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Every time I hear people talking about "grocery store margins" the numbers get smaller and smaller, and I suspect "Hollywood accounting" may be behind some of t

Every time I hear people talking about "grocery store margins" the numbers get smaller and smaller, and I suspect "Hollywood accounting" may be behind some of the numbers people are thinking/repeating. I can say some of the shops around here have always been pricey, but a Lidl came in to town and manages to undercut every other store by around 30% on pretty much every comparable item. Overall, stores making 0.5% profit simply doesn't add up. We've got more new chains moving in to the area, existing stores moving (merely half a mile away for access to better demographics), and this is all costing tens of millions in construction alone. Note: I realize that other regions may have store closures to balance this out too - some areas boom, others shrink. I can not believe multi-billion companies would be putting up tens/hundreds of millions to chase after these minuscule (and apparently shrinking) profit margins. Maybe I'm wrong. Or perhaps this meme of "grocery stores never make a profit!" is wrong, or at least overblown. A quick check up of a regional store indicates their net profit is somewhere around 2.3% of sales volume - not stellar, but not terribly close to 0.5% either. EDIT: bit more info/breakdown on the subject: https://thegrocerystoreguy.com/what-is-the-profit-margin-for-grocery-stores/ https://thegrocerystoreguy.com/what-is-the-profit-margin-for... EDIT 2: FWIW, on your $200 example, the company making 'only' $1, it's probably more like $4-$5, but that's after all other expenses (labor, inventory, insurance, advertising, etc) is factored in.

lotsofpulp 5y ago
It is pretty easy to search for 10-K for all the big retail companies. They all show sub 5% profit margins, frequently in the 2% to 3% range. It is a pretty cut throat business. Lidl is probably coming in and destroying competition by running leaner operations with less payroll due to not having to deal with legacy unions. It happens and has happens in many businesses (see declining real wages for past few decades for bottom 3 quintiles), but a lot of the “growth” in retail comes from cutting labor costs.
- mgkimsal 5y ago
  I did reference looking up numbers for a regional chain - net profit was 2.3% - this is still > 4x higher than 0.5%. I don't doubt some operate (for a while) at a sub 1% profit, but have to imagine those end up closing down eventually. Per the article I linked to, there was reference to smaller operations that focus on 'upscale' services may be north of 5% net profits (but are likely doing less volume overall). Lidl likely is 'winning' there (if indeed there's legacy union component to their pricing). They also scaled back their expansion plans. The one by us is moderately large, and newer ones (and future planned ones) are (and will be ) smaller. Within a 3 mile radius, we have a Walmart, Lidl, Aldi, Target, Wegmans, Lowes, Food Lion, Harris Teeter, Lowes, and Harris Teeter (yes, 2 Lowes and 2 Harris Teeters). This is in North Carolina - some of these are regional chains. The Lowes and HT have historically been some of the consistently highest prices for anything, and I'm honestly baffled how people can afford to shop there regularly. Yes, perhaps keeping a bit more money 'local' (vs that money going out of state) might be a 'good thing', somehow, but it's hard for me to justify it. Perhaps, if there's real benefit, they need to do some better PR. Or perhaps they have, and everyone else 'gets it', and I've just not heard it? I wanted a bag of frozen cherries. Local HT - 'name brand' was $5.25. HT store brand was ~$4.25. Walmart store brand was ~$3. Target store brand was $1.89. (same sizes for all - all late 2019 prices from memory). I have a hard time justifying spending 100% more for generic brand stuff. Cheeses, milk, bread, cereals, eggs, meats - our local HT is almost always at least 50% more than the Lidl or Target or Walmart. Maybe these disparities aren't as great in other regions, and this will shake itself out eventually? EDIT: found some HT numbers from a few years ago that indicated their net profit was closer to 3.6%. They also have a profit sharing program, which may account for aiming for a higher profit percent.

lotsofpulp 5y ago

It is pretty easy to search for 10-K for all the big retail companies. They all show sub 5% profit margins, frequently in the 2% to 3% range. It is a pretty cut throat business. Lidl is probably coming in and destroying competition by running leaner operations with less payroll due to not having to deal with legacy unions. It happens and has happens in many businesses (see declining real wages for past few decades for bottom 3 quintiles), but a lot of the “growth” in retail comes from cutting labor costs.

mgkimsal 5y ago
I did reference looking up numbers for a regional chain - net profit was 2.3% - this is still > 4x higher than 0.5%. I don't doubt some operate (for a while) at a sub 1% profit, but have to imagine those end up closing down eventually. Per the article I linked to, there was reference to smaller operations that focus on 'upscale' services may be north of 5% net profits (but are likely doing less volume overall). Lidl likely is 'winning' there (if indeed there's legacy union component to their pricing). They also scaled back their expansion plans. The one by us is moderately large, and newer ones (and future planned ones) are (and will be ) smaller. Within a 3 mile radius, we have a Walmart, Lidl, Aldi, Target, Wegmans, Lowes, Food Lion, Harris Teeter, Lowes, and Harris Teeter (yes, 2 Lowes and 2 Harris Teeters). This is in North Carolina - some of these are regional chains. The Lowes and HT have historically been some of the consistently highest prices for anything, and I'm honestly baffled how people can afford to shop there regularly. Yes, perhaps keeping a bit more money 'local' (vs that money going out of state) might be a 'good thing', somehow, but it's hard for me to justify it. Perhaps, if there's real benefit, they need to do some better PR. Or perhaps they have, and everyone else 'gets it', and I've just not heard it? I wanted a bag of frozen cherries. Local HT - 'name brand' was $5.25. HT store brand was ~$4.25. Walmart store brand was ~$3. Target store brand was $1.89. (same sizes for all - all late 2019 prices from memory). I have a hard time justifying spending 100% more for generic brand stuff. Cheeses, milk, bread, cereals, eggs, meats - our local HT is almost always at least 50% more than the Lidl or Target or Walmart. Maybe these disparities aren't as great in other regions, and this will shake itself out eventually? EDIT: found some HT numbers from a few years ago that indicated their net profit was closer to 3.6%. They also have a profit sharing program, which may account for aiming for a higher profit percent.