I once heard that supermarket profit margins were pretty low - maybe 2 or 3 percent. That would make it pretty bad compared to other industries.
Can anyone confirm for me the profit margins of the average supermarket?
Thanks.
As an industry, the larger supermarkets have had pretax operating margins during the past 10 years of 4.5% to 6.9%.
Net Profit margin after tax has ranged from 1.0% to to 2.1%
The lows occurred during 1992. 1999 was their best period for operating earnings.
Because of the huge sales volume they are still able to return pretty decent return on equity numbers. These have been in the 13% to 25% range.
This is another one of those urban legends that everyone has heard and is only partially true if at all. I worked as manager of purchasing and distribution systems for a major supermarket chain in the Boston area for 4 years so I feel somewhat qualified to answer.
I guess the answer to your question depends on what you exactly you mean by profit margin. Most people take this to mean that items on the supermarket shelf are only marked up 2 - 3% over the cost that the supermarket paid to the manufacturer. This is patently false for the vast majority of products. In our company, the average gross margin was 12% and the typical range was between 5% and 25% gross margin. Some very visible, competitive items, called focal items, may have a lower gross margin but generally it is still above 2%. However, there is such a thing as a loss leader, such as turkeys at Thanksgiving, that the store uses to get people into the store even if it means a loss on that individual item.
As the other posters have stated, the margins are extremely low. barker is correct about the sales volume; a fairly large store (60,000 sq. ft.) can pull in 500-600K a week.
If you want to make your local grocer very happy, buy the store brand products whenever possible. The quality is as good or sometimes better than most name brand items; you save money; his margins are higher.