What's the profit margin of a supermarket?

Supermarkets are often cited as among the types of businesses with the lowest profit margins. Supermarket giants such as Wal-Mart, Kroger, and Target have their stores, warehouses, and distribution centers that provide all goods to the end consumer. Grocery stores are also suppliers to fast food restaurants around them and distributors to multiple channels, including eBay.

As a rule, basic groceries and other essentials will have the lowest profit margin, with supermarkets being among the types of businesses with the lowest profit margins.

Supermarkets must work hard to keep their costs low. They have high fixed costs, such as buildings and equipment, that are not variable. Variable costs include wages for employees and payment for goods or services purchased from suppliers.

Definition of Profit Margin

The profit margin is defined as the gross profit divided by the total revenues, also known as return on investment (ROI) in simple terms. The higher your profit margin, the more income per dollar of goods being sold. When calculating revenue and profit, you must consider expenses, selling costs, and taxation when calculating net revenue.

Profit margin is the difference between revenue and costs. It measures how much you're making after operating expenses, taxes, and even depreciation. Profit can be calculated by subtracting costs from sales in a company's profit and loss statement. The common profit margin ratio is the gross margin percentage divided by revenue.

Supermarket Industry Overview

The supermarket or grocery store industry is largely fragmented. The top 10 supermarket chains account for 35% of the entire no. of stores. The top 100 supermarkets, retailing 4 percent of all food sales, have a market share that's twice as large as the average company’s market share in manufacturing or industrial businesses

Margins for Small Markets

According to a study performed by Kellogg University, smaller supermarkets can raise their profit margins by concentrating on customers who tend to shop between 9 a.m. and 5 p.m. on weekdays. The study found that 43% of the customers were between 45 and 64 years old, was predominantly female, and tended to be more cost-conscious than average shoppers.