Markup and Profit Margins in Supermarkets
According to Supermarket News, the average markup for supermarkets is around 25%. A 50 percent markup is common for most retailers. This means doubling the cost to set the retail price. The industry standard for food costs is 28% to 32% of a menu price. So the markup should be at least 200%.
In 2016, the average American supermarket had total sales over $17 million. Some grocery stores bring in over $100k a day. Average Kroger store does $40mm, or $110,000 average per day.
The overall markup on staple goods is around 5 to 8 percent. Milk has a markup of around 30% to make up for losses from throwing out expired items.
Meat has a markup up to 60%. Precut or precubed meats are marked up much more. Most meat departments aim for a 30% markup to make up for losses.
Profit Margins of Supermarkets
What is the profit margin of a supermarket? In general, net profit margins for retail are considered to be lower than for other businesses and are typically in the region of 1.5% to 3.5%, though can be up to around 5% depending on the category of goods sold. Grocery stores have slim profit margins, ranging from about 1 percent to 3 percent of the sales price of an item.
The profit margin of a supermarket is essentially the difference between the revenue and the cost of goods sold. Competition and inventory management affect the profit margin. Supermarkets in areas with high competition tend to have lower profit margins. This is because they are forced to reduce prices to attract customers, resulting in lower profits. Proper inventory management can increase profits by reducing the cost of goods sold.
Online retailers may have the lowest profit margins of all retailers, as the need to offer competitive pricing to attract customers can result in product margins being eroded. The retail and commercial banking industry sees an average profit margin of 24%. Restaurants see an average profit margin of 3-5%. Generally, the gain is evident: the owner of a supermarket can receive a share that is between 2% and 3% of the entire turnover.
Walmart’s Markup and Strategy
What is Walmart’s markup? On average, Walmart marks up items 33% over wholesale costs. With $524 billion in annual revenue, they make $1.5 in profit for every $100 in sales. Most retailers double their costs to set prices, a 100% markup. But Walmart keeps prices low with small markups. Their strategy focuses on high volume over high margins. Meat sees the highest markups around 60%, while staples like milk average 30%. Precut meats can be marked up even more. Perishables have higher margins to account for losses from spoilage before sale. Inventory management is key for grocers to balance turnover versus waste.