How to Open a Grocery Store

Benefits of Opening a Grocery Store

There’s a lot of creativity that can go into opening a grocery store, and in a way, it’s recession-proof. People will always need groceries, but the type of groceries they choose can vary. For example, high-end food stores can thrive in affluent areas but may struggle when the economy sinks, and people search for lower prices. Luckily, there’s a lot of room to grow in the grocery industry, whether that’s offering grocery delivery, expanding to include a deli, or opening new locations.

How to Start a Grocery Store Checklist

Opening your own grocery store requires the right paperwork, a good location, and inventory for your store’s shelves. The most successful grocery store owners think of a unique business idea and jump in where there’s a market need. There are a lot of ways this can go, from focusing on organic foods like Whole Foods or bulk purchases like Costco or Sam’s Club. You may even want to forgo a storefront and open an online grocery. It all depends on your target market.

The first question with how to open a grocery store is whether or not to franchise. Franchising is more expensive, but it’s got a built-in base of consumers and much more support for business owners. Opening an independent shop is cheaper and lets you use your creativity, but it could be more difficult to attract a regular consumer base. Either way, this checklist can help guide you in the process.

1. Create a grocery store business plan

Most new businesses have a business plan. This helps put you on a targeted path to success by outlining your business model, target market, and financial projections. When you’re crafting a business plan, consider the following:

• An explanation of your business idea: Will you dive into e-commerce or go full brick-and-mortar?
• The location of your business: Small towns may lack grocers while cities have more competition.
• Cost projections: How many square feet does your store need? It’ll be more expensive in New York City than in a rural area.
• A competitive analysis: How are you different from the competition?
• An understanding of your target demographics: Who do you expect to shop in your store? Knowing your customers is the first step to serving their needs.
• A full idea of products: Are you selling deli meats, alcohol, prepared foods, or produce? In other words, are you opening a specialty store or a supermarket with a broad selection of goods?
• Potential grants or tax breaks: Depending on the specifics of your grocery store, you may be eligible for government assistance.
• Potential problems and solutions: Do you have a backup distributor? What happens when there’s a disruption in the supply chain?

You can check out our complete guide to writing a business plan for more in-depth guidance.

2. Choose a business structure

All businesses have to choose a business structure for taxation and operational purposes. This is the first step to obtaining a business license and filing taxes with the IRS. Many grocers opt for a limited liability company (LLC), but some small grocers might want to start a sole proprietorship — here’s the difference.

Sole proprietorships are the most basic form of business structure. They’re often used by one-person operations that don’t have a lot of liabilities (think: freelancers, those who own small e-commerce stores, etc). For a grocer, a sole proprietorship can offer a quick start with limited paperwork and lower costs, but it does not offer liability protection.

An LLC would offer personal liability protection, provided the business owner keeps their personal and business finances separate. This comes in handy in the case of a lawsuit. If your sole proprietorship is sued, your creditors can come after your personal bank accounts, house, car, etc. If your LLC is sued, your personal assets are off-limits. In general, this personal asset protection makes the LLC a better choice than a sole proprietorship for the vast majority of grocery store business models.

Like a sole proprietorship, LLCs also have a favorable tax advantage because you’re avoiding the so-called “double taxation” of a corporation. Instead of paying a corporate tax, profits pass through the business itself and the LLC’s members pay taxes on their personal returns.

To start an LLC, you have to file in accordance with state law. This can be done online with an LLC service like the one we offer.

3. Name your business

Your business name needs to be easily recognizable, but it also can’t be already taken because you can face legal repercussions. Nobody wants a lawsuit, so you should check local business registrations to make sure your idea is unique. After that, register a domain and your social media accounts. As a guideline, make sure the name reflects the kinds of foods your customers are looking for.

4. Register your business and open financial accounts

Before you can open your grocery store, you need to register your business structure, open all your accounts, and obtain the necessary licenses and permits. This requires some paperwork, and it will likely include:

• Registering your business structure.
• Obtaining an employer identification number (EIN) from the IRS.
• Obtaining the proper insurance, from general liability to workers’ compensation. If you have employees, there are certain insurances mandated by law, and you may also want to consider a group health care plan.
• Obtaining a business license.
• Obtaining a retail food store license (and/or a retail certificate).
• Obtaining a license to sell alcohol varies from state to state. For example, grocers in NYC need a Grocery Store Beer License to sell beer.
• Obtaining the necessary inspections and permits from the Department of Health, especially if you serve prepared and made-to-order food. These vary from county to county.
• Opening a business bank account.

In addition, you may want to purchase a membership to a trade organization — like the National Grocers Association (NGA) — that can guide you during the startup process.

5. Determine your grocery store business costs

The costs of a grocery store vary greatly based on the business model. Franchising a massive store isn’t going to cost the same amount as opening a small corner grocer. For example, the average cost of starting a Kroger store exceeds $400K. However, there are other costs, like inventory, supplies, business licenses, permits, and bonds, which can amount to an estimated $30K or more. You can cut your costs if you don’t franchise and lease a space already designed to be a supermarket.

To calculate the cost of starting your own store, add up fixed costs, ongoing expenses, and one-time costs. This includes everything from the cost of real estate, wages, insurance premiums, and utilities to initial inventory pricing, franchise fees, business taxes, equipment, and signage. Remember: different types of products have varying costs. Local, organic goods generally cost more than regular mass-market groceries. Refrigeration and freezers for perishables are also larger expenses.

How can you fund your startup costs?

Many grocery store owners and retailers need to seek funding for their shops — and this is where the Small Business Administration (SBA) comes in. The SBA can help new business owners find startup capital by helping them secure a loan or seek alternative options like grants, such as a food co-op initiative grant. There are also other options like rural grocery initiatives, but they require some legwork. Generally, many business owners turn to:

• Loans
• Business credit cards
• Family and friends
• Franchises that offer financing options

These all have their pros and cons. Look into the interest rates, time requirements, and possible emotional tolls. For example, some business owners feel more comfortable paying interest than they do owing money to family and friends.

6. Purchase equipment for your grocery business

Grocery stores need a lot of equipment to get started, especially if you’re not already leasing a building outfitted to be a grocery store. At the most basic, this includes:

• Commercial freezers and refrigerators
• Shelving and other furniture
• Cash registers and point-of-sale systems
• Shopping carts
• Signage
• Paper and plastic bags
• Industrial cleaning supplies
• Your starting inventory
• Office supplies

Some grocers may need supplies for a deli, like meat slicers and knives. Others need full-service kitchens for bakeries and prepared food. Some may need things like conveyor belts and scales for self-checkout stations. The size and type of grocery store you open make a big difference regarding your needs in this area.

7. Market your grocery business

In the digital age, all businesses should have a comprehensive social media strategy across major platforms like Twitter, Facebook, and Instagram. You should also consider registering your store with Google Business Profiles, Yelp, and other local business directories. Good reviews definitely help with word-of-mouth marketing, but where grocery stores really shine are the special offers.

To get more people in the door, you may want to consider a print campaign, such as a monthly circular showcasing daily deals. Remember that you’re competing with the likes of Amazon and Kroger. It’s tough, but it’s doable with solid marketing. Just make sure your profit margin remains sound.

Examples of Grocery Businesses to Start

Grocery store owners certainly aren’t short of options. For example, Costco acts as a wholesale club for consumers. Trader Joe’s grew its business by cutting out the middleman and working directly with manufacturers to provide unique goods at the lowest possible cost.

Whole Foods focuses on the organic and healthy eating market, and other grocers like Wegmans shine when it comes to prepared foods. The sky’s the limit, whether you’re a co-op, convenience store, large grocer, or cornering the e-commerce market.