to stock up and display products. As many grocery items are perishable or have a limited validity, it is ideal to setup the entire store and everything else first, so that products spend minimum time on display before the store opening. Position the most important products at eye-level, and showcase small items near the checkout counters.

Step 6: Official Launch

With all the products ready on display, a trained staff on hand, and an effective POS solution on the standby, all that is left is the official launch! Choose a date and make sure to publicise the opening in advance. Plan special discount deals and offers for the first opening day or even the first week. Most importantly, make sure that all the products that are sold are fresh. For a grocery store, having expired or stale products can dent the reputation.

Step 7: Consider a Supporting eCommerce Website

Online shopping has gained massive popularity, with many customers turning to online eCommerce websites for their purchases. For a grocery store it can be a challenge to manage the delivery of perishable products or those items that require cooling. However, with a suitable delivery setup, you can also extend your grocery store offerings to home delivery mode and eCommerce.

There are a variety of eCommerce platforms available that can be easily setup and even matched to the appearance of the storefront of your grocery store. To manage inventory, you can use an integrated POS solution that can collate the in-shop and online sales. A few of the popular eCommerce platforms include Magento, Shopify, and BigCommerce. Launching an eCommerce website is a great way to boost sales, and make a name for your brand in the market.

Conclusion

Opening a grocery store can be a lengthy and challenging process, but there is great potential for rewards and success. Groceries are a necessity that customers purchase on a regular basis. Having a sound and well-thought out business plan can help you develop a grocery store that will be successful and suitable for the concerned location and target audience.

The major challenges in opening a grocery store are finding a suitable location that is away from competition, getting the multiple required licenses, and setting up a suitable inventory cycle. With enough planning and hard work, you can open a successful grocery store, and even expand to an eCommerce website.

Take the use of our tips to help guide you on the journey of opening your own grocery store.

*This information is for general purposes only. Please seek professional advice to ascertain the best legal structure to suit your situation and needs.