Grocery Store Profit Margins by Department, With a Workbook

A grocery store's departments keep different shares of each sale, and the order changes once shrink is counted. The deli and bakery have the highest gross margins and the highest shrink; meat and beer and wine have the lowest margins; the center store, the aisles of cans, boxes and bottles, has a low margin and little loss, and brings the most money because it sells the most. Gross margin = (sales − cost of goods) ÷ sales, worked out by department, and then each department's shrink comes off. In the example below, a Philadelphia grocery's October runs at a 31.5% gross margin, 28.7% after shrink, and 2.4% net before the owner's pay. Below is each department, the month down to net, what moves it, and a free workbook.

The short version

• Work out gross margin by department: (sales − cost of goods) ÷ sales.
• Take each department's shrink off its gross profit; deli, bakery and produce lose the most.
• The deli and bakery keep the most of each dollar even after shrink; meat and beer and wine keep the least.
• The center store brings the most money on a modest margin, because it's the biggest department.
• Net margin, after wages, rent and refrigeration, is a few percent; in the example, 2.4%.
• A point of margin on the center store moves the net most; produce and deli shrink is what the store fixes day to day.
• TaroStack records shrink by reason, item and site, and makes the deli's food from stock as batches. More below.

An example: a Philadelphia grocery's October

Riverwards Grocery, a made-up independent grocery store in Philadelphia, Pennsylvania, I use in these examples, sells $180,000 in October:

Shrink is theft, damage, spoilage and food past its date, as a share of the department's sales. The deli's 48% becomes 40% after it throws away 8%; the bakery's 50% becomes 43%. They still keep the most of each dollar. Produce keeps 34% after losing $1,296 to wilting and bruising, the largest loss in the store. The center store keeps only 26%, and brings $18,720, more than a third of the store's profit after shrink. These are this store's numbers, not rules; how margin and markup differ is in markup vs margin.

The month down to net

Wages are the biggest cost, 13.9% of sales, then rent and the electricity for the coolers. That leaves $4,305 of $180,000: 2.4 cents on the dollar, and the owner's pay comes out of it.

What moves the net

A point of margin on the center store is worth the most, which is why grocers watch what vendors charge for it; the cost of each item from each delivery is where that margin comes from. Shrink is the part the store controls day to day: produce and deli ordered smaller and more often, food marked down before its date, and the deli using produce before it wilts. How to track what goes past its date is in what is expired stock, and rotating oldest first in FEFO vs FIFO.

The highest margin items

In the example, prepared foods and bakery keep the most after shrink, 40% and 43%, then produce at 34% and household, health and beauty at 33.5%. Within departments, the items a store makes itself, salads, sandwiches, cut fruit, baked goods, keep more than those it buys ready-made, because the store adds the work. What a prepared item costs to make is in plate cost formula.

Get the workbook

Download the grocery store margins workbook. Two sheets: departments, where you type each department's sales, gross margin and shrink, and the gross profit, shrink, what's left after shrink and each department's share of sales and profit fill in; and the month, where you type card fees and fixed costs, and what's left before the owner's pay and the net margin fill in. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.

Where this stops working

A shrink figure for each department is a number someone typed, and it hides which items: whether produce lost $1,296 to lettuce or to berries, whether the deli threw away sandwiches or salads, and how much of the meat's loss was trim. A department's margin also hides the vendor whose prices crept up on one invoice after another.

How TaroStack does it

TaroStack records shrink by reason, item and site, and makes the deli's food from stock as batches.

Shrink by item and reason. Every adjustment carries its reason, expired, spoiled, damaged or lost, so produce's loss is reported by item, and lettuce and berries are separate lines, not one 6%.

The deli's food from stock. A chicken salad or a fruit cup is a recipe: a batch takes the chicken, the celery or the melon off stock, costs what it used, and gets a lot with a date, so the deli's margin uses what its food really cost, and produce near its date goes into a batch instead of the bin.

Margins on real costs. Each delivery is received at what it cost, margins by product use it, and a price-creep report by supplier shows which vendor's prices are rising.

Recipes, batches, expiry, losses by reason and margin reports are on every plan, from $49 a month, with no limit on items; TaroStack connects to Square. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.

Questions people also ask

What is the profit margin of a grocery store?

Thin. In the example, 31.5% gross, 28.7% after shrink, and 2.4% net before the owner's pay.

Which grocery department has the highest margin?

In the example, the bakery and the deli: 50% and 48% gross, 43% and 40% after shrink. Beer and wine and meat have the lowest.

What is the margin on produce in a grocery store?

In the example, 40% gross and 34% after shrink, because 6% of produce sales is lost to wilting and bruising.

How can a grocery store increase its profit margin?

Cut produce and deli shrink, watch the center store's costs from vendors, and grow prepared foods and bakery, which keep the most of each dollar.