Several readers have shared their thoughts about my recent column, which discussed “How much profit is the right amount?” in business today. Some believe stores should just raise prices to make more money and become more profitable.
That’s a nice thought, but it usually isn’t that simple in U.S. commerce these days. Every type of business has competitors, and those foes will find a way to undercut your plans as they constantly try to steal your profits. That national average of a 10-percent net profit margin in business requires owners to make zero — or very few — mistakes, if they are to succeed.
But, if you want to take the biggest business risk and truly “live on the edge” in American commerce today, go into the grocery business. The national average grocery store profit is 2 percent — or 2 cents of every dollar spent.
Put another way, every time a customer spends $100 for groceries, the store gets to keep $2 after paying all the bills. That’s all. How on earth can a store ever make money, with such a small profit margin?
The answer for grocery stores is volume. They make their money by doing massive amounts of business, and taking in many dollars, just so they can keep a few.
As the website chron.com points out, grocery stores may not make much on any one item, but it’s the rare shopper who only buys one item. That’s why stores provide big shopping carts for their customers, along with smaller carts. If they can sell you 20 items or more, they will make lots more profit than if you had only bought one item on that shopping trip.
This doesn’t mean that a store pays its supplier 98 cents for a can of soup and sells it to you for $1, because there are many other expenses in between those two prices. The owners had to construct a large building, heat it in winter and cool it in summer, pay taxes and maintenance on it and keep that big parking lot out front paved and safe for customers (plus, pay property taxes on all that land, too).
Refrigeration and freezer space is required 24 hours every day, good advertising is needed, plus each store’s light bill is massive. And, don’t forget all the cash registers and computers — plus smiling, helpful employees who must be hired to work all kinds of schedules, usually across long hours seven days every week.
All that to make a 2-cent profit on every dollar you spend. While it’s a challenge, the food store business succeeds because everybody has to eat. And grocery stores want to get their own two cents’ worth of your business, every time you shop.
Opinions offered in this column are the author’s alone and do not necessarily reflect the opinion of the Tri-County Times or its staff. Email Mark Rummel at email@example.com.