Value Drivers for a Grocery Store
Have you ever wondered about the value of your grocery store or how to increase its value? There are a number of ways you can increase the value of your grocery store. Peak Business Valuation, business appraiser, would love to help you understand the value of your grocery store and how to increase it. Below are several ideas that you can implement to add value to your grocery store.
Key Value Drivers for a Grocery Store
Increase Profitability Margins
There are three profitability margins a valuation expert uses when analyzing 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. If you own a grocery store with higher margins than the industry average, your grocery store will be worth more.
- Gross Margin – Generally, it is difficult for grocery stores to increase their gross profit margin. This is relatively “fixed” across the industry. However, there are always exceptions! If you can negotiate with your suppliers, procure different suppliers, and buy in bulk where possible, you may be able to increase your gross margin by a few basis points. Even if you are not able to realize a large margin increase, small, incremental increases will help to increase your gross margin.
- Operating Margin/Net Profit Margins – If you are able to reduce your operating expenses, this can help your operating and net profit margins. Take some time and go through your books to see what expenses can be reduced or even eliminated altogether.
Peak Business Valuation, business appraiser, 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 are happy to share these with you when we perform the business valuation for the grocery store.
Establish Processes and Procedures
One of the main issues we see when working with grocery store owners is that the store’s success is largely predicated on the owner or a few key employees. When the store’s success is dependent on a few individuals and those people are not around, the store will suffer. It is important to have an established system for each employee’s position at the company. Additionally, there should be an individual or two that can perform your job function as the owner. That way, if someone is sick, quits, or leaves on vacation, there is always someone else that knows how to perform their job. This also provides continuity with your customers and ensures that all customers are taken care of when they are at your grocery store. Having established processes and procedures will eliminate the “guesswork” when it comes to dealing with customer complaints or other issues.
Add Software and/or Automation
One of the biggest problems when it comes to local grocery stores is improper inventory management. Adding inventory management software can be done relatively cheaply. Having an inventory management system will help reduce the amount of inventory spoilage, surplus, and shortage that you have at your grocery store. Additionally, automating tasks where possible will save time and money. Take some time to go through all the tasks that you or your employees perform in a day, and see if there is some way to automate or digitize those tasks. Doing so will help to increase the store’s efficiency and profitability.
Offer a Loyalty Program
Loyalty programs are a great way to retain customers. Loyalty programs reward customers for their loyalty, make them feel appreciated, and also incentivize them to come back and buy from your business again.
The keys to a successful loyalty program are:
- Make customers sufficiently aware of your loyalty program. Consider mentioning your loyalty program in your advertising efforts.
- Offer sign-ups through an app. The easiest way for a customer to sign up for a loyalty program is on an app. They can simply download the app to their phone.
- The loyalty program should be a good enough incentive for customers to take the time to sign up. You have to give them a good incentive. Make sure that the discounts and promotions they will receive outweigh the inconvenience of signing up.
For more information see The Value of Customer Loyalty.
Offer a Weekly Ad or In-Store Coupons
People love saving money! Recently, individuals have responded to a poll saying that it is hardest to save money at the grocery store. By offering a weekly ad, you might be able to attract new customers that are looking to save money on certain items. Also, if you discount a few items, customers may come to your store and buy everything on their grocery list rather than go to 3 or 4 different stores. It is easier to “kill two birds with one stone” by getting everything at your store. Have a digital ad that you can post online on your website. Also, consider printing and sending out a paper ad to your surrounding community. Additionally, offering in-store coupons can help customers to buy more.
Offer Free Samples
Costco has become famous for its samples. You can do something similar at your grocery store! Offering a few free samples can help promote new products and attract more customers to your store. Additionally, we all have been to the grocery store when we have been hungry. It is one of the surest ways to spend more money on products. Giving out free samples can “whet” your appetite and spur more purchases.
Understanding what drives the value of your grocery store can help you to set goals to maximize its value. There are many value drivers for a grocery store. These are some of the most common value drivers that Peak Business Valuation, business appraiser, sees. Many of these value drivers strive to increase customers and customer purchases. The more customers you have, the more sales, and hence the more valuable your grocery store becomes. If you are interested in understanding more about the specific value of your business, don’t hesitate to give us a call today! For more information on multiples to value a grocery store business, check out “Valuation Multiples for a Grocery Store.”
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