While evaluating the cost involved in opening and running a supermarket, there are various key factors that must be looked at so that the decisions can be made firmly.
Various factors play a significant role in determining the initial investment and also the investment involved while the business is running which is also known as the operating cost.
While these reasons have been haunting new businessmen for ages whereas now new trends and shifts in the retail landscape are also influencing the Supermarket Franchise Cost.
Now you can have a detailed look at the 5 basic factors that affect supermarket franchise cost.
1. Infrastructure
The overall size and layout of the shop always affect its sales and customers, larger stores require more customers, more staff, more resources, inventory equipment and a very large area for storage.
The layout and space play a crucial role in determining both the initial capital and the ongoing operational cost.
Size
Smaller supermarkets and smaller superstores are easy and quick to establish as compared to a proper supermarket which requires more capital and space to open.
These small supermarkets have lower labour and utility cost and doesn’t even require much staff so the family can work together and save extra expenses.
This is also for sure that their revenue collection and total sales would also be very less as they just have limited things to offer.
While for larger supermarket franchise cost can increase exponentially.
A. Construction Costs
Building or renovating very large spaces to fit the brand’s space and value is wrong as the space would never be decided correctly and it can be so expensive that is unaffordable for normal people.
A full-fledged supermarket need storage for perishable goods, big equipments, cold storage and special goods.
B. Energy Consumption
Larger stores have big refrigerators and cold storages which are turned on 24/7 and obviously they consume a lot of electricity.
This increases both operational cost as well as the initial cost so its better to take an energy saving and efficient refrigerator and other equipments at the time of initial setting up.
Also read: Franchise Agreements To Consider When Buying a Supermarket Franchise
2. Inventory And Equipment Cost
Supermarkets can require a lot of inventory and a wide range of products but that all depends on the area where supermarket is opened and on the crowd that lives nearby.
The size of the store, quality of the products and level of automation involved can automatically tell how the supermarket is gonna come out.
A. Initial Inventory Purchases
One of the most important Supermarket Franchise Cost for a supermarket franchise is the inventory needed to full the store as its the only thing sellable for a supermarket owner.
This included purchasing both staple items (e.g. canned products, packaged foods etc) and perishable items (e.g. fruits, vegetables, dairy, meat etc).
The amount of the initial inventory investment will obviously depend on the expected volumes of sales from that particular supermarket.
Supermarket franchise cost originally source from the vendor allotted to them by the company so setting up favourable terms in the initial parts of the business can help achieve alot in the future.
So all the inventory can be ordered accordingly.
Supermarkets often opt for the latest methods nowadays so that they can know when to avoid wastage, refill the space, whether the customer gets the product at the right time or not, and stock levels.
These systems can be really expensive for the initial inventory but later they are just going to benefit as they define the efficiency and capacity of the supermarket.
B. Equipment Cost
A variety of high tech and specialised system is used for supermarket , including refrigeration units, shelving, security systems and point of sale systems.
All of these can be very expensive if the franchise decides that everything is to be customised and the equipments should fir the stores layout and the actual brands standard.
The trend towards automation and smart technology such as AI in supermarkets can be a great advantage in future.
Energy efficient refrigeration systems, automated stock tracking, self checkout stations add to the initial cost.
These businesses require higher investment at the initial time but can result in major cost savings over time.
3. Marketing, Advertising and Brand Compliance
Marketing costs are another major part of a business and especially in the supermarket field as they have to follow the marketing done by the brand and also compete with what’s happening in the local market in order to get everyone’s attention and money one have to always find new ways.
1. Marketing and Fees
Generally most of the supermarket franchise cost require their franchisees to contribute to a national or regional marketing fund, which is used to fund corporate advertising campaigns.
These fees are just (1-2%of sales) a few percentage of sales and include everything from nationwide promotions to digital advertising and brand awareness efforts.
A. Local Marketing
Marketing fees given to the company is okay but one must allocate some fund for local marketing also.
It is easy to attract customers at the initial of the shop opening so by doing a grand opening you can invite a lot of guests and attract more people as the promotion is already done.
Foot traffic would be generated automatically as you can call someone special for the function.
As social media is at its peak at this moment, you can also invest in ads runned on facebook and Instagram both can help grow the supermarket business real quick as you can upload videos and also tell them what the special discounts and offers available that attract everyone.
Franchises may also run local promotions through apps or loyalty programs, which can also add to the marketing cost.
B. Brand Value and Customer Experience
Maintaining the brand value should always be our first priority as if we invest in our staff training, customer satisfaction and store design, we can always meet the franchisor’s expectations then.
These types of investments in brand consistency and customer quality service are essential for ensuring long-term success but can add some particular Supermarket Franchise Cost.
4. Location and Real Estate Cost
Generally real estate is the largest and the most expensive thing involved when you are opening a supermarket as all the key factors depend on the location of the business such as operating expenses and ongoing expenses.
The location should be in such a way that it benefits in the profitability as well as being feasible for people to come and shop.
A. Market Dynamics
The cost of opting for a suitable location in different geographical locations can be different as the ones in the urban areas with great foot fall would be expensive and the ones with less foot fall can be cheap.
Places such as malls, high streets, city centres have more rent as compared to other shops in areas with less crowd.
In this way suburban and rural might offer better package for location but those locations wouldn’t attract volume customers.
Property Cost
If any franchise requires purchasing land or property it can start from lakhs and go till crores depending on the region and the location one is choosing from.
Cost may vary based on size and the type of lease agreement chosen.
Licensing Fees
Generally each city has its own laws about where a supermarket can be opened and where not It is good to keep in mind the costs related to these as they must be included while opening a supermarket.
Demographics
Location in areas which are full of crowds, dense population, strong income and favourable shopping habits generally increases the success rate for a franchise and attracts them, it surely raises up the rental part but if worked it can give nice returns.
Franchises are nowadays focusing on building relations with customers nearby cause they are their ultimate customers in the end.
B. Emerging Trends in Location
In the past few years, people have shifted towards online grocery shopping which has brought a severe decrease in people going to supermarkets for household shopping.
Now they prefer locations near big hubs where it is easier to deliver the products as they have a lot of online competition.
In this way, they can cater to a mass audience if they prefer a location in the hub areas where the crowd is more.
Check out this: Benefits of Investing in a Grocery Franchise in India
5. Franchise Fees And Royalty
It is one of the most important cost in a supermarket franchise cost which is the royalty.
Royalty is around a few percentage of total sales that the brand takes every month for providing you with the brand value and setup.
This includes everything from the use of brand, ongoing support, access to proprietary system.
The exact cost of all these depends on the model we are working for and its very important for the franchise to understand how this is going to impact their bottom line.
A. Initial Franchise Fees
The initial fee is the fee that you have to pay upfront after which you become a part of their franchise and later on you are guided by their team.
This fee can range from a few lakhs to 8-10 crores depending on the area and the types of products you want to keep in your supermarket.
This fee includes the right to work under the brand name, initial marketing cost and the training cost.
For some franchises, the initial fees can be much higher due to a great complexity involved in establishing retail supermarket chains.
Traning and Support
This is the cost of initial training program that teaches the franchise how to manage each and every work such as store operations, employee management, marketing schemes and inventory management.
Brand And Marketing
The fee also includes the initial marketing expenses that the brand uses to attract more and more customers to our location.
Brands work day and night to make them successful.
B. Ongoing Royalties
Franchisees are always required to pay royalties to the brand for their brand value and support which generally ranges between 4-8% of the sales depending monthly quarterly or yearly.
These fees helps the franchisor to take care of the marketing expense, ongoing operational support, national advertising campaigns and improvements to their business model.
Digital Transformation Cost
We have seen that supermarket chains have increasingly shifted towards online ordering, delivering services and e-commerce integration, some providers may charge additionally for providing door to door services.
These can vary from digital marketing charges to fees for maintaining online ordering system.
New Fee Structures
Some franchises have brought new system and that is the royalty would be taken depending on the performance of the outlet and according to the performance, the royalties would be decided.
High performing outlets may face low royalty rate due to great performances while maybe the lower performing ones have to pay a decent amount as royalty fees.
Final Words
Now that you have seen what all you need to know before opening your own supermarket specially when you go for a franchise as you have to look for many hidden Supermarket Franchise Cost such as location, fees and royalties, size and layout of the store, marketing and advertising, equipment and storage.
These are some of the basic things that make up to a full supermarket.
Moreover the trends are changing day by day so one has to stay up to date with the changes in the market and adapt them so nicely that there is no competition left in the market.
One should always maintain strong relations with the customers as the loyal customers always help in the difficult times and stay for a much longer period than the walk in customers.
Franchisees must carefully choose what are their preferences and what things they can handle, if they choose everything carefully then only they can run a profitable supermarket otherwise these things make you loose a lot of money if the items get expired.
If one understands each and every aspect and then get into the business one can never fail because they will know what to do at every failure instead of cribbing.