How Profitable are Supermarkets?

Nowadays, supermarkets and grocery stores have become the need of the hours for all types of Indian families. You can find anything in the supermarket related to your household needs,  but the major question for you is; how often do you visit a supermarket? For most of you, the answer will be weekly. Even though you go to a supermarket on a regular basis, trust me, you don’t know what happens behind the scenes.

Has the thought ever crossed your mind that how does a supermarket make money? Even if it did, you never got to know the real secret behind the sales, offers you get there, or “Buy 1 Get 1 scheme” for which you mostly go to those supermarkets. Everything you see is not real and when it comes to supermarkets everything has a reason. Even if you are thinking, you got the best deal and saved few bucks, the story doesn’t end there. Before jumping into this let’s get an idea about what is a supermarket.

What is a supermarket?

A supermarket is a self-service store that offers a vast variety of food, beverages, and household products, organized into sections and shelves for the customer’s convenience. The idea behind a supermarket is getting customers in large numbers and making the customer buy more than what he/she actually came to buy. Supermarkets pull in their customers with attractive offers and schemes.

How do supermarkets make money?

The very first way supermarkets make money is by collaborating with different companies. The major source of income for these places comes from leasing the shelves. Additionally, every area in the supermarket has a leasing price. Promotion areas in the front with high visibility are far expensive and offered for lease for shorter periods. 

These small candy and chewing gum shelves beside the cashier are really expensive because of the high exposure of the brand. The tie-up actually results in doubling the money with which the supermarkets buy the products. This is a major source of income and profit for both the supermarket and the manufacturer.

Relationship of Manufacturers and Supermarkets:

Generally, the manufacturer sells products in a chain that consists of distributors, wholesalers, shopkeepers, retailers, which is a long process and it takes up to a month or more to complete the cycle. If a product has its expiry date scheduled in the coming 3-4 months if the manufacturer tries to sell the product via this chain and makes sure that the product will have an expiry of just a month left till it reaches the consumer.

And normally nobody is going to buy a product with just a month left for its expiry date. Moreover, a shopkeeper has the right to return the expired product to the manufacturer and get a fresh one in return, in return making a loss to the manufacturer.

To avoid this delay and loss, manufacturers sell the same product directly to the supermarkets with just 25% of the original cost. And this tie-up takes away the right of “return policy” from the supermarkets.

The secret unraveled!

This is the thing that goes on and on in the supermarket. In the “Buy 1 Get 1 or 2” sale, customers pay 50% of the original price of the product which is still double the cost price of the product at which the supermarket bought from the manufacturer. Thus making a 100% profit for the supermarkets. Even if 10% of the products could not be sold before expiry, the marginal profit covers those losses for both, the supermarket and manufacturer.

Other sources of Income for Supermarkets:

The promotion of brands is another significant source of income for the supermarket. These days, it's typical to find distinctive brand outlets inside the supermarkets.

For what reason do you think a general store will advance numerous brands? Nothing is free in this world. Grocery stores charge these brands for space they occupy to open their outlets. Each space at various corners of the store has its own cost. We know the number of brand outlets at each supermarket as we visit them often, just imagine the amount of money they make through them.