The retail industry is one of the most lucrative industries to be in for entrepreneurs. Within the retail industry, grocery stores are one of the most profitable parts. There are many different types of them, and one of those is Grocery Outlet.
Grocery Outlet is a different type of grocery store than the most common ones like Walmart or Target. It works on a limited-offer basis. Since they are a pretty niche grocery store, they also have good potential to make a lot of money.
We will discuss Grocery Outlet’s franchise system in this article.
About Grocery Outlet And Grocery Outlet History
Grocery Outlet, also known as Grocery Outlet Bargain Market, is a grocery store chain operating nationwide in the United States. They offer all kinds of grocery store items, but they have low-priced items that are short-dated.
An important part of their business is that their prices are about 60% lower than the traditional grocery stores.
Grocery Outlet was founded in 1946. they have been franchising for decades and operate over 450 stores in the United States, and they are also publicly traded. All of this shows the potential it holds for potential franchisees to make good money from them.
They use a system called the Independent Operator Program, a slightly different program than a classic franchising system.
Grocery Outlet Franchise Model Table
| Cost Or Fees | Amount |
|---|---|
| Initial Investment | $150,000-$250,000 |
| Franchise | YES/Independent Operator Program |
| Franchising Since | 1952 |
| Franchise-Fee | N/A |
| Royalty-Fee | N/A |
| Liquidity | $25,000 |
| Estimated Outlets | 450+ |
How Much Does It Cost To Open A Grocery Outlet Franchise?
Grocery Outlet uses a different method with its franchisees, which greatly affects the total amount you pay when opening up a store.
You need about $200,000 to $250,000 maximum to open a store, but Grocery Outlet finances a big portion of this. In reality, you need a minimum of $25,000 in cash to get things going.
You pay the remaining of this cost that you get from Grocery Outlet in installments. The immediate cash need is low, but you end up paying a maximum of $250,000 in total in the long run.
What Are The Franchise Requirements Of Grocery Outlets?
The operator of the store must have five years of retail management experience in the industry. You also need to prove that you have marketing, communication, merchandising, hiring, and teaching skills as an operator.
You also need to possess $25,000 in liquid cash to get the store going in the first place. There is no net worth requirement or other related financial requirements.
Profit & Revenue Of Grocery Outlets
Grocery Outlet had an annual revenue of $3.8 billion, according to the latest numbers in 2022. This is a $500 million increase from the previous year.
Out of the $3.6 billion revenue, the net profit was $65 million, showing an extremely low profit margin overall. So, if you want to own a profitable franchise, then Grocery Outlet is one of the best grocery store franchises to own.
What Is The Overall Sales Of Grocery Outlets?
A franchised Grocery Outlet store’s sales are between $85,000 to $100,000 per week. This depends on the location and the size of the store mostly.
How Much Does Grocery Outlet Franchise Owner Make?
Since Grocery Outlet has a slightly different scheme than usual, the net profit also doesn’t directly come into the franchise owner’s pockets. The franchise owner’s salary fluctuates based on the gross sales.
According to Grocery Outlet, a franchised store makes $120,000 annually in net profits. Glassdoor, on the other hand, says that Grocery Outlet Franchise owners make between $97,000 to $107,000 annually.
Payback Period Of Grocery Outlets
With a total investment of $250,000 and a yearly profit of $120,000, we can calculate the payback period of Grocery Outlets.
So, to find out how long it will take to earn back the initial investment:
Payback Period = Total Investment / Yearly Profit = $250,000 / $120,000 = 2.08 years
Based on these figures, it will take approximately 2 to 3 years to pay back the initial investment for Grocery Outlets. This time period could be longer or shorter depending on your sales, revenue, and profit figures.
Training and Support
Grocery Outlet has an initial training program called the “AOT” program, which lasts about 6 months. This training takes place in one of Grocery Outlet’s stores, which has an experienced owner to teach you all the operational and managerial needs.
Once you get the store going, they help you with marketing, communication, and day-to-day operational stuff in the first phases. You keep most of the support, and you can get more if you need it.
Obligations and Restrictions
The franchisee is obligated to buy products only from Grocery Outlet or suppliers that are approved by Grocery Outlet. The franchisee also has to follow Grocery Outlet’s business model and don’t change anything without any prior approval from the company.
The franchisee also has to control all of the processes related to employees and follow the HR requirements strictly.
Financial Assistance
Grocery Outlet has direct financial assistance to almost all franchisees in their network. This financial assistance is only for start-up costs that fall under the initial investment sector. They can cover up to about $175,000 to open your store.
This assistance is given as a loan, and you pay it back with interest in installments. The details of the loan depend on the franchisee and their financial situation.
Grocery Outlet Comparison
| Name | Franchise Fee | Royalty Fee | Initial Investment |
|---|---|---|---|
| Save-A-Lot | N/A | N/A | $750,000-$1,500,000 |
| Metal Supermarkets | $39,500 | 6-2% | $228,500-$437,000 |
| Grocery Outlet | N/A | N/A | $150,000-$250,000 |
Conclusion
Grocery Outlet is one of the oldest grocery stores in the United States, operating since 1946 with over 450 stores.
Their business model focuses on offering all-around grocery items with prices generally as low as 60% compared to other grocery store chains. They can do this by offering short-dated items with a rotating inventory.
They have decades of experience with franchising the brand under a program called the Independent Operator Program.
An independent operator has the potential to make about $100,000 annually in net profit with one franchised store. The potential to make good money is extremely high with a growing customer base.
FAQs
What is the franchise fee for Grocery Outlet?
There is no franchise fee to open a Grocery Outlet store. This is mostly because of their franchise business model since they get a cut on your profits every month.
Who owns Grocery Outlet?
The company was founded by James Read and then taken over by his sons, Steven and Peter Read, who owned the company. Later, the company changed hands to a private equity firm called Hellman & Friedman LLC. The current CEO is Eric Lindberg, who is the son of Steven Read.
Can everyone become a Grocery Outlet franchisee?
You need to possess a certain year of management experience in the retail industry and own certain hard and soft skills. Once you have these, you need to have at least $25,000, and then you can become a Grocery Outlet franchisee.
Where is Grocery Outlet headquartered?
Grocery Outlet is headquartered in Emeryville, 5650 Hollis Street, United States, and has 2 office locations.
How many locations does Grocery Outlet have?
As of 2023, there are 460 Grocery outlets in the United States. The state with the most number of Grocery outlets in California. It alone has 264 stores.
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