May 18, 2023
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 86,955 tax returns that were filed in the grocery store industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their grocery store.
We hope that this data will be helpful for you as a “reality check” for your financial projections and grocery store business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Here is what we will cover in this article:
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How many Grocery Store businesses in the US are sole proprietorships
There are roughly 87,000 grocery store businesses in the US organized as sole proprietorships. We specifically analyzed 86,955 companies based on the 2019 IRS tax return data.
Average annual revenue for Grocery Stores
The average annual revenue for all sole proprietorship grocery store businesses in the U.S. was just $289,628.
This number seemed low to me. In fact, in our blog post How to Start a Convenience Store we found that the average grocery/convenience store revenue was $4 million per year per store. However, this revenue number includes large and small stores which can have large differences in revenue streams
So what gives?
I think we need to remember that this tax return data includes all sole proprietors that categorize themselves in the “Grocery Stores”. Depending on location and region the potential revenue may vary.
This underscores the importance of actually creating your own Grocery/Convenience Store projections based on your potential inventory.
Average annual expenses for a Grocery Store
The average annual expenses for all sole proprietorship grocery store businesses in the U.S. was $281,159.
It should jump out to you immediately that average annual expenses for a grocery store will be made up of the cost of goods and salaries, but can vary greatly depending on the type of products, so again let’s not focus too much on the specific dollar amounts here. What we can gain from this tax return data is an understanding of expenses and profits as a percentage of revenue rather than a specific dollar amount.
Average net profit margin for a Grocery Store business
The average net profit margin for a grocery store business was 3%.
How much can I make by owning a Grocery Store business?
In order to calculate the earnings potential of a grocery store you can take the following assumptions:
- # of visitors
- Average order value
These assumptions will allow you to come up with a revenue forecast for your grocery store. From there you can apply the 3% profit margin.
Top 10 expenses for a Grocery Store business
Based on the tax returns of roughly 87,000 sole proprietors operating in the grocery store industry, the following were the 10 largest business expenses as a percentage of revenue.
Average material costs expense for a Grocery Store business
The average grocery store business spent 68% of annual revenue on material costs.
Given that a majority of the cost is spent on inventory to sell, this majority is not surprising. There is an importance of finding the right mix of inventory types that have higher profit margins with standard, in demand items.
Average salary and labor expense for a Grocery Store
The average sole proprietor grocery store business spent roughly 7% of annual revenue on Salaries and Wages.
In addition to inventory, salary and labor is the second most common cost. It requires people to find and purchase inventory and stock and sell the various products.
Average rent expense for a Grocery Store
The average sole proprietor grocery store spent roughly 4% of annual revenue on rent.
Depending on the size of the property, this expense could vary. Given the size and location of a grocery store could vary, this is likely to have a large variance
Average utility cost for a Grocery Store
The average grocery store spent roughly 2% of annual revenue on utilities.
Important Details about the Data
I want to point out a few key items about the data:
- You can download this data for free from the IRS website.
- The data includes 86,955 grocery store sole proprietorships in the U.S. in 2019.
- This data will include businesses that operate full time, and businesses that only operate on a part time basis.
- Because of this, you should take the raw numbers for revenue, expenses and profit with a grain of salt, but the percentages can still be quite valuable when trying to forecast expenses for your business.
- This data includes businesses from all across the country, keep in mind that revenue and expenses can vary greatly based on your specific geographic location.
- We used 2019 data because we felt it was most likely to be representative of a “normal” environment for the industry. COVID-19 caused disruption to almost every business in 2020 and 2021, so we wanted to utilize “normalized” data.
If you have any questions about the data or how to utilize the data in your financial forecasting process please don’t hesitate to reach out to us!