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Dec, 01 2007

Starting a grocery store

The traditional grocery retail business has undergone a change and the customers no longer have to stand at the counter and wait for their turn. Rather they are now treated to wide aisles where they can browse neatly-stacked shelves in air-conditioned com

Going back to the `80s, few things remained constant in a normal middle class family, like the daily newspaper, the brand of toothpaste and a selected few shops as the shopping destination among which the grocery shop could be charted at the top of the list.
I have seen my father going to the same grocer day after day for years. A hearty chat about the socio-political situation of the country with the other co-customers over a cup of tea from a tea vendor until the sales boy hands over a bag full of household necessitates that matched with the list handed over to him while placing the order. I have never seen my father cross checking the items purchased.
Predominated by neighbourhood stores, the grocery retail sector had a very typical picture even sometimes back - customers jostling for space at the counter asking the owner or his helper to retrieve items from glass-enclosed shelves. Gradually, these
mom-and-pop grocers made home delivery free and accounts were settled at customer`s convenience free of interest. Until lately the organised retailing strategies brought in a revolutionary change in the entire grocery retail scenario.
In the new grocery retail stores, the customers do not have to push around the counter for space. Rather they are treated to wide aisles where they can browse neatly stacked shelves in air-conditioned comfort. Every products, be it dairy, meat, cereals, canned
food or cleaning items of different companies are arranged in order with specific price tags so that it is convenient for the customer to pick and fill the shopping basket. Sales persons on their toes, rendering a helping hand to the customers from picking the shopping basket to the payment counter.
The new face of grocery retail, rightly named `Convenience Store` that offers quick and friendly service, handy locations, a variety of merchandise, and extended hours of operation. But how have these stores affected the existing neighbourhood grocery stores? According to Sadashiv Nayak, CEO, Food Bazaar, “The existing neighbourhood grocery store have not at all been influenced by the coming of the organized convenience store. Rather they have created a new avenue for consumption mostly in the urban areas. The
semi urban and rural areas are still dominated by traditional grocery stores.”
Being a grocer means being the ultimate answer to all your customers` household needs. The hallmark of a good grocer also means being trustworthy and reliable.
And as far as winning the customer`s loyalties are concerned, nothing can beat a well established grocery store. That is precisely the reason why the organized brands which has taken its toll on all the sectors starting from apparels to food joints to real estate…
have failed in their efforts in making a mark on the grocery sector in India so far.

Before starting convenience store
Starting a convenience store is a very good idea if you have the mindset to serve your customers for their day to day necessities. A good network with the vendors is always an added asset. However, there are certain other things that need to be given a thought before taking the final plunge into the grocery business.
If you look at the present grocery retail scenario, there is a marked distinction between the existing traditional grocery stores and the newly emerging convenience stores. In one we have unmatched service potential and in the other we have the boons of the technologies and marketing potentials. You can mix the best of the two worlds to create the right concoction for your customers. You have to take into account the following points before starting your venture.

Opportunities and challenges
In terms of opportunities a convenience store owner has the scope to drive a lot of efficiency in terms of services. Besides building consumption, he can create more value added services. He can create advertising opportunities for other brands banking on the footfall in his store.
However, there are some challenges in this trade as well. In regards to challenges, it is a very low margin trade. One has to make sure that there is no wrong purchase while sourcing the merchandise. The consumer base is diverse in many places especially in the metropolitan cities in India. Sometimes it is catering to a customer base from different background. A grocery store owner also has to make sure that he has a packed inventory of not more than 20- 25 days.

Market research
Before starting your grocery store, you should have extensive knowledge about your customers as well as your competitors. Accurate market assessment and development of an effective plan is crucial to the success of a new venture. The market impacts and directs all aspects of the company`s activities and ultimately will lead to success or failure of the business.
Understand the needs and desires of your customer, select or develop your product or service that will meet customer needs and preferences. Compare with your competitors and find out how the customers perceive your product relative to the others available.

Target market
A grocery store caters to the everyday needs for running a household. In this regard, needless to say, the target market is the entire neighbouring area within one to two kilometers of reach. Analyzing your customer will help you to assess the market size and the factors that influence their buying decision. This valuable information enables you to choose the right location, determine the product or services to offer, set pricing, and plan a selling strategy. Consider factors like the customers` background including who will buy your products, where do they live, what is the living standard of your customers, where do they buy currently, when, how much and how often do they buy; and ultimately what are their buying preferences and needs. While studying the customer base, these factors will help you find out the way to establish a long term relationship with your customers.
About the target market, Mohit Khattar, Marketing President, Subhiksha, explains, “Target market is more for the business to define. Everything else is secondary and needs to be done basis the target market definition. Whether a particular target group (TG) offers significant potential or not must be culled out from broad socio-economic data and available trends.”
Once the business has done that, it requires Market research for three things:
• To zero in on the right location
• Evaluate location potential (vis a vis the right Target Group fit)
• Arrive at the perfect assortment mix for the identified location”

Choosing the location
Choosing a location for your store may be your single most important decision. Do your research. In particular, consider these factors:
Population: Studies reveal that, in order to sustain a grocery store, between 500 and 1,000 people must live within a one-mile radius. If people have to travel more than a mile, they would preferably to go to a supermarket. In this regards, you should also consider an area`s future development plans and expected growth rates.
Competition: Although a grocery store`s competition is mostly from other grocery store, it can also come from supermarkets. It is important to study all the possible competitors to see if the local market can support another operation.
Traffic: Impulse purchases constitute a lump some share of a grocery store sale. Hence high footfall and vehicle traffic passing your store will be advantageous. Try to locate your store near schools, parks, sporting facilities and other businesses to increase traffic. Khattar, of Subhiksha, opines, “Location for a convenience store is closest to the consumer catchments, ideally in residential areas like colonies and markets and community centers in commercial places.”
“The desired rent for a convenience store,” as suggested by Nayak, “is 2-2.5 per cent of the sale. However, usually, a store owner ends up giving 3-4.5 per cent of the sale as rent.”

Start-up cost
The start up cost for a convenient store includes cost related to renovations, inventory, shelving, cooler lease deposit, air conditioner, signage, cash counter and operating capital. Sadashiv Nayak, CEO, Food Bazaar, says “In terms of investment, if we leave out the cost of land which varies from place to place, one requires a 300 to 1000 rupees investment per square feet for the store and the same 300 to 100 rupees per square feet for the inventory.”
The gestation period for a convenience store can vary from three to seven months.

Store land design
The store display of a convenience store ideally could either be self-service or over the counter. There are other variations of these formats also. Consumers like to go through a wide array of products, pick them up, feel them, and compare the feel and price for themselves. OTC stores to that extent are passé`. Before ordering or installing equipment, design your store`s layout. Remember the following tips:
• Try to keep it as simple as possible in order to keep costs down;
• Reserve the most space for products you will sell the most;
• Placement of all the products should be done keeping in mind the convenience of the customers to see and reach them;
• Position products with the highest profit margins at eye-level;
• Place high-demand products such as bread and milk at the back of the store to increase traffic. This will encourage impulse purchases which can add up to 70% of your sales.
Citing the example of Subhiksha, Khattar says, “Subhiksha is a no frills store chain, hence it concentrates more on offering true savings to customers rather than on creating ambience that consumers tire off after some time. Our store layouts and designs are such that consumers can easily find what they want with minimal help of store staff. There are no loud colours, no air conditioning. We just maintain a neat and clean ambience that customers find easy to relate to.”

Selecting your inventory
Selecting the inventory of a grocery store depends largely on the target market and the location of the store. Depending on your location and target customers, you must be able to estimate product demand.
Keep ongoing, accurate inventory records in order to continually monitor the ratio between your stock and actual sales. This helps to minimize lost sales and money blocked in inventory, as well as determines the demand for different products.

Sourcing merchandise
Sourcing and supply chain management form the backbone of discount retailing. It becomes imperative for a discount retailer to invest in a robust supply chain.
Some of the things that need to be kept in mind are:
Firstly, as Khattar says, “The turn around time for the merchandise needs to be as short as possible. The lesser this time is the better are the discounts you can get from your vendors.”
Secondly, for the fruits and vegetables business freshness is the top most concern, which means the in and out of the produce should be on a daily basis.
Thirdly, for the processed food items and pharmaceuticals, checking the expiry date of the drugs is important.
Last but not the least; try to procure products in bulk from the vendors. This way you can avail of special discounts.

Marketing and advertising
Branding and advertising are very important for any brand tget noticed. Advertising is the medium through which you communicate your core value proposition and differentiating factors to the consumers. However, for a grocery store the best publicity is one that is through word-of-mouth. This coupled with a good public relation add up to make a good advertisement for a convenience store. Always keep in mind that a satisfied customer is the best advertiser.
Depending on your market and its size, you can choose from the various mediums of advertisements like flyers, local newspapers, radio, TV, the business pages of the telephone book and the Internet.
It is advisable not to spend 1 per cent of gross sales on advertising to your target market;
Install a brightly-lit sign to attract drive-by traffic;
Create some striking window displays and point-of-purchase displays to increase the traffic. It is advisable to deliver or mail flyers to neighbourhood homes and place ads in local newspapers. Stress convenience, accessibility and extended hours;

Legal formalities
In regards to the legal formalities a lot of emphasis should be given to the licensing involved. Nayak says, “There are 35 odd licenses required: Food license, drug license, insecticide license, shop and establishment registration etc, to name a few.”

Setting the right price can influence the quantities of various items that the consumers will buy, which in turn affects the total revenue and the profit in the store. In the end, the right price for the product is the price that the consumer is willing to pay for it.
Hence, correct pricing decisions are a key to successful retail management.
Prices should allow for sufficient gross profit to cover overhead expenses and a reasonable net profit. Choose one of two pricing methods: markup (based on cost); or margin (based on selling price).
Traditionally, convenience stores have had markups of approximately 33 per cent to 67 per cent, margins of 25 per cent to 40 per cent. Convenience stores simply cannot buy in large volumes like superstores, so do not attempt to offer lower prices. Instead, lay more stress on service and convenience.

Hiring employee
Hiring staff depends on how big your store is. Usually it is advisable to hire one person per square feet. Employee of a grocery store should both be trust worthy and alert. The employees should be able to handle crowd and cater to the customers with a smile even in the rush hours. A thorough knowledge about the inventory is mandatory. The store owner should make sure that his employees are properly trained and motivated for the trade.
Quoting Khattar, “As retailing is a consumer-focused business, people with good interpersonal skills are hired. It is advisable to hire people from the local community, and provide primarily consumer centric training and some functional training as well.”

Customer service
A good customer service is the backbone of every trade and convenience store is no exception. Convenience stores thrive on its owners` relation with his customers. Try to win the customers` trust. Always provide quality product. Be absolutely transparent. Go for standard packaged and sealed products with clearly specified price, weight, expiry date etc. Follow a very meticulous billing system. Try to provide services like home delivery and purchase on credit. If any substandard product purchased from your shop is brought back by the customer, replace it without any hesitation. This will only add to your goodwill.
Welcome advices and feedback from your customers in regards to increasing the quality of the products as well as your service.

To quote Sadashiv Nayak, CEO, Food Bazaar, “In India there is a lot of consumption opportunities. The population is young and ready to spend. The grocer has to have a mindset that is aimed at growing the consumption level. If your consumer is using a particular shampoo once a week, your aim should be to make them use it thrice a week or make them use a conditioner along with it.”
Opportunities are there in plenty. All you need to do is focus on the customer and get your proposition right. Invest in technology for a robust operation.
Train your man power and keep them motivated. And above all learn to handle a crowd with a smiling face and a friendly disposition.

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