Ferret007 - -
An interesting question for those of us who are out shopping each day.
Let’s take the easy part first: what’s the typical or profile gross
margin for supermarkets? There’s a wonderful site called Bizstats
which profiles sectors of business from published reports and
government data:
Bizstats
Home page
http://www.bizstats.com/
According to their retail profiles for "grocery and beverage stores"
any store in the $15-$20 million range, the gross margins are 25.6%
(net margins are 6%).
If you check the grocery store sales for leading chains, you’ll find
from Supermarket News that this is the range for large chains such as
Kroger’s, Albertson’s or Safeway:
Supermarket News
"SN’s Top 75" (2002)
http://www.supermarketnews.com/sntop75.htm
If you look at earnings for Albertson’s or Kroger EBITDA (earnings
before interest, taxes, depreciation and amortization) you’ll find
that these net margins are good. Kroger reports net margins of 7.6%
and Albertson’s shows 5.1%. However, one must be aware that both
companies operate other retail stores, including pharmacies, gas
stations, convenience stores and even jewelry stores:
Kroger
"Financial Information" (2001)
http://www.kroger.com/Binary2/sec6a,2.pdf
Albertsons
"Annual Report" (2002)
http://www.albertsons.com/
You’ll also find the conclusion on net margins supported by this
McKinsey report on retail stores, which notes a supermarket target of
6% for one chain:
McKinsey & Co.
"Competing in a Value Driven World" (February, 2003)
http://www.mckinsey.com/practices/retail/knowledge/articles/competinginavaluedrivenworld.pdf
PRODUCT MARGINS
-----------------
But what are the highest and lowest gross margin items within the
stores? Using this Google search strategy produces some interesting
results:
supermarkets + "highest gross margin"
Interestingly, the Google search yields different results using
"highest gross margins", so you may wish to look at both.
supermarkets + "lowest gross margin"
supermarkets + "lowest gross margins"
According to a Canadian government study, the highest gross margin
items are in-store bakeries, with 51.2%. Second are prepared foods,
yielding a 50.3% gross margin:
Canada Agri-Food Trade Service
"Overview of the Retail Grocery Market in the U.S. Pacific Southwest"
(December, 1997)
http://atn-riae.agr.ca/info/us/e2013.htm#Margins/fees
A Dairy Management Inc. study on marketing of cheese, shows that
butter and margarine are the highest gross margin items in the dairy
case, with gross margins of 39.1%, while milk is the lowest at 29.4%:
Willard Bishop Consulting (for Dairy Management Inc.)
"Ahh, the power of cheese" (2001)
http://bishop-consulting.com/Reports/Cheese.ppt
The milk margins are interesting because consumers have long known
that it was priced as a 'loss leader' to draw in customers. This
report notes that milk has traditionally been among the lowest gross
margin items on a grocer’s shelf, with gross margins in the 25% range:
University of Connecticut (Prof. Ronald W. Cotterill’s page)
"Dairy Policy for New England" (2003)
www.sp.uconn.edu/~cotteril/Testimony22603.pdf
However, the lowest gross margins, at least for small stores in
Scotland, are cigarettes (at 7%) and wine & spirits (14%):
Community Enterprise Limited
"Community Shops" (1997)
www.celltd.demon.co.uk/Case%20Studies/Shop.htm
MORE SOURCES
--------------------------
There are two good industry sources for information about the
supermarket industry - -
Food Marketing Institute
Home Page
http://www.fmi.org/
and Fairchild Publications’ Supermarket News (referenced above):
Supermarket News
Home Page
http://www.supermarketnews.com
Neither site is particularly productive in gaining any insight to
supermarkets’ gross margins but you may find some of the FMI
publications useful. Available for purchase is one report that may
have more detailed financial data:
"Operating Results of Independent Supermarkets 2001-2002"
If any part of this answer is unclear, please let us know via a
"clarification request" before rating the answer.
Best regards,
Omnivorous-GA |
