How to Value a Grocery Store or Supermarket
When most people think of grocery stores, they think of supergiants that seem to dominate the industry. These giant supermarkets include Walmart, Costco, Kroger, Target, etc… However, many people forget about local grocery stores. These local supermarkets have been the backbone of local communities for generations. These grocery stores provide food, cleaning products, household wares, and other items. Grocery stores and supermarkets have been profitable businesses for years. Recently, we have seen an upwards trend in the number of grocery store and supermarket transactions.
Knowing the fair market value is key to selling or buying a grocery store or supermarket. Peak Business Valuation, business appraiser California, is here to help you understand how to value a grocery store!
There are many internal and external factors that impact the value of a grocery store. As a certified business appraiser, Peak Business Valuation helps many individuals who are looking to buy or sell a business. The first step to buying or selling a business is to obtain a business valuation. A business valuation engagement discusses key metrics used in valuing grocery stores. Below are some of the common metrics we see when valuing a supermarket or grocery store. For more information about valuing a grocery store, schedule your free consultation call with Peak Business Valuation, business appraiser California.
Market Multiples for a Grocery Store or Supermarket
- EBITDA Multiple Average: 3.21x – 4.15x
- SDE Multiple Average: 2.23x – 3.25x
- REV Multiple Average: 0.10x – 0.50x
** Disclaimer: These multiples are for educational purposes only. Multiples are based on companies with revenues between $1-$10 million. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
There are several approaches used when valuing a business. Most commonly, grocery stores trade and transact on a cash flow multiple. The reason for this is that most hypothetical buyers or investors are primarily concerned with the cash flow ability of the company. They want to make a certain return on their investment. EBITDA is a measure of financial performance. It is widely considered to be the most reliable multiple for grocery stores and supermarkets. The grocery store and supermarket industry tend to transact primarily on cash flow multiples, such as EBITDA and SDE.
The key to increasing the value of a grocery store route is to better understand what drives its value. Once you understand how to value a grocery store, you can begin taking steps to increase its value. If you are searching for an in-depth business valuation for a supermarket, schedule a free consultation with Peak Business Valuation, business appraiser California.
Key Success Factors
There are various approaches a valuation expert uses to determine the value of a supermarket. A business is not valued based purely on a multiple such as an EBITDA, SDE, or REV multiple. Instead, there are many qualitative and quantitative factors to consider. Some of these aspects include what Peak Business Valuation refers to as “Key Success Factors.” A key success factor is a metric that significantly impacts the value of a business. Below we mention some of the key success factors that impact the value of a grocery store. For additional success factors see “Value Drivers for a Grocery Store”
There are three profitability margins to analyze when purchasing a grocery store or supermarket. These margins are the gross profit margin, operating profit margin, and net profit margin. Grocery stores have a history of low profitability. As such, if you own a grocery store with higher margins than the industry average, your grocery store will be worth more.
Peak Business Valuation has access to thousands of grocery store and supermarket transactions. We look at these transactions when performing a business valuation. Peak Business Valuation also has access to industry averages we use and can share with you when we perform the business valuation for the grocery store.
Most grocery stores and supermarkets have a very simple, straightforward business model. First, they purchase goods and products from suppliers, distributors, or wholesalers. Then, they resell them at a slightly higher price. However, grocery stores or supermarkets that provide other services tend to sell at a higher multiple.
For example, we recently worked with a Philippino grocery store that also had a small cafe within the grocery store. The items within were authentic and the food was delicious. As such, those looking for a true Philippino experience would come from across town to eat at the cafe and buy groceries. This is a simple example of how adding other complementary services or experiences can help increase the value of a grocery store!
Assortment of Options
Last, studies show that when faced with multiple choices, consumers often purchase more. Or, they are willing to pay more for the same or a slightly different product. As such, having many different options and brands of particular items at your grocery store can help increase revenue. In effect, the value of the grocery store can increase. In addition, offering healthy options, alternatives, and substitutes at your grocery store or supermarket can help increase sales. A supermarket should be a “one-stop-shop” for the average individual’s grocery needs. If you do not carry the bulk of what a consumer is looking for, customers may choose a different grocery store that does. Grocery stores and supermarkets have the most success when they have an assortment of daily necessities.
Within every industry, there are certain factors that impact the value of a business. An individual can gain an idea of what their business is worth by using multiples. However, there are many other considerations when valuing a grocery store or supermarket. If you are looking to buy, sell, or grow a business, you have come to the right place. Let Peak Business Valuation, business appraiser California, help you to understand the value of a supermarket or grocery store.
Peak Business Valuation, business appraiser California, values grocery stores across the country. We would love to answer any questions you have about valuing a grocery store or supermarket. You can reach out to us at any time by scheduling your free consultation call below. We look forward to hearing from you!
For more information, check out “Value Drivers for Grocery Stores.” As well as, “Valuation Multiples for Grocery Stores/Supermarkets.”
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