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What's not stated is that "profitable" is still incredibly low. Supermarkets often have an average margin of 1-3% unless they go the pricey organic/health route

by Noos 9y ago

What's not stated is that "profitable" is still incredibly low. Supermarkets often have an average margin of 1-3% unless they go the pricey organic/health route, and it's natural they would seek every advantage to remain profitable. They simply don't have as much leeway as other types of businesses to support underperforming locations, even potentially. Regulation won't work at all. It just would wind up reducing the amount of stores overall, not force retailers to service poor neighborhoods. The only ones that will price for the added risk organically and are "last resort" retailers (bodegas), or are dollar store type chains, which generally sell substandard product but at high enough margins to endure for a time. Not much can be done. You can't legislate away numbers.

toomuchtodo 9y ago
If you absolutely need a grocery store in a poor area that isn't sustainable, you can form a co-op and then use government subsidies to prop it up. We subsidize all sorts of "unprofitable" services that have a societal ROI (libraries anyone?), no reason we shouldn't do it for grocery stores where a for-profit entity can't make it work.
- Noos 9y ago
  I don't think it would be possible to the scale needed. Well, not without burdening already overburdened local economies. A library is one per town or even region, and even they aren't really doing that hot despite being subsidized. Trying to support a multitude of co-ops (and managing them to make sure they actually are sustainable and survivable businesses) would seem to be a nightmare. I don't really know what the solution is. But it's not something like racism or ignoring untapped markets, where it can be solved by regulation.
  - jlg23 9y ago
    > Trying to support a multitude of co-ops (and managing them to make sure they actually are sustainable and survivable businesses) would seem to be a nightmare. On the contrary, the moment you create a big scheme like that all the large supermarket chains will queue up. With all the mandatory paper trail we already generate for every action involved, it boils down to.. exactly what supermarket chains are doing: * Central instance for management and purchases (the latter being optional for the "subsidized co-op"-model) * resale to quasi-independent sub-entities ("supermarket" or "co-op"). * Individual stores of chains all use the same software already; for the co-cop scenario that could translate to a FOSS-offer (hard requirement being: however you do it, legal accounting principles apply). I don't see a nightmare here, just a shift of terms and a slightly more flexible ERP configuration.
    - tajen 9y ago
      I've already seen hipsters building a coop supermarket. The idea that supermarkets jack up the prices, mistreat employees and blackmail providers is widespread (whether true or not). Those friends want to do good to producers and consumers alike and sidestep the "big evil companies". So some attempts exist and it's a good idea if poor-neighborhood coops invent better solutions than supermarkets concerning robbery and crime (only registered customers? know-your-customer schemes? the-boss-is-my-uncle effect?). However, I doubt they can have lower prices than supermarkets. Being a coop doesn't absolve you from margins and risk management.
- baddox 9y ago
  Isn't that generally approached from the other side, in the form of food stamps and similar programs?
amorphid 9y ago
As part of understanding profitability, I recommend focusing on gross profit and not cost of revenue. Here's a couple examples: Company A sells has total revenue of 1.01 million units, has a cost of revenue of 1.00 million units (1% margin), and a gross profit of 0.01 million units. Company B sells has total revenue of 1010 million units, has a cost of revenue of 1000 million units (1% margin), and a gross profit of 10 million units. A & B both have the same margins, but B had a gross profit 1000x more than A.
rahimnathwani 9y ago
"Supermarkets often have an average margin of 1-3%" They often have operating margins of 1-3%. Gross margins (what people usually mean when they say 'margin') are usually over 5%. Furthermore, neither operating margin nor gross margin are useful when considered in isolation. Supermarket chains are special because: 1) They have negative working capital: they receive payment from their customers before they pay their suppliers. 2) They have fast inventory turnover. Tesco's annual inventory turns are about 18x. So, for a given level of margin, they make twice as much as a normal retailer (e.g. Amazon's annual inventory turns are about 9x).
- lr4444lr 9y ago
  They often have operating margins of 1-3%. Gross margins (what people usually mean when they say 'margin') are usually over 5% What? Operating costs are a core part of running a business. In what industry are things like salaries, marketing, and admin costs actually ignored? The inventory in a supermarket is mostly highly perishable - fast inventory turnover is a necessity of survival, not an optional business strategy.
  - rahimnathwani 9y ago
    Please read my comment in context. I was responding to a comment which started 'What's not stated is that "profitable" is still incredibly low' and then stated as evidence that margins are 1-3% My main point is that these 'low' operating margins are not evidence of low profitability (due to negative working capital and fast inventory turnover).

by Noos 9y ago

toomuchtodo 9y ago

If you absolutely need a grocery store in a poor area that isn't sustainable, you can form a co-op and then use government subsidies to prop it up. We subsidize all sorts of "unprofitable" services that have a societal ROI (libraries anyone?), no reason we shouldn't do it for grocery stores where a for-profit entity can't make it work.

Noos 9y ago
I don't think it would be possible to the scale needed. Well, not without burdening already overburdened local economies. A library is one per town or even region, and even they aren't really doing that hot despite being subsidized. Trying to support a multitude of co-ops (and managing them to make sure they actually are sustainable and survivable businesses) would seem to be a nightmare. I don't really know what the solution is. But it's not something like racism or ignoring untapped markets, where it can be solved by regulation.
- jlg23 9y ago
  > Trying to support a multitude of co-ops (and managing them to make sure they actually are sustainable and survivable businesses) would seem to be a nightmare. On the contrary, the moment you create a big scheme like that all the large supermarket chains will queue up. With all the mandatory paper trail we already generate for every action involved, it boils down to.. exactly what supermarket chains are doing: * Central instance for management and purchases (the latter being optional for the "subsidized co-op"-model) * resale to quasi-independent sub-entities ("supermarket" or "co-op"). * Individual stores of chains all use the same software already; for the co-cop scenario that could translate to a FOSS-offer (hard requirement being: however you do it, legal accounting principles apply). I don't see a nightmare here, just a shift of terms and a slightly more flexible ERP configuration.
  - tajen 9y ago
    I've already seen hipsters building a coop supermarket. The idea that supermarkets jack up the prices, mistreat employees and blackmail providers is widespread (whether true or not). Those friends want to do good to producers and consumers alike and sidestep the "big evil companies". So some attempts exist and it's a good idea if poor-neighborhood coops invent better solutions than supermarkets concerning robbery and crime (only registered customers? know-your-customer schemes? the-boss-is-my-uncle effect?). However, I doubt they can have lower prices than supermarkets. Being a coop doesn't absolve you from margins and risk management.
baddox 9y ago
Isn't that generally approached from the other side, in the form of food stamps and similar programs?

amorphid 9y ago

As part of understanding profitability, I recommend focusing on gross profit and not cost of revenue. Here's a couple examples: Company A sells has total revenue of 1.01 million units, has a cost of revenue of 1.00 million units (1% margin), and a gross profit of 0.01 million units. Company B sells has total revenue of 1010 million units, has a cost of revenue of 1000 million units (1% margin), and a gross profit of 10 million units. A & B both have the same margins, but B had a gross profit 1000x more than A.

rahimnathwani 9y ago

"Supermarkets often have an average margin of 1-3%" They often have operating margins of 1-3%. Gross margins (what people usually mean when they say 'margin') are usually over 5%. Furthermore, neither operating margin nor gross margin are useful when considered in isolation. Supermarket chains are special because: 1) They have negative working capital: they receive payment from their customers before they pay their suppliers. 2) They have fast inventory turnover. Tesco's annual inventory turns are about 18x. So, for a given level of margin, they make twice as much as a normal retailer (e.g. Amazon's annual inventory turns are about 9x).

lr4444lr 9y ago
They often have operating margins of 1-3%. Gross margins (what people usually mean when they say 'margin') are usually over 5% What? Operating costs are a core part of running a business. In what industry are things like salaries, marketing, and admin costs actually ignored? The inventory in a supermarket is mostly highly perishable - fast inventory turnover is a necessity of survival, not an optional business strategy.
- rahimnathwani 9y ago
  Please read my comment in context. I was responding to a comment which started 'What's not stated is that "profitable" is still incredibly low' and then stated as evidence that margins are 1-3% My main point is that these 'low' operating margins are not evidence of low profitability (due to negative working capital and fast inventory turnover).